Majority want compulsory car insurance, but the case for it is weak

Thursday, 7 January 2021

Uninsured drivers are a problem, but so far, it’s a problem without a solution as the case for complusory car insurance isn’t a strong one.

OPINION: Nine in 10 drivers say car insurance should be mandatory, a survey indicates.

The survey of nearly 2000 drivers by financial product comparison website Finder reported 89 per cent were in favour of compulsory third-party car insurance, with nearly a quarter (24 per cent) saying they’d been hit at some point by an uninsured driver.

Uninsured drivers have been a perennial bugbear of insured drivers, but making insurance compulsory is a move lawmakers have consistently rejected, with the last formal inquiry by government back in 2010.

The insurance industry has also refused to champion compulsion, and while its peak industry body is “agnostic” on the idea, it is quick to point out the downsides.

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Why is New Zealand an outlier on compulsory car insurance?

In short, because of the existence of ACC. In many other countries, car insurance is as much about covering drivers against personal injury lawsuits, which can bankrupt ordinary individuals, as paying to fix other people’s cars.

In New Zealand, except in exceptional circumstances, people cannot sue others for personal injury compensation, so here car insurance is about fixing your own car, or other people’s cars, should you be in an accident.

It also comes into play, clearly, if your car is stolen, set on fire, or you crash it into someone’s house, or into a tree, setting a whole commercial forest on fire.

Shouldn’t everybody be insured?

Absolutely, and the vast majority are. There’s a strong argument that if you can’t afford insurance, you can’t afford a car.

But we are a country of Haves, and Have-littles, and some people do struggle to afford insurance.

When it comes to buying insurance, set aside some time, and accept that adults read the contracts they agree to.

The young particularly are expected to pay through the nose for car insurance, and New Zealand, perhaps through a lack of competition (we have an extremely concentrated insurance market) has only dabbled with “telemetrics”, remote monitoring technology good drivers of all ages can prove to insurers that they are safe.

Some people are also the authors of their own problems, and struggle to find an insurer thanks to their bad driving records, or criminal records.

Do insurers support compulsion?

No. There are many drivers they just aren’t keen on insuring. If the government made third-party insurance compulsory, the Insurance Council of New Zealand (the industry political lobbying body for general insurers) fears insurers be forced to insure people they really, really didn’t want to insure.

These people, because they were high risk, would be charged higher premiums. That, in turn, could lead to government-imposed price caps, as MPs wouldn’t want to be seen to be driving people off the road, especially as many need to drive to be able to work.

Insurers fear that would lead to them having to charge a little more to their good and loyal long-standing customers to cross-subsidise the drivers with bad driving records. Alternatively, it’s been suggested that the government could set up an insurer of last resort to insure all the drivers the insurers don’t want. It’s hard to see that as something any government would be keen on implementing.

How many people aren’t insured?

ICNZ says survey data going back to 2013 suggests at any time around 93 per cent to 97 per cent of drivers are insured. In October, the figure was around 94 per cent. In 2010, a report from the Ministry of Transport concluded that wasn’t higher than in comparable countries with compulsory car insurance. It’s that high because many cars are bought with loans, and finance companies demand cars they finance are insured.

Why don’t some people insure?

The Ministry of Transport found the main reason people gave for not having insurance was that they struggled to afford it.

AA concluded a few years back that compulsion wouldn’t even reduce the proportion of people driving uninsured by much at all, because it would not make these people any more able to afford insurance.

It’s probably not a good look for any government to be imposing extra costs on people on tight means, especially if there isn’t a big non-insurance problem to deal with compared to other countries. There’s also the not-so-insignificant question about the public good of fining people for not being insured when they can’t afford to insure. It could cause particular issues among people in rural areas on lower incomes, who do need cars to get about.

How much of a financial burden are uninsured drivers on insured drivers?

Being hit by an uninsured driver does cause losses for many motorists. ICNZ says people who are fully insured are not penalised, if an uninsured third party causes an accident, except from the loss of the insurance excess, which can be high for young drivers. Also, ICNZ says, most third-party cover has protection for the insured’s vehicle when damaged by an uninsured party, provided the uninsured confirms they are not insured, and accept fault.

Surely there are some pros to compulsion?

It’d please that nine in 10 drivers, though possibly only until their premiums went up. Also, Fire and Emergency New Zealand is partly funded off levies on car insurance, so the uninsured are basically not paying their way, even though they may one day need rescuing from their vehicle by firefighters. So far nobody had made a strong case that making car insurance compulsory by law would improve driving, or even result in many more drivers being insured.