Reduce this risk
During his tabling of the 2020/21 budget speech in parliament last week, Finance Minister Tito Mboweni soothed the motor insurance industry when he hinted that compulsory third party motor insurance, which is used for covering third-party injuries and/or deaths in car accidents, should be considered by the short term insurance industry and proposed a “debate” about it.
The proposal has been welcomed by the motor insurance industry with open arms.
South African Insurance Association (SAIA) Insurance Risks Manager, Katlego Bolsiek said “The insurance industry has been lobbying for motor third part insurance (sic) for over a decade, and therefore the industry welcomes governments’ decision on the matter.”
The growing liabilities of RAF
The yearly road accidents related costs to the economy on South African roads is estimated to be in excess of R164-billion.
On the heel of announcing that motorists will see an increase of 25 cent on the fuel levy, of which 16 cents is for the general fuel levy, nine cents is for the Road Accident Fund (RAF), Mboweni in his speech mentioned that the liabilities of the RAF are forecast to exceed R600 billion by 2022/23. He then mooted the compulsory third party liability insurance as “one way” of getting the RAF out of this predicament it finds itself in.
“We need to take urgent steps to reduce this risk to the fiscus and bring about a more equitable way of sharing this cost. One option is to introduce compulsory third-party insurance and we should debate this as quickly as possible” suggested Mboweni.
Just three months ago the RAF financial muddle made headlines when it brought an urgent application in the Pretoria High Court against the Sheriff of Centurion East, Absa Bank and 346 applicants that had sent the sheriff to attach all the money in its eight bank accounts.
Comparing apples with apples
Bearing in mind where the minister’s suggestion comes from, a high motor accident rate that’s bloating RAF’s liabilities and the economic implications, it would be advisable to compare apples with apples – as in South Africa with its peers. This is necessary because for a variety of reasons, infrastructure, age and the health of actual motor vehicles among others, lower income countries tend to have higher road accident fatality rates as compared to countries with higher income ratios.
The South African national road accidents’ kitty is bleeding money and looking at a fellow emerging economy like Brazil, Russia, India and China for example, where third party motor insurance is a compulsory, one may get a sense that the country may need it to be mandatory as policy.
The World Health Organisation (WHO) collected data on global road accident fatality rates and composed the Global Status Report on Road Safety 2018. It’s based on the data reported and recorded in the 2016 report, which is the latest report of the subject by the global organization. The report gives an eye-opening account of where we are in comparison to our peers.
To put it in perspective, South Africa recorded the highest rate of road accident fatalities out of all five BRICS countries, and it just happens that it’s the only country out of the clique where motor insurance is not compulsory – not even first party motor insurance, let alone limited third party liability insurance.
WHO estimated rate of fatalities in South Africa as a result of injuries from road accident per 100 000 population in the 2018 report is 25.9 people. India, on the other hand, recorded a rate of 22.6 per 100 000 people. Brazil recorded a rate of 19.7 per 100 000 populace, China came second last with a rate of 18.2 per 100 000 inhabitants while Russian authorities recorded the lowest proportion of deaths per 100 000 people on its roads with a rate of 18 casualties, in that same study.
There are two types of mandatory car insurance in China, which include third party insurance. Brazilian law requires all drivers to have car insurance, which must include at least third party cover. In addition, the road tax in the South American country includes compulsory limited third party insurance cover. In India it’s mandatory for all car owners to have a three-year third party insurance policy and two-wheeler owners to have a five-year policy. In terms of Russian law, in order to drive any motor vehicle in the Russian Federation, a driver must have the minimum compulsory third-party liability insurance.
Wheel in motion
The local motor insurance industry had already broken ground in regard the studying compulsory third part insurance. However, the industry’s analysis still leaves more room for exploration.
“SAIA plans to conduct an economic impact study to supplement a feasibility study conducted in 2015. The scope of the study was limited to the non-life insurance industry, therefore findings from the latter study were not conclusive with recommendations on an increased scope that involves consultations with the public” according to Bolsiek.
The consumer’s wallet
There is a general misconception that third party motor insurance isn’t all the way favoured by insurers as they never know the full amount they’d have to pay in payable claims. The fact that the industry had been lobbying for mandatory third party insurance for at least a decade, swats the misconception it would seem.
SAIA is of the stance that Insurance underwriting models are unique to each insurer, and there the pricing effect will also be insurer specific.
Theoretically though, according to Bolsiek, introducing compulsory third-party motor insurance has the potential to reduce premiums, thus making insurance more affordable.
Writer’s thoughts:
One gets a sense that South Africa should have long debated compulsory third party motor insurance by now, being that our road safety statistics aren’t all roses and bubbles. If SAIA’s stance is it would make insurance more affordable, then why not go for it. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts mashoto@fanews.co.za.
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