A plan to make third-party insurance compulsory for all vehicle owners has been welcomed as a win-win for all as 70% of the millions of cars on SA roads are not insured.

Being involved in a road accident without insurance can be a nightmare. Picture: HALDEN KROG
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Given that about 70% of the approximately 12 million cars on South Africa’s roads are not insured, insurers have welcomed the government’s proposal announced in the Budget to make third-party insurance compulsory for all vehicle owners in South Africa. Although no timeline has been set, here’s why you should welcome it, too.

  • It will protect you

Third-party insurance is cover that you buy to pay for the repairs to anyone’s vehicle that was damaged in an accident caused by you. 

In other words, you are not covered for the damages to your own car, but only for those to someone else’s vehicle. 

While it provides limited cover compared to comprehensive cover (which covers you for the damages to your vehicle and that to someone else’s vehicle), it protects you from being sued in your personal capacity.

“If you’re uninsured and crash into someone else’s car, and you’re at fault, you’re liable for the cost of the damage you caused. That can amount to thousands, if not hundreds of thousands of rands,” Martin van Wyk, the spokesperson for Budget Insurance, explains. 

“Even if the driver that you crashed into is insured, his or her insurance company will seek to recover damages from you. If you’re uninsured, they can sue you in your personal capacity.” 

Ernest North, the co-founder of Naked Insurance, says that in some cases an insurance company will seek to attach the assets of the driver who was at fault. Repayment agreements, however, are more common. 

“In these agreements, the driver will agree to pay a significant portion of their disposable income each month to the insurer. Because these agreements can last years and involve high interest payments, the effects can be ruinous for low- or mid-income earners and their families. 

“This is why car insurance is a legal requirement for every vehicle on the road in many countries, and should be in South Africa,” North says.

  • It’s the way to go

Third-party insurance is compulsory in Australia, Germany, Hong Kong, Hungary, Indonesia, India, Ireland, Italy, New Zealand, Norway, Romania, Russia, Spain, the United Arab Emirates, the UK and the US, Van Wyk says.  

In South Africa, a percentage of every rand spent on fuel is paid to the Road Accident Fund (RAF), which compensates victims of road accidents. But the RAF doesn’t cover damages to vehicles and even if it did, its revenue has not been enough to cover its liabilities. 

North says that third-party cover appeals to people who don’t want to insure their own vehicles for accidental damage, usually because the value of their car is so low that it wouldn’t be worthwhile. 

“But few such policies are sold in South Africa – people typically buy comprehensive insurance or none at all,” he says.

  • It can be affordable

Third-party-only cover costs about 80% less than comprehensive insurance, while third-party with fire and theft insurance costs about 60% less than comprehensive cover, Van Wyk says.

Van Wyk says that in 2018, Budget launched three levels of non-comprehensive cover for paid-off cars worth up to R100,000. 

“Budget Lite policies start at around R167 per month, depending on your risk profile.” 

North says new generation insurance providers are leveraging technologies such as artificial intelligence and digital distribution to bring down the cost of cover further still. 

You can buy a third-party policy from as little as R38 a month from the Naked app or website, providing you with R5million in liability cover without any excess, he says.

  • We all benefit

John Melville, the chief underwriting officer at Santam, South Africa’s largest insurer, says compulsory third-party cover should drive down the cost of vehicle insurance for consumers who are currently insured and benefit those who have never enjoyed cover. 

Premiums for comprehensive cover would come down due to better recoveries on third-party liability claims, he says.

If the level of roadworthiness of vehicles on our roads was higher, this would reduce the frequency of claims, he says. And this reduced risk should lead to lower premiums.

While third-party cover would be an additional cost for those who don’t have any vehicle insurance, it could save them in the event of their vehicle being in a collision where they are not at fault, because the at-fault party would be covered by insurance.

If more people can afford to get better workmanship repairing their vehicles following an accident, it would result in better roadworthiness among the vehicles on the road, which in turn would lead to a safer driving environment and ultimately less risk and lower premiums for everyone who has insurance.

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