Peter Atkinson, National Technical Portfolio Manager at the Financial Intermediaries Association of Southern Africa (FIA)
The rising cost of motor insurance in South Africa is fast becoming unsustainable for many consumers. This, combined with the high volume of uninsured vehicles on the roads, has made it increasingly crucial that new measures such as compulsory third party
According to estimates by the South African Insurance Association (SAIA), approximately only 35% of vehicles on South African roads are currently insured, meaning two out of every three vehicles on the roads have no form of cover.
Peter Atkinson, National Technical Portfolio Manager at the Financial Intermediaries Association of Southern Africa (FIA) says if someone is involved in a motor accident with another vehicle, and they are proven to be at fault, they not only have to pay for the damage to their own car but will also be held liable for the damage to the other vehicle. “The introduction of a compulsory form of insurance for all motorists would mean that everyone has at least some form of basic protection through insurance cover and will ensure a more equitable distribution of the financial burden of motor accidents.”
Atkinson explains that third party insurance is purchased by the insured (first party) from an insurance company (second party) for protection against another’s (third party) claims. “Currently, in South Africa consumers can purchase third party cover, which covers any costs associated with the injury to passengers. However, a problem arises when insured motorists are involved in an accident with uninsured motor vehicles.”
He says the reality is that currently many insurance companies struggle to recoup costs from third parties who have no form of insurance. “If the insurance companies are unable to recover this money then they must fund these repairs themselves; and the only way to do this is to increase premiums for the wider pool of policyholder s. As a result, those who do have insurance cover are being forced to cover the costs for those who do not.”
“Compulsory third party motor property insurance would make insurance more affordable for all those who do currently insure their vehicles as the costs to insurance companies will be reduced.”
He states that compulsory third party motor property insurance should also enhance general road safety. “If all vehicles that are involved in accidents are able to be repaired properly then the general roadworthiness of vehicles on the roads will be improved significantly. This will have a huge effect on the number of road accidents, as un-roadworthy vehicles are a major contributor towards the high volume of accidents.”
“The funding of any third party motor property insurance model is likely to prove one of the biggest obstacles for the industry, as it is a complex and difficult exercise. There have been a number of recommendations around how such a system would be funded, such as increased vehicle license fees or an additional payment being made when the licence disc is renewed or an increase in the levy on petrol. However, more actuarial work will need to be done to ascertain the likely financial obligations of such a system to ensure that sufficient premiums are collected and that it is implemented in a transparent and fair manner,” says Atkinson
Atkinson says another issue that needs to be addressed is who will run the system should it be implemented. “If all funds are to be channelled through the state then the system would most likely be run by the Government. However, there are other possibilities: it could be facilitated via premiums paid to insurers, which is similar to the old third party coupon systems, or it could be handled completely by insurers but with legal backing.”
“Compulsory third party motor property insurance is crucial if we want to ensure the sustainability of the motor insurance industry. If we do not implement a new system aimed at containing the rising cost of insurance, then we may well see an increase in the number of uninsured vehicles on our roads, which will simply exacerbate the current problem,” concludes Atkinson.
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