Should the government consider introducing a compulsory third party insurance scheme for motorists?
Compulsory third party insurance
In many countries compulsory third party insurance generally provides protection against two scenarios, which are:
- The costs from injuries caused to another person as a result of a car accident
- The costs of repairing or replacing another person's property damaged by you as a result of a car accident. This is usually the damage caused to another person's car, but could also include personal items inside the car and other property like fences and cycles, or public property such as power poles and street signs.
Did you know?
New Zealand already has a form of compulsory 'insurance' that covers the injuries caused by a vehicle accident. This is managed by the ACC and provides no-fault cover, meaning that any person injured as a result of an accident is covered. Motorists pay for this insurance through annual vehicle licence fees and also through a portion of the tax paid on every litre of fuel purchased.
In New Zealand there's no need for third party insurance to cover injuries because we already have a form of compulsory 'insurance' that covers injuries caused by a car accident. This scheme is managed by the Accident Compensation Corporation (ACC), and is partially funded by a levy paid as part of your motor vehicle registration fee and also by some of the tax you pay each time you fill your car with petrol. The scheme provides 'no-fault cover', meaning that any person injured as a result of an accident is covered.
However, holding insurance to cover the costs of causing damage to your own or another person's property is optional.
Full insurance versus third party insurance
Most New Zealand motorists already hold enough insurance to protect themselves from the damage and costs they might cause as a result of a car accident - either through buying full (comprehensive) insurance or third party property damage insurance.
Full or comprehensive insurance not only covers third party insurance, but also the damage to your own vehicle, regardless of whether you're at fault or whether the other person is insured. Full insurance is more expensive than third party property damage insurance.
As a cheaper option, third party property damage doesn't cover damage to your car, but it will pay for the damage caused to another person's vehicle.
Uninsured Motorist Extension (UME)
It's not compulsory to insure your car in New Zealand. So what happens when your car is damaged by a motorist who has no insurance at all?
If you have full insurance your insurance company will repair your car, and then chase the uninsured motorist for the costs. But you may need to pay an excess to your insurance company and you might lose your no-claim bonus.
To counter this, most insurers have added an ‘Uninsured Motorist Extension’ to their comprehensive or third party insurance policies to help ensure that insured motorists caught in this position won’t be penalised. Most insurers' UME provides limited cover of around $2,000 - $4,000 as long as you can identify the person responsible for causing the damage to your car.
If you can't identify the person responsible, or the damage to your car exceeds the $2,000 - $4,000 cover provided, you might find yourself out of pocket.
Could compulsory third party insurance help crack down on 'boy racers'?
Making third party insurance compulsory for all motorists is often spoken of as a way to crack down on boy racers and improve road safety. The view is that 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.
Another view is that compulsory third party insurance will influence and improve driving behaviour. Generally, drivers who have a poor driving record through multiple speeding or driving offences will find the cost of insurance more expensive than drivers with clean driving records.
The expectation is that drivers will change their driving behaviour and drive more carefully because their insurance premiums will increase with each speeding or driving offence they accumulate. Ultimately, if they drive unsafely their insurance premiums may skyrocket to an unaffordable level.
The real risk is that if insurance premiums reach unaffordable levels for some drivers, then these high risk drivers will drive uninsured and non-compliance will remain high. To counter this in some countries insurance companies spread the increased cost of providing cover to high-risk individuals across all policy holders.
It's not clear how effective introducing compulsory third party insurance would be in altering driving behaviour, or even how a compulsory scheme could be effectively enforced.
AA speaking up for motorists
Support for fair and reasonable car insurance
Fair and reasonable vehicle insurance that provides protection against economic loss and suffering is in the motorist's best interests. The AA encourages motorists to hold insurance.
The present system provides accessible and effective third party and full (comprehensive) insurance. The variety of insurers in New Zealand offer policies and added benefits - such as the uninsured motorist extension - that provide motorists with choice and all the protection they need, even if they're involved in an accident caused by an uninsured motorist.
We have concerns about the introduction of a compulsory third party insurance scheme, and notes that 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.