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Insurance: Opinion: Why is third party property damage not compulsory?
December 18th, 2009By John Grant
AA Insurance claims records for 2009 indicate that over a third of accidents involving 2 or more cars are caused by uninsured motorists.
These uninsured drivers are racking up huge bills.
Some recent examples of this include:
- A young driver who ran into the back of another vehicle causing NZ$25,200 damage to the other vehicle.
- Another uninsured driver racked up a NZ$65,065 bill when they failed to give way at an intersection and collided with a camper-van.
There have been many estimates at what percentage of drivers on the road are uninsured. This ranges from lows of around 7% to this report from AA Insurance indicating it could be as high as 33%.
The financial implications of this runs in to many millions of dollars. Some of the insurers have now set up their own debt collections companies to tackle the problem.
The previous Labour government, and championed by the then Minister of Transport Safety, Harry Duynhoven, advocated compulsory third party as a solution.
The industry has generally resisted this call and introduced initiatives like “Uninsured Motorists Extension”.
This feature was provided by Insurance Council members under Third party only insurance policies and provided up to $3000 cover where the driver was not at fault and able to identify the other party.
Insurers also introduced no blame and no excess terms for comprehensively insured motorists where they were not at fault, and also able to identify the at fault party by name, address and car particulars.
However the debts being racked up by these uninsured users of the road now run into many millions of dollars.
What most insured drivers are not aware of is that recovery action is initiated in their name. Therefore their insurer may require them to attend Dispute Tribunal or Court proceedings with the usual inconveniences and time issues involved. This process can also be very confronting.
If the situation is as bad as the AA Insurance figures suggest then the costs to all insured motorists must be significant. After all, if drivers are deciding not to insure their cars then how many of them will make repayments to debt collectors? Unrecovered debts flow back to insured motorists in the form of higher premiums.
The issue of uninsured drivers is an age old chestnut and many are sick and tired of the debate. These days it has strong connections with the boy racer fraternity who seem more interested in adding extras to their cars than insuring them. The reality is that if insurance was available for such modified vehicles then the cost would be seen as prohibitive. Probably more than they paid for the car in the first place.
Third party insurance is compulsory for both personal and property injury in Britain, but is only compulsory for property injury in Australia. Many of the same insurers in New Zealand who are opposed to compulsory third party insurance in New Zealand help administer the scheme in Australia.
If the true economic costs of the current non compulsory scheme was known, and if we are to believe the one third of drivers being uninsured, then perhaps the time has arrived for this old chestnut to be dragged out and finally resolved.
The cost of third party property damage can be as low as $180 a year.
See all comparisons of car insurance policies here on interest.co.nz.
Tags: AA Insurance, Boy Racers, compulsory third party insurance, insurance council, John Grant, Third Party Insurance
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December 18th, 2009 at 4:41 pm
The author has a reasonable, but not full, understanding of the issues.
CTP in NZ would only benefit those vehicle owners who are themselves uninsured apart from third party cover.
Under the current practice the absence of CTP does not penalise anyone other than those who elect not to insure their car and elect not to take out third party protection.
Taking out insurance on the car itself or on the third party liability means there is [effectively] no disadvantage if the driver of the vehicle that causes the damage is uninsured and identified.
December 18th, 2009 at 5:12 pm
Just a slightly different angel on this, I was wondering if anyone knows this or has had any experience…
How do cyclists get on if they are at fault and hit a car causing damage (with some of the gusty winds we have in Canty lately, we can find ourselves closer to the traffic than we would like). Is it covered by personal insurance policies, should we have specific 3rd party?
Similarly, how about the kids if they are riding their bikes and say scratch the side of a parked car?
December 18th, 2009 at 8:36 pm
Bruce – I do not agree. I have covered this in quite some detail in the article. I believe the 2 points that need an understanding here are;
1. Uninsured drivers are not paying the cost of the damage they cause. Insurance companies have set up their own recovery teams but millions are owed by these uninsured drivers. Ultimately it’s the insured drivers who meet these costs.
2. If the driver of a vehicle could not be on the road without insurance then this must have a factor in controlling the numbers of vehicles out there that are uninsured. If the AA Insurance figures represent an industry wide position then 1 in every 3 vehicles on the road is uninsured and a good part of any damage they cause to insured motorists is going to be spread around all insured drivers.
I for one, don’t feel happy that I’m subsidising someone who can’t bother to take responsibility and buy some insurance cover.
To Sam – Your contents insurance policy should cover you for damage caused by any member of your family who lives with you to any other property. While motor vehicles are excluded normally bikes are not. If you are not sure then check this with your insurance company. You should have at least $1m cover. Which by the way I think is way less than what it should be.
John Grant
December 18th, 2009 at 9:36 pm
John – I think Bruce has a point. The PROBLEM is cost of damage caused by uninsured drivers, but the SOLUTION is not CTP. Why?
1) Drivers who are uninsured are in that situation because they either cannot afford insurance (so can’t afford CTP) or because they just don’t care – your boy racers (who won’t pay CTP).
2) For whatever reason drivers are uninsured now, there is no indication (from overseas experience, etc) that requiring CTP will actually get uninsured drivers to pay it. This is similar to the current problem – many drivers – insured or not – simply ignore Disputes Tribunal and fines until it gets to District Court proceedings. By that time, the cost is often so high that the time they take to affordably repay the debt is many years – the insurer, and hence policyholders, wear those delayed enforcement and repayment costs.
All up, CTP just doesn’t work.
December 19th, 2009 at 9:44 am
“I for one, don’t feel happy that I’m subsidising someone who can’t bother to take responsibility and buy some insurance cover.”
That sums it up…
So make those who cant be bothered get on board and do their part, and those boy racers who can afford to spend 1000s on their cars spend a bit of that on 3rd party or loose their car.
And those who cant or will not, well they dont bother to register or make the cars roadworthy anyway…so they get hit harder…nothing is going to make them get a WoF or register, they will always exist…
Using the argument
“2) For whatever reason drivers are uninsured now, there is no indication (from overseas experience, etc) that requiring CTP will actually get uninsured drivers to pay it. This is similar to the current problem – many drivers – insured or not – simply ignore Disputes Tribunal and fines until it gets to District Court proceedings. By that time, the cost is often so high that the time they take to affordably repay the debt is many years – the insurer, and hence policyholders, wear those delayed enforcement and repayment costs.”
That is the same logic/argument if we didnt have WoF registration and it was going to be introduced
So why not abolish WoF and registration?
Expolate out and abolish parking fines to.
December 19th, 2009 at 2:48 pm
What makes ppl think that ppl without insurance will take out insurance if its compulsory?
Not that I dont agree and think it should be manditory…
@bob: Making it a legal offence not to have insurance means losing your licence, some dont have any of course…It can be checked fairly easily everytime you get your WOF or road fund licence (UK)…no insurance document, no WOF/RFL….easy for the police to spot.
The “Hard core” will of course continue to do as always but right now its too easy IMHO
regards
December 20th, 2009 at 8:55 am
I support a law forcing people to demonstrate financial responsibility. However, insurance is only one way to do that. Bonding is another. If you carry this issue forward, please don’t forget about the edge-cases and corner-cases. Quite a few people would rather not throw money down a bottomless pit every month, but rather register a bond, money that would then be used in the case of accident. The amount of the bond can be the same amount that TPI would cover. You can call this the “self-insured” option if you wish.
I realize this is only an issue for a small minority. But I think this is an issue where everyone’s needs can be met.
Here are some reasons people who have the ability might rather be bonded:
1) Insurance is gambling. It is playing the odds, where the odds are out of your favor. We know this is true by looking at the aggregate income statements of insurance companies. I for one prefer to own stock in insurance companies.
2) Owners of fleets often find the gamble of insurance particularly obvious. In other countries where bonding is an option, fleets are almost always bonded rather than insured.
3) Some drivers’ risks are not assessed properly by insurance. Consider the person who works from home and only drives to the supermarket. Are they paying less in insurance? Usually not. Consider recent immigrants without extensive driving records showing that they are safe.. usually they are made to pay high rates unfairly.
4) It is against shiria law for a Muslim to purchase insurance, because technically it is gambling.
December 20th, 2009 at 9:21 am
Is that true?
From my perspective, in many cases, not having insurance is gambling.
A certain percentage of people will have their house burn down / have traffic accidents.
Each individual would know, from their own financial situation, whether they will be able to pay for third party damage if they cause a car accident. And if they then choose to drive without insurance, they are gambling that they will not have an accident. And they are gambling that they won’t be stuck with a debt that they won’t be able to pay back.
December 20th, 2009 at 9:57 am
“I support a law forcing people to demonstrate financial responsibility.”…jeeez Mike, would this apply to ministers of finance too?
December 20th, 2009 at 2:03 pm
in aus a % of vechicle rego is ctp—it seems to be about 50% of total rego.
no rego– no ctp. someone stated that it,s mainly for property.this isn,t true.
the majority of case,s are personal injury.you get cleaned up + you sue the other driver,s ctp insurer.premiums for q/land cars are around $300.00 annually–+$130.00trailers/horse floats.when u pay your rego u can choose insurer from a list of about 10insurance companys in my case we have 5 vechicle,s+ 2 trailers –all with the 1 ctpinsurer—this make,s me a multiple policy holder+ keeps my other policy premiumsdown. lots of muslims driving cars in australia.
December 22nd, 2009 at 10:16 am
I am 30, but have had multiple fast cars from age 16. Most were rotary powered and very fast. I could not even get 3rd party insurance for them untill I was 25.
I had never had tickets, made claims or accidents.
I had no other option but to drive uninsured.
Has anyone asked the uninsured drivers why they have no insurance? I think 90% would want insurance but cannot get cover.
Perhaps a universal system like in Western Australia, where premiums are set based on the CC rating of a car, and is levied with annual registration would solve this problem.
Like ACC but for car insurance. Compulsary, universal and Fairly priced.