Transport Minister Chris Bishop isn't opposed to compulsory third party car insurance but says ‘the gains from making something mandatory are not necessarily as high’ as people think

Whether or not New Zealand should have mandatory third party car insurance is a topic of conversation that pops up regularly. But it’s not something the Government looked at as part of its changes to the country’s driver licensing system.

Speaking to interest.co.nz, Transport Minister Chris Bishop says mandatory third party vehicle insurance is a popular proposal that has been talked about for a long period of time and he’s not opposed to it.

“We may well have a look at it but we didn’t consider it as part of that policy package.”

Officials, Bishop says, have told him a huge number of New Zealanders already have vehicle insurance. “So the gains from making something mandatory are not necessarily as high as everyone else thinks.”

A 2021 survey by Finder of 1882 New Zealand drivers found  24% had been hit by an uninsured driver. However, Dylan Thomsen, road safety spokesperson for the Automobile Association (AA), agrees the gains may not be as high as people think.

In 1928, New Zealand established a compulsory third party vehicle insurance scheme for personal injuries. Premiums were paid at the same time someone relicensed their vehicle. This cover was later replaced by the Crown entity, Accident Compensation Corporation (ACC), which oversees New Zealand’s no-fault accidental injury compensation scheme.

Property damage, however, has never been compulsory for motor vehicles in New Zealand. But it has been looked into by previous governments.

“New Zealand does actually have a compulsory system, similar to a lot of other countries, even though people don’t think of it that way, Thomsen says.

“We do have a form of compulsory car insurance called ACC … A number of other countries overseas that have some form of compulsory insurance, it is for those injuries to people."

What New Zealand doesn’t have is a compulsory requirement to cover damage to vehicles and not many countries actually do have that, Thomsen says. Those who do include Australia, which has compulsory third party insurance, members of the European Union, most states in the USA and the United Kingdom.

Scott Simpson, who is Commerce and Consumer Affairs Minister and Minister for ACC, says the Government isn’t currently considering introducing compulsory third party car insurance.

Simpson says injury cover from car accidents through ACC is funded by vehicle registration and fuel levies.

“Because ACC covers personal injuries, third party insurance for injuries isn’t required. However, insurance to cover damage to vehicles or other property remains optional.”

According to the Insurance Council of New Zealand (ICNZ)’s website, there are three types of motor insurance policies you can get. These are third party property damage, third party, fire and theft, and comprehensive cover.

Third party property damage covers you against damage you cause to someone else’s vehicle and/or property, ICNZ says, and it’s usually the cheapest type of car insurance.

Third party, fire and theft covers damage caused by fire and theft to your car as well as third party property damage while comprehensive “covers you against accidental loss of or damage to your motor vehicle, as well as any damage to other people’s vehicles or property caused by your vehicle (whether it was your fault or someone else’s)”, ICNZ says.

“It also covers you for other costs such as salvaging your vehicle from an accident scene and towing it to a repairer. As well as a standard comprehensive policy, many insurers offer a variety of options and benefits.”

Generally the more extensive the cover, ICNZ says, the more expensive the policy.

Thomsen says the AA is very pro people having insurance - the association thinks all drivers should at least have third party insurance, if not full insurance for driving on the roads as it’s a sensible and good thing to do.

“But we haven’t seen the case made, in our view, for making it compulsory, and that’s where it gets a little bit complicated.”

“As soon as you make something legally required and compulsory, it can create some perverse outcomes or consequences with the system,” Thomsen says.

Uptake of car insurance

The Government has previously looked into making vehicle insurance compulsory in 1988 and a petition was considered in 1994.

It was looked at again in 2008. At the time, the New Zealand Press Association reported that the Government was looking into whether third party vehicle insurance should be mandatory and if there was public support for a scheme that would only cover property damage.

This proposal to make car insurance mandatory became unlikely in 2010, after research by the Ministry of Transport found that 92.4% of New Zealanders had car insurance.

In a press release at the time, then-Transport Minister Steven Joyce said the proposal may not deliver the benefits that might have been expected, because New Zealanders already have a high level of insurance.

He also noted that countries which had compulsory vehicle insurance include the cost of injury cover in that insurance - whereas ACC levies cover that cost in New Zealand.

"That means that the premiums in New Zealand for such insurance are unlikely to be the high priced deterrent to young drivers owning vehicles that many New Zealanders seek.”

Thomsen says some people would like to have insurance but are struggling financially so can’t afford it while others may not really care about having it.

He says it’s uncertain whether making car insurance compulsory would actually change much.

“You know, the idea that people who don’t currently have insurance and are driving would suddenly do so if it became a legal requirement, we think a number of them still wouldn’t, so it wouldn’t actually make that much of a difference.”

Referring to the Ministry of Transport’s survey, Thomsen says the kind of low 90% of people on the roads having insurance was similar to what other countries had in terms of insurance - even with different set ups to New Zealand.

“So it’s not as simple as saying ‘if we make this change, we would have 100% of people on the roads who all had insurance.”

‘Worst case scenario’

Thomsen says effectively the worst case scenario is that having compulsory car insurance could potentially push up the costs people would pay for insurance because insurers would have to provide coverage to high risk people that they may not want to choose to take on.

“If you’ve got that system where you have to have it, then people have to have some way of getting insurance and so we saw that there could be a risk of it just pushing up costs for people who are already complying and have insurance, and not changing much in the group of people who don’t have it.”

“We just don’t think a strong case has been made to really show that it would make a meaningful difference in New Zealand, of making things that much better than what we currently have," Thomsen says.

So what kind of situation might change this stance?

Thomsen says there hasn’t been any work for quite some time that tries to quantify how many people out there don’t have any type of insurance currently and how many motorists are currently insured.

The AA would want to see some work done so there was an idea of the numbers.

“Then you need to start doing an analysis of how much of a difference do you think a policy change would make,” Thomsen says.

“How much of an impact would that have on the market for all the people currently insured? Would it potentially cause them to just have to pay more for coverage when they are already covered and insured now."

“Just weighing up what would the costs potentially be on all the people who are currently getting some form of insurance and following the rules versus how big is the group who don’t have any insurance and how much difference do you think the policy would make?”

Thomsen says there are some countries with compulsory insurance in some form and they don’t have 100% compliance.

“So you still have a number of people uninsured on the roads in those countries and ending up in crashes where they don’t have insurance coverage for damage they do.”

“We think some really thorough analysis by the Government would need to be done to show that this change could deliver more benefits than potential costs and impacts for people who are already insured," Thomsen says.

‘Better driver training’

Last Tuesday Bishop announced changes to the country’s licensing system - including ditching the full licence test for car drivers.

Other changes include fewer eyesight screenings, an expansion of the zero-alcohol rule to all learner and restricted drivers, and new learner and restricted periods.

“Driver licences are essential for helping people access jobs, education, and healthcare. For many young Kiwis, gaining a licence is a rite of passage, but the current system is expensive, outdated and no longer works as well as it should,” Bishop said at the time.

Thomsen says: “I think sometimes ... it’s more about the idea of if some of these young people weren’t able to get insurance and it was compulsory, then that would mean that they would stay off the road, and therefore the roads would be safer.”

“It's not necessarily as simple as that, saying that somebody will choose not to drive because they aren’t able to get insurance.”

The most important thing in terms of road safety, he says, is around better driver training, practice and preparation.

He says the AA would much rather the focus be on having better prepared, more skilled, more knowledgeable drivers coming through the licensing system.

“Insurance is about helping cover the damage after something bad happens.”