Insureds pay for uninsured motorists

Only between 30% and 35% of vehicles on South African roads are insured, says the South African Insurance Association (SAIA). This means that of the 9.5 million (1) registered vehicles on SA's roads, only 2.85 million are insured.

This puts financial pressure on car insurance companies to pay out for claims they cannot get reimbursed for, which is one of the causes for insureds' premiums increasing, says SAIA Deputy Executive Officer Refilwe Moletsane.

“There are certainly cost implications for the [short-term insurance] industry as they have to pick up the cost of claims even though the wrongful third-party is not insured. The greatest challenge lies in the unsuccessful recoveries [of such claims].” Unable to reclaim money back from uninsured parties forces insurers into a situation where they lose money. This creates a situation where consumers are indirectly supplementing uninsured drivers' premiums, says Guy Eagle, CEO of www.Carandhomeinsurance.co.za.

“Car insurance premiums are not calculated purely on the value of the car. Other factors come into play, such as the claims history of the policyholder, his or her age, etc. Also included is the insurers' ability to pay claims. If an insurer is losing money and their ability to pay claims is hindered, they will obviously increase premiums,” says Eagle. Not being able to reclaim from uninsured parties forces insurers to take on the increased risk, limiting their ability to pay claims. The insurance premium is thus increased.

“The cost of the claim is pushed up,” says Moletsane. “[Unsuccessful recovery of insurance claims] is an element that influences the cost of insurance.” Insurers can take legal action for a full recovery of the loss incurred, but this is a challenge and tends to be costly due to the period of time involved.

Despite the loss car insurers experience as a result of damage caused by uninsured drivers, uninsured third parties can claim from an insured's insurance company. “The right for recovery against the wrongful party is not determined on the basis of whether you are insured or not,” continues Moletsane. If the wrongful party of an accident is insured, those who have suffered damage as a result of such an accident can claim from the insured's insurance company. The insurance company again suffers loss.

“Insurers pay out on claims made by first parties for 'accidental damage insurance',” says Eagle. “They also pay out for claims made by third parties for 'third-party insurance'. If they are unable to recover at least some of these claims, they are likely to suffer a loss, which pushes up premiums.”

The solution to the problem would be to make insurance compulsory for all vehicle owners, as the US and Australia have done, but currently no such legislation exists. “The closest thing to it is financial companies like banks making it compulsory for debtors to take out comprehensive vehicle insurance for financed cars.” Once the vehicle is no longer being financed, though, the insurance is not renewed, adding to the volume of uninsured motor vehicles on the road. The challenge is alleviated to some extend by financial institutions, as it is a requirement in terms of the finance agreement that the vehicle must be comprehensively insured for the duration of the period of the agreement, but this does not necessarily mean the insurance expires post the agreement as this would result in self-insurance.

At the time of writing, the South African Insurance Association was formulating a proposal for compulsory third party motor property insurance (2). They were consulting the Department of Transport for backing on the project, which would make it mandatory for all vehicle owners to have at least third party insurance.