Getting serious about Third Party Insurance

It is rumoured that vehicle accidents cost the South African economy anywhere between R200 billion and R325 billion every year. If we accept somewhere in the middle is a more realistic figure and align this with the number of accidents on our roads annually, which according to the Automobile Association is 960 000, we could estimate that each accident takes a whopping R274 000 bite out of our collective wealth.

This is the major challenge which faces road users every day and is a challenge that industry participants have been urging government to look at for a number of years. According to the Innovation Group, there is no more urgent time for government to tackle the issue and to make third party insurance compulsory in the industry.

A history of government delays

For some years the South African Insurance Association (SAIA) has been driving an initiative that compulsory third-party motor property insurance for all South Africans be put on the legislative agenda. Compulsory insurance would cover damage not just to vehicles but other collateral property such as to walls or houses affected in a motor vehicle collision.

Jonathan Holden, Managing Executive of Insurance at Innovation Group says, “the industry’s faith in the promulgation of legislation sooner rather than later stems from the degree of broad support for such a scheme. The delay is simply because of other priorities until now; there has been eTolling, Aarto and the revamp of the Road Accident Fund (RAF). The latter having replaced what was until 1997 an existing compulsory third-party motor vehicle accident insurance policy, financed through the fuel levy, but covering only death and bodily injury caused by a motor accident.”

It is worthwhile to point out that South Africa did have a system whereby Third Party Insurance was compulsory for road users. This was scrapped in favour of a fuel levy to fund the road accident fund, which has been managed ineffectively over the years, which has contributed to the failure of the system.

Taking the bull by the horns

There is significant motivation for government to overlook the delays that have happened in the past and to actively work towards making this initiative a reality. An additional spur to the regulation process is the harmonisation currently underway among the Southern African Development Community (SADC) countries. South Africans travelling to many of these countries already have to get a ‘yellow card’ at borders for third-party cover.

According to Innovation Group’s Future Now Report, this initiative has strong support from business. “Without South Africa having in place any compulsory third-party motor property, as opposed to personal injury, which has all along been catered for by the RAF this country lags far behind much of the rest of the world. As a result of the lack of compulsory insurance, barely one in three cars on our roads are  insured, significantly reducing the likelihood of recovery from a guilty third party, says Holden. This is significant as there is already a poor savings culture in the country, which will be complicated by having to dip into personal funds to recover financial losses from accidents.

Developing effective cover

There have been calls for third party cover to be implemented in the industry for a number of years. If this is to become a reality, what form would this cover take?

The report quotes Dawie Buys, Motor Manager at SAIA who is responsible for the initiative on behalf of SAIA. “The initiative dovetails with what government is trying to achieve in addressing social inequality and broadening access to financial services, and in the discussions we have had there has been a lot of support for such a scheme. The delay is simply because of other priorities until now, but also the large number of government departments and stakeholders that have to be consulted, which include the Department of Transport, Road Traffic Management Corporation, the Financial Services Board (FSB), National Treasury and the Department of Trade and Industry,” says Buys.

“The catalyst for progress on third-party motor property insurance is that many of the other initiatives have now more or less been finalised and SAIA intends to become far more focused on this issue. Business is strongly behind the initiative, and there is a broad consensus that the time has arrived to lift this issue as a national priority given that barely 35% of cars on the road have any form of insurance,” concludes Holden. He further adds that SAIA has pointed out to the Innovation Group that they will be pressing the issue seriously during 2015.

Editors Thoughts:
Compulsory third-party insurance is something that SAIA has been working towards for a long time. How will the public respond to this once it has been implemented? And, a further question, in the “old” days insurers were at the helm of issuing the “third-party tokens”. Will insurers be saddled with the additional administration burden? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.