Are insurers ahead of government in the AARTO readiness stakes?

Gareth Stokes, FAnews Online Editor

Although Southern African despots spend hours cursing the colonialists, they find plenty of time for their more draconian interventions. And who can question the logic. If the UK has a National Health System, then we should have a National Health System; if the UK introduces a “super” ombudsman to hear consumer complaints from the entire financial services industry, then so should we; and if the UK can implement a demerit point system on its drivers’ licenses, then South Africa should have one too. Only problem is when it comes to implementing state of the art information technology systems in the public sector, we haven’t a cutting clue.

Systems implemented at Home Affairs, at vehicle licensing centres, and even billing systems at municipalities aren’t delivering on their promise. But the long-suffering public hasn’t seen the end of ill-thought computer intervention. We’re waiting – and have been for some time now – for the implementation of a Points Demerit System as proposed in the Administrative Adjudication of Road Traffic Offences Act 1998 (AARTO).

Still not ready

Drivers in Gauteng have been waiting for AARTO to strut its stuff for some time now. We’ve heard threats of trial implementations and suffered through numerous “starting today” announcements, but seen precious little action on the ground. A couple of weeks into spring 2010 and we’re still in the dark about the Points Demerit System, which government assures us will “go live” nationwide in November this year. This follows the June decision by the Road Traffic Management Corporation (RTMC) to delay the implementation until the required legislation becomes effective. President Jacob Zuma had to issue a proclamation repealing the previous implementation dates.

The concept is fairly simple. Once the litigators and various traffic departments get their act together drivers will be docked a certain number of points on their drivers’ license for each traffic offence they commit. If the driver or vehicle operator clock up enough offences (currently 12 points) they risk having their drivers’ licences, professional driving permits (“PDP”) or operator cards suspended for a period of three months. A third suspension will result in the license being revoked. The system will have a significant impact in a country where motor vehicles remain a popular mode of transport.

Impact on short-term insurers

Motorists in the UK are petrified of getting demerit points on their drivers’ licenses, because UK short-term motor insurers view each drivers licence demerit as evidence of a “higher risk” insured. In other words they load the annual insurance premium to compensate for irresponsible drivers… It’s a great plan and certainly encourages motorists to comply with traffic laws. But its success hinges on a trouble free implementation and subsequent no nonsense policing.

In May this year, Sandra Sithole, an associate at Deneys Reitz Attorneys, published a paper titled AARTO and its effect on the insurance industry. She said there were at least three factors relevant to the motor insurance industry arising from the Points Demerit System. First: “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.” This follows from the requirement in most short-term policy wordings for drivers to alert the insurers of any change in conditions under which the cover was written – including changing address, no longer parking the vehicle in a locked garage, adding another driver etc. There is a real risk the Points Demerit System be adopted by the industry as grounds for refusing a claim, especially if an insured drives a vehicle while his license is under AARTO suspension or cancellation.

The second point in Sithole’s dissertation centres on the use of demerit histories by UK underwriters. “Underwriters and insurers [have an opportunity] to assess the risk of a prospective insured at the pre-contractual stage,” she said. A quick look at the AARTO demerit history should indicate whether a new business prospect is high risk or not, and allow for an appropriate load or adjustment to the premium.

Changing the contract of insurance

Insurers on top of their game will want to modify the contract of insurance to accommodate the Points Demerit System. Thus the third factor: “The contract of insurance may be drafted to require a continuous duty [on the part of the insured] to disclose their AARTO status as opposed to disclosure at the inception or renewal stage only.” It makes sense. Why should the underwriter only adjust for risk on an annual basis? If they make immediate changes to accommodate driver indiscretion they’re able to price for the remainder of the risk pool more appropriately!

“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,” concludes Sithole. We’ll have to wait and see whether the insurers (and underwriters) are ready in time for the RTMC’s eventual rollout of the system.

Editor’s thoughts: The on again off again implementation of AARTO has left many motorists confused. Are we getting docked points every time we get flashed by a speed camera – or will we begin 2011 with a clean slate? Do you think the RTMC will be able to administer the Points Demerit System effectively? Add your comments below, or send them to gareth@fanews.co.za