If you asked the average man on the street if he thought compulsory third party insurance was a good idea you would inevitably hear a unanimous, “Yes – absolutely. It should have been introduced years ago.”
The issue has been a point of debate off and on for years. Often newly elected politicians will grab the subject after seeing it as a topical way to politically point score and make their mark. It is essentially a populist and simplistic response to a very complex issue. With that said, there is no doubt the concept has overwhelming support.
It is estimated that 10-15% of vehicles in New Zealand are not insured. The insurance industry estimates the cost of uninsured motorists is between $53 million and $85 million each year. Fundamentally, those who have vehicle insurance are paying for the costs of all motorists through their insurance premiums.
Unlike in other countries where compulsory schemes exist, a New Zealand system would only cover property damage, as ACC already provides cover for personal injury sustained in a motor vehicle crash. Motorists would still be able to choose to have comprehensive insurance to cover damage caused to their own vehicle in a crash. Fundamentally our ACC model is already a form of compulsory insurance that covers the injuries caused by a vehicle accident. Motorists pay for ACC through annual vehicle licence fees and also through a portion of the tax paid on every litre of fuel purchased.
A common misconception with the Australian compulsory third party model is the belief that it extends to include bodily or personal injury in line with our own ACC. The reality however is that it only provides for property damage and excludes injury claims following a motor vehicle accident. As New Zealanders we constantly see examples of ACC supporting our accident supporting their rehabilitation. In fact our ACC model is largely revered by first world governments.
The general view is that compulsory third party insurance would address issues of equity and road safety. ‘At-fault’ insured motorists would be protected against potentially hefty costs in the event of a crash and responsible drivers wouldn’t be left out of pocket. It could also be considered a major incentive in getting people to take greater responsibility for their driving behaviour.
It has been suggested that by making third party insurance compulsory for all motorists that it may be a way to crack down on boy racers and improve road safety. Young drivers would think twice before buying powerful or modified vehicles because they would be unable to afford the more expensive insurance premiums. However these vehicles may already be insured. High-powered, modified or expensive vehicles often have a finance or hire purchase arrangement attached to them which requires insurance. In addition, the drivers of these vehicles will have an appropriate ‘risk excess’ as part of their policy.
The reality is that the percentage of vehicle owners who would be targeted by compulsory third party insurance will mainly include the same people that ignore vehicle registration, warrant of fitness and the maintaining of a valid driver’s license.
To be effective, any sort of compulsion would require a significantly higher level of policing. Inevitably this would come at a significant cost. In summary, it is the educated view that the administration and compliance of a compulsory insurance model would be extremely difficult to manage. A surance regime for both property damage and personal injury exists within the UK at a major cost to its government. Even with legislation in place, it is estimated that approximately 10% of vehicles on the road in Britain remain uninsured.
Currently the existing three compulsions are;
• Each vehicle being operated on our roads must be fully registered.
• Each vehicle being operated on our roads must maintain a warrant of fitness.
• All drivers must be licensed and operate a vehicle within the conditions of their license at all times.
There are concerns about the introduction of a compulsory third party insurance scheme. It is:
• Not clear how such a scheme could operate or how it would be effectively enforced.
• Possible that insurance companies will spread the increased cost of providing cover to high risk individuals across all policy holders.
• Not clear whether a compulsory scheme will change driver behaviour.
• Non-compliance levels (registration, warrant of fitness and insurance) are likely to remain high even with a compulsory scheme.
The issue will continue to be debated and we will continue to hear examples of innocent insurance policy holders that have been hit by uninsured drivers in a motor vehicle accident. In this scenario, as a specialist heavy motor insurance broker our focus remains on supporting our clients to ensure their excess is waived when possible and that the insurers are able to recover their expenses from the insured. In short, for the foreseeable future, there will not be change and we simply need to live within the model that exists.
Eamon O’Connor is a director of O’Connor Warren Insurance Brokers, which specialises in transport and logistics insurance. He will be sharing his expertise on risk management and insurance matters in DIESELtalk. He can be contacted at: firstname.lastname@example.org