The most controversial feature of the Administrative Adjudication of Road Traffic Offences Act 1998 commonly known as AARTO is the introduction and implementation of the “Points Demerit System”. The Points Demerit System which comes into operation nationwide in November 2010 penalises drivers and operators guilty of traffic infringements and offences by suspending or cancelling driver’s licences, professional driving permits (“PDP”) or operator cards. This relatively new system will have a profound effect on the underwriting process.
Previously, traffic contraventions regulated by the National Road Traffic Act 1996 were administered in terms of the Criminal Procedure Act 1977. AARTO was created with the view of forging an effective and efficient relationship between the enforcement and adjudication process and to encourage better driver behaviour by punishing reckless, illegal and fraudulent drivers. In that sense AARTO is regarded as the administrator of the National Road Traffic Act. Whilst AARTO was signed into law in September 1998, it has taken the government more than a decade to implement the Points Demerit System which only came into operation in Johannesburg on 1 April 2010 after a procrastinated pilot study in Tshwane since 2007. The Government Gazette recently proclaimed the implementation date for Cape Town, Durban, East Rand and Port Elizabeth to be 1 June 2010. This staged introduction is likely to be controversial in itself.
The Points Demerit System is regulated by section 24 of AARTO read with Regulation 24 and Schedule 1 of the regulations promulgated under AARTO. It can be explained as follows: Every driver starts with zero points and the maximum permissible number of points is 12. The points are recorded in the national contraventions register on the ENaTIS Contraventions Register which is accessible to the public. Every point exceeding 12 points results in a 3 month suspension of the licence / PDP / operator card. Similarly, 1 point is reduced every 3 months if no further contraventions occur. The number of demerits will depend on the authorities’ somewhat arbitrary evaluation of the gravity of the offence. For instance, failing to wear a seat-belt results in the allotment of 1 demerit point; driving without proof of a licence / PDP/ operator card (where such a licence /PDP / operator card does exist), 2 points; and skipping a stop sign, 3 points. The demerit points in respect of drivers and vehicle operators are recorded separately even if they arise out of the same incident.
Where a person incurs demerit points exceeding 12 points, that person is disqualified from driving or operating a motor vehicle. A disqualified person must immediately hand in the driver’s licence or PDP to the issuing authority for retention by that authority or must remove the prescribed operator card from the vehicle in applicable cases. The disqualified person may not apply for a driving licence, PDP or operator card during the disqualification period. Any person who drives or operates a motor vehicle during his or her qualification period is guilty of an offence and liable on conviction to a fine and/or imprisonment not exceeding one (1) year. A person who incurs demerit points resulting in a disqualification to drive or operate a motor vehicle for the third time, must immediately hand in the driver’s licence, PDP or operator card and it will be destroyed.
Three factors relevant to motor insurance arise from the above. Firstly, and depending on the policy wording, a motor insured may be required to notify the insurer if during the currency of the policy, the insured driver’s licence is suspended or cancelled. In addition, the insured may also be required to notify the insurer if he or she is charged or convicted of negligent, reckless or improper driving. The Points Demerit System may be adopted to allow for the rejection of a claim where the insured drives the insured motor vehicle whilst under AARTO suspension i.e. during the disqualification period. Insurers should consider rewording policy wordings to cater for AARTO suspensions and cancellations.
Secondly, the Points Demerit System provides an opportunity for underwriters and insurers to assess the risk of a prospective insured at the pre-contractual stage. Underwriters are able to determine if a prospective insured is a high-risk driver by having regard to their demerit status for purposes of coverage and charging the appropriate premium. There are two relevant limitations to the duty of the insured to disclose this status; namely the materiality of the facts not disclosed; and the knowledge of the material facts by the prospective insured. In terms of section 53(1)(b) of the Short-Term Insurance Act, the test for materiality is “…whether a reasonable prudent person would consider that the particular information constituting representation or which is not disclosed, as the case may be, should have been correctly disclosed to the short-term insurer so that the insurer could form its own view as to the effect of such information on the assessment of the relevant risk”. The disclosure of a person’s demerit status is relevant to the assessment of risk. Underwriters and insurers would do well to require pre-contractual disclosure of a person’s demerit status and history over 3 to 6 months or longer at the inception and renewal stage of the policy. Insurers may also consult the National Contraventions Register themselves to estimate a prospective insured’s risk at the pre-contractual stage for purposes of underwriting the risk.
Thirdly, the contract of insurance may be drafted to require a continuous duty to disclose such status as opposed to disclosure at the inception or renewal stage only. The rationale behind a continuous duty to disclose is based on the changing circumstances of the insured over time i.e. incurring and losing demerit points over time which makes it necessary to reconsider and re-assess the risk which would have an effect on the premium charged. Insurers should consider the periodic review of the insured’s demerit status to allow for the re-assessment of the risk in appropriate instances and include a term in the policy obliging the insured to notify insurers should the insured or any driver of an insured vehicle reach a demerit of say 6 or higher. The administrative burden in respect of continuous disclosure will have to be taken into account.
The duty of an insured to disclose material facts reasonably relative to the assessment of risk has been said to be “the correlative of a right of disclosure which is a legal principle of the law of insurance”. The Points Demerit System puts underwriters in a more advantageous position which allows them to assess the insured’s risk at the pre-contractual or renewal stage by having regard to a prospective insured’s demerit status. In addition, the Points Demerit System allows for the review of the assessment of risk during the subsistence of the contract and ultimately, the premium charged.
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