Business

Third-party insurance 'vital for SA'

1 September 2010

While compulsory third-party motor insurance is vital for South Africa, it is important that the scheme is properly managed, CIB Insurance Solutions said on Tuesday.

"Any potential problems are likely to depend on the exact structure that the compulsory third-party motor insurance scheme takes," it said in a statement.

While some teething problems are expected, it is important that for the long-term sustainability of such a scheme, it should not become an additional financial burden to the taxpayer.

Industry-driven process

Actuarial and risk services director Wilhelm von La Chevallerie said the administration and funding of compulsory third-party motor insurance could become the responsibility of the local insurance industry, rather than being similar to the Road Accident Fund.

Should the insurance industry carry the risk and administer this cover, policyholders might be exposed to opportunistic underwriting and premium fluctuations.

"We do expect, however, that once the scheme is up and running and any issues have been ironed out that the consumer should be better off in the long-term," Von La Chevallerie said.

Whatever structure the compulsory insurance scheme – currently under review by the government – eventually took, it was a crucial development for South Africa's motor insurance industry.

Increased risk, costs

The SA Insurance Association (SAIA) earlier this year suggested that only between 30% and 35% of vehicles on South African roads were insured, meaning that of the 9.5-million registered vehicles, only 2.85-million were insured.

"Higher traffic volumes coupled with an increasing number of unroadworthy and uninsured vehicles, and a road-network that is under increasing pressure, means insured motorists in South Africa have been exposed to an increased risk and escalating costs," Von La Chevallerie said.

An increasing proportion of accidents involved uninsured vehicles, resulting in lower recoveries and higher tracing expenses on the part of the insurer.

Higher premiums

"Ultimately, this leads to higher claims costs being borne by the insurers, which in turn puts pressure on loss-ratios and ends up in higher premiums for consumers."

Von La Chevallerie said the success of a compulsory third-party motor insurance scheme would ultimately depend on the policing of vehicles and control of potential corruption of administration schemes.

"It remains in the government's best interest to ensure that the insurance industry as a whole is sustainable, including motor insurance and effectively managed, compulsory insurance should do just that."

Sapa