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Motor Insurance
Sunday, August 1, 2010
All out for all in

The government’s plans to make third party vehicle insurance compulsory for all South African drivers is likely to lead to a reduction in motor insurance premiums for those who are already paying to insure their vehicles.

According to Leigh Friend, Johannesburg Regional Manager for MUA Insurance, the fact that more vehicles will be insured means there will be a bigger premium pot for insurers. “Ultimately this means lower premiums for consumers, as the losses of the few will be compensated by the contributions of many more insureds.”
Friend says the idea of establishing a compulsory insurance body is crucial in a country such as South Africa, where very few motorists currently insure their vehicles. “Research suggests that South Africa has around 9.5 million motor vehicles of which only around 35% are actually insured and this figure is expected to drop further.
“Compulsory insurance is critical for the motor industry as it will ensure an element of stability, allowing more repairs to be carried out, with the result that more of the vehicles on the road will be in an acceptable and roadworthy condition.”
He says the scheme is also a very positive development for the insurance industry as the majority of claims are actually a result of accidents rather than of theft. A report by the SA Insurance Association showed that in 2002 between 60% and 70% of motor losses were in respect of theft and hijacking. This has now reversed, with only between 20% and 30% of motor claims being crime related and the remaining 70% to 80% being a result of accidents.
Friend, who is a member of the SAIA compulsory third party insurance workgroup, says that while the scheme is still under consideration people should be aware that there are likely to be limits imposed on costs. “It is highly likely that the maximum amount paid out for repairs may be capped, still leaving those innocent parties with additional repair costs for their own account. Any guilty party will still carry all his own costs, however.”
He adds that in order for the compulsory insurance initiative to be successful it is important that government avoids establishing a central controlling body and instead works out a simple to apply process in order to assign blame in the event of an accident. One of the bigger problems we face will be to establish a workable compulsory insurance scheme that will be funded adequately. This will require a lot of thought and research, especially by actuaries involved in calculating average costs of claims and thus a reasonable annual premium to fund the cover.
“A decision on how to collect payments for compulsory insurance will also need to be addressed. Most likely we would expect the insurance to be attached to the vehicle itself rather than the owner,” says Friend. He says one of the suggestions currently being debated is that the insurance levy could be collected when the license disc is renewed. “This makes sense in terms of ease of legislating and collecting the payment. However, this could prove problematic if the annual premium is quite high.”

Copyright © Insurance Times and Investments® Vol:23.8 1st August, 2010
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