Compulsory vehicle insurance will lower premiums for SA's motorists

The government’s plans to make third party vehicle insurance compulsory for all South African drivers is likely to lead to a reduction in motor insurance premiums for those motorists who are already paying to insure their vehicles.

According to Leigh Friend, Johannesburg Regional Manager for MUA Insurance the fact that more vehicles will be insured means that there will be a bigger premium pot for insurers. “Ultimately what this means is that lower premiums will be passed on to consumers, as the losses of the few will be compensated by the contributions of the many.”

Friend says the idea of establishing a compulsory insurance body is crucial in a country such as South Africa, where very few motorists currently insure their vehicles. “Research suggests that South Africa has around 9.5 million motor vehicles, of which only around 35% are actually insured and this figure is expected to drop even further.”

“Compulsory insurance is also critical for the motor industry as it will ensure an element of stability, allowing more repairs to be carried out, with the result that more of the vehicles on the road will be in an acceptable and roadworthy condition.”

He says the scheme is also a very positive development for the insurance industry as the majority of claims are actually as a result of accidents rather than theft.

A report by SAIA showed that in 2002 between 60% and 70% of motor losses were in respect of theft and hijacking. This has now reversed, with only between 20% and 30% of motor claims being crime related and the remaining 70% to 80% being a result of accidents.

Friend, who is a member of the SAIA compulsory third party insurance workgroup, says that while the scheme is still under consideration, people should be aware that there are likely to be limits imposed on costs. “It is highly likely that the maximum amount paid out for repairs may be capped, still leaving those innocent parties with additional repair costs for their own account. Any guilty party will still carry all their own costs, however.”

He says that in order for the compulsory insurance initiative to be successful it is important that the government avoids establishing a central controlling body and instead works out a simple to apply process in order to assign blame in the event of an accident.

“One of the bigger problems we face in actually establishing a workable compulsory insurance scheme will be how to fund it adequately. This requires a lot of thought and research, especially by actuaries involved in calculating average costs of claims and thus a reasonable annual premium to fund these.”

“A decision on how to collect payments for compulsory insurance will also need to be addressed. Most likely we would expect the insurance to be attached to the vehicle itself rather than the owner,’ says Friend.

He says one of the suggestions currently being debated is that the insurance levy may be collected when the license disc is renewed. “This makes sense in terms of ease of legislating and collecting the payment, however, this could prove problematic if the annual premium is quite high.”