Insurers support introduction of mandatory third party insurance

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Willem Smith, MD of Hollard Personal Lines, says it does not help that only 25-35% of the country's estimated ten million motor vehicles are covered by some form of insurance.

It comes as no surprise then that many local insurers would support the introduction of a mandatory third party liability insurance solution in South Africa. The consensus is that mandatory insurance for vehicle owners would go a long way to improving the long term outlook for motor vehicle insurance profitability.

"Mandatory third party liability insurance will provide basic protection to all motorists, expose more people to the benefits of insurance and lead to cheaper overall insurance premiums. It could revitalise the South African motor insurance landscape and dilute the financial impact of motor vehicle accidents on the overall economy," says Smith.

Two categories

The local insurance market currently caters for two main categories of motor vehicle insurance, namely third party and comprehensive. The former attracts a much smaller premium and only covers the vehicle owner for damages caused by his or her vehicle to a third party vehicle.
"In the current market the average third party liability insurance premium ranges from around R50 to R100 per month depending on the vehicle," says Smith. "This compares to the average comprehensive motor insurance premium of around R625 per month."

Although the South African Insurance Association has been discussing the mandatory third party liability insurance idea for some time, there are many issues that have to be discussed before it can lobby government to legislate such a solution. Insurers will have to consider aspects such as the level of cover to be provided, the affordability of the cover, the collection of premiums and the administration of claims in order to take the concept further.

There is also a requirement for the industry to consider the impact of mandatory third party liability insurance on the balance of business conducted in the domestic market. It could, for example, lead to a reduction in the uptake of comprehensive insurance in favour of the cheaper but mandatory third party premium.

Best option

"The best option appears to be to empower the private sector to offer mandatory third party liability insurance products within certain legislated parameters," says Smith. "As insurers we are already geared to handle the volume of transactions that are required for premium collections and claims administration - so the challenge will rather be to ensure that there is adequate infrastructure in place to take care of distribution and the physical repair of vehicles."

Hollard singles out compliance with the law and subsequent enforcement activities as major potential stumbling blocks to any third party solution. "The easiest way to implement the system would be to allow motorists to show proof of insurance, or if necessary purchase insurance, at the point where they renew their annual vehicle license," says Smith. "Assuming that insurers provide the product, we would have to provide real-time scan-and-confirm technology to assist law enforcement officers in conducting spot checks at roadblocks or accident scenes."

For third party liability cover to become a reality, policies will have to be structured to offer meaningful cover to the insured at affordable premium levels and the insurance sector will have to provide cost-effective collection and policy administration systems as well as the resources necessary to assess claims and complete vehicle repairs.