Third party motor vehicle insurance in South Africa could soon be compulsory, if Finance Minister Tito Mboweni’s 2020 Budget Speech is anything to go by – but it would face major challenges to its implementation, including affordability and the ability to enforce any new legislation, says insurer King Price.
Delivering his Budget Speech last month, Minister Mboweni said that introducing compulsory third party insurance is one way to reduce the risk of the heavily indebted Road Accident Fund (RAF), and bring about a more equitable way of sharing these costs. Third party insurance was compulsory in South Africa from 1942 until 1997, but today, seven out of every 10 cars on South Africa’s roads aren’t insured.
Third party insurance covers motorists for liability to other people and their property as the result of an accident.
King Price’s client experience partner, Wynand van Vuuren, said that compulsory coverage would bring ‘significant relief’ to the RAF, insured vehicle owners, and insurers alike, as it would reduce risk and spread the financial burden more broadly. However, affordability would be a major stumbling block to implementing such legislation.
“The main reason that 70% of South African motorists don’t have insurance is that they simply can’t afford it. Another challenge would be the administrative burden of enforcing legislation to make every vehicle owner take out insurance for legal liability,” said Van Vuuren.
One of the ways that third-party insurance could be enforced would be to collect the premium annually when the license disc is renewed. This would not affect existing insurance business models, as most insurers already have liability insurance offerings in place. The only potential difference could be around what legislation would require from insurers where vehicle owners terminate their compulsory cover.
Compulsory third-party insurance would have a range of knock-on effects, said Van Vuuren. It would not only lead to a strong uptick in business for insurers, but also benefit the broader automotive industry, as vehicle owners would be in a better position to repair accident-damaged vehicles, or even replace them. This could potentially increase employment opportunities in the insurance, vehicle manufacturing and motor repair industries.
“Compulsory third-party cover would be good for everyone, but it’s not going to happen soon. Government hasn’t even started debating this yet, and when they do, there will be numerous issues to overcome. Our advice is clear: until insurance becomes compulsory in South Africa, motorists should take out a proper insurance policy, even if it is only third party cover,” said Van Vuuren.
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