Insurance for all

7/2/2010 12:40:01 PM

What prompted government to consider introducing compulsory vehicle insurance?

There are about 9,5m vehicles on our roads and only about 35% of them are insured. If an uninsured driver is involved in an accident for which they are liable, the chances of recovering any costs from them are almost zero. The scale of the problem is so large it requires government to become involved.

What is the position of the short-term insurance industry on compulsory vehicle insurance?

The industry is in favour of it and has been engaging with government to promote the concept through the SA Insurance Association. Alexander Forbes certainly views it as a positive development.

If the situation remains unchanged what are the consequences?

Vehicle insurance premiums are already rising but still remain low. As things stand insurers are losing money and premiums are likely to rise further. This will make it increasingly unaffordable for people who are now insured. Many will just stop paying their premiums and the situation will deteriorate even further. It has become unsustainable.

What impact would compulsory insurance have on premiums?

Insurance is a numbers game. The more people in the pool across which the risk is spread the more economic it becomes for insurance companies. With compulsory insurance in place uninsured drivers will come into the fold, spreading risk over a far greater number of people. Insurers will also be able to claim cost recoveries from guilty, currently uninsured drivers. The two factors would have a huge positive impact on insurers’ profitability and should result in premiums falling for drivers who are already insured and for newly insured drivers.

How would compulsory vehicle insurance be implemented?

This will need to be determined but there are a number of options. One would be to incorporate comprehensive insurance into the fuel levy, which already covers insurance against third party injury through the Road Accident Fund. But this would be very difficult to do. It will probably require an industry effort to come up with the mechanics of how it will work.

In the UK vehicle insurance is compulsory, yet an estimated 2m drivers are uninsured. How would this problem be overcome in SA?

If motorists are relied on to purchase insurance it will be difficult to enforce. Penalties for noncompliance would have to be harsh and strictly applied.

What is the time horizon before compulsory insurance becomes a reality?

I can’t see compulsory insurance becoming a reality soon. A great deal of planning will be required — we hope in consultation with the insurance industry.