For years over eight million South African drivers have gotten away with not paying any car insurance premiums. However it may soon be the end of the road for them, especially if the insurance industry gets its way.
The idea of making everyone take out third party car insurance is not a new one and the industry admits as much. “We’ve been working on this for several years but it’s a priority project this year,” the SA Insurance Association’s Dawie Buys told The Times this week.
While the industry may want to impose blanket third party cover on all drivers, it won’t get its way without a fight or resistance. The problem is affordability and whether the industry will be able to construct a product that is cheap enough for all to take out.
The affordability issue is the main reason why a third party insurance product or any car insurance product has not been made compulsory recently. Unless the industry can come up with something affordable, introducing compulsory third party insurance won’t be a popular decision for the politicians to back.
A lot of people can’t afford insurance because they are up to their ears in debt. According to figures from the National Credit Regulator (NCR) over 20 million South Africans are in debt. Half of these people cannot afford to service this debt and are in arrears.
When people are struggling with debt insurance products are usually one of the first products to be struck off the list of financial commitments. While this may not necessarily be the right choice, cancelling insurance payments is usually the solution indebted people believe is right for them.
So why is compulsory third party car insurance such an important subject? You may say that it’s because the insurance industry wants to get more money out of the public. And while you may be right here there are other, less sinister reasons why the industry wants to impose this rule.
If the industry gets everyone on board it argues that it will in turn be able to offer the public a cheaper product. Currently, the insured drivers are effectively cross-subsidising the uninsured drivers. South Africa has one of the highest accident rates in the world, meaning that insurers are paying exorbitant costs to repair vehicles and more so than in most other countries. As a result, the insurers push up the premiums to pass the cost onto the consumer, resulting in unaffordable car cover with only the middle income and above being able to afford it.
If everyone has to pay for car insurance though one industry commentator reportedly said that premiums could be as low as R100 to R130 a month for third party cover. Not too expensive, and one would presume that if such a product were to be introduced it would surely be snapped up with little resistance.
But then spare a thought for all those motorists who are already up in arms over the Gauteng e-toll debacle. With the rising cost of petrol, oil, the increasing price of cars and e-tolls to name but a few costs, surely a compulsory insurance product no matter how cheap would surely be met with the same fiery ire?
Either way, something has to give. The insurance industry has had to pay through the nose for severe damage cause by extreme weather in South Africa. Some, following a research report by Justmoney, have even now pledged to provide cover for earthquake related damage even if the mining companies are to blame. (click here for report).
Costs will be passed on to the consumer one way or another. The question remains though whether the insurance industry and government prefer to squeeze the middle income and higher earners or if they believe that it’s now time for the general motor driving public to all take on some of the ‘pain’.