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incorporating best motorbuys<br />
Should third party motor insurance be compulsory?<br />
By Adam Heath, Executive General Manager, Insurance Solutions<br />
Every now and then the question comes<br />
up of whether third party motor insurance<br />
should be made compulsory in New<br />
Zealand for all motor vehicles.<br />
Many other countries already have a form<br />
of compulsory third party insurance – some<br />
which cover bodily injury only and some<br />
which cover damage to property.<br />
This can make it feel like New Zealand is<br />
out of step, but is there a need for us to<br />
make it compulsory?<br />
What is third party insurance?<br />
In New Zealand, the main purpose of third<br />
party car insurance is usually to cover<br />
damage to cars or other property.<br />
If you accidentally crash into someone else’s<br />
car while you’re driving, you’re usually liable<br />
for the damage to their vehicle. Sometimes<br />
the cost might be low – you might be able<br />
to scrape together $500 to cover a small<br />
ding – but sometimes it could be financially<br />
devastating, like if you total your neighbour’s<br />
new Tesla while you’re a student.<br />
Third party insurance in New Zealand will<br />
usually protect you from those costs.<br />
In many other countries, the main purpose of<br />
third party insurance is to cover liability for<br />
injuries you might cause to other people while<br />
driving. In New Zealand most of that cost is<br />
covered by ACC, although many insurers – like<br />
Vero – offer additional cover for additional<br />
costs that aren’t covered by ACC.<br />
Because third party insurance doesn’t cover<br />
damage to your own car, its usually much<br />
cheaper than comprehensive insurance,<br />
which covers both your car and the other<br />
person’s regardless of who was at fault.<br />
What are other countries doing?<br />
Different countries have different<br />
approaches to third party cover. Our<br />
neighbours in Australia have made third<br />
party bodily injury cover compulsory, while<br />
over in the USA it’s compulsory to have<br />
cover for both bodily injury and property<br />
damage liability.<br />
Australia made it compulsory because<br />
it was a way of making it easier for all<br />
parties involved in an accident to receive<br />
compensation for bodily injury and ensure<br />
no one is adversely affected financially<br />
from being involved in an accident.<br />
Most Australian states include this cover<br />
in vehicle registration fees, in the same<br />
way that ACC levies are applied in New<br />
Zealand, and it has to be set up before they<br />
can register their vehicle. Motorists can<br />
also purchase extra cover for third party<br />
property damage if they want to.<br />
Should New Zealand make third<br />
party insurance be compulsory?<br />
All New Zealanders have no fault cover<br />
for injuries caused by a vehicle accident,<br />
provided by ACC and paid for by motorists<br />
through vehicle licence fees and fuel tax.<br />
But should cover for property damage be<br />
compulsory too?<br />
Page 30<br />
Compulsory third party property damage<br />
cover would mean that every New<br />
Zealander could be confident that other<br />
drivers on the road would be able to<br />
compensate them for loss or damage to<br />
their vehicle if they’re ever in an accident.<br />
But, if New Zealand were to make third<br />
party insurance compulsory we would<br />
need to consider how it would be sold<br />
and enforced, and how to ensure New<br />
Zealanders retain choice in their insurance<br />
provider. It could also mean a higher<br />
overall cost for everyone, because it’s likely<br />
that many higher-risk individuals will be<br />
included in compulsory coverage when<br />
compared to the current situation, where<br />
insurers may decide not to cover such highrisk<br />
individuals.<br />
In 2009 the Ministry of Transport reviewed<br />
the need for compulsory third party<br />
insurance. From a survey of 4000 New<br />
Zealanders, they found that over 92%<br />
had some form of vehicle insurance. That<br />
data is now 10 years’ out of date, and any<br />
serious discussion about compulsory car<br />
insurance would require updated research<br />
on how well insured New Zealand motorists<br />
actually are.<br />
Given the existing high rate of insurance<br />
held by New Zealand motorists, compulsory<br />
insurance may not have significant<br />
benefits for Kiwis. More consideration and<br />
investigation into how it could work in New<br />
Zealand is required before an informed<br />
decision on compulsion can be made.
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