Insurance: Survey confuses the compulsory third party insurance issue: Opinion

By John Grant The debate on whether New Zealand should adopt compulsory third part insurance has just become murkier. The insurance industry is generally against such a move because it does not want the "˜law enforcement' obligations that go with it, which may include the loss of the right to decline such cover. But, insurance industry data suggest that up to a third of claims involve an uninsured party. That means premiums paid by people who do insure themselves have to be higher by a substantial amount to cover the costs reneged by the uninsured. That cost is huge, and could be almost $200 million per year. However, the Minister of Transport has just released a national survey that "˜shows' only 7.6% of the motorists polled are uninsured. Opponents of compulsory third party insurance are claiming this confirms such a scheme is unnecessary. Here is a link to the research and here is a link to the media release from Steven Joyce. Countries that do have such schemes "“ such as the UK "“ have an uninsured proportion quite similar; about 6% in the UK's case. However, a closer look at the New Zealand survey reveals some unresolved issues. To start with, the survey actually shows that 20% of under-25's claimed they were driving a car that was uninsured. The older you get however, the more likely it is you will get (or can afford) insurance. This makes sense "“ the cost of car insurance for under 25's comes with higher premium levels, so a significant proportion just don't buy any cover. Then there is the issue of how honestly those surveyed would admit to being uninsured "“ especially to an official government survey. We tried to get data from the NZTA on the proportion of unregistered cars "“ however, they don't seem to know. We also tried to get data from ACC who have a natural interest in collecting their compulsory premium from car registrations, but they also seem stymied by the lack of NZTA "˜unregistered' data. Insurers occasionally release information on the cost to them of meeting the impact of uninsured parties. In October 2009, AA Insurance released a media statement saying in 30% of accidents that insured drivers were involved in, the other vehicle was uninsured. AA Insurance is a major car insurer, and if their experience is repeated industry-wide, that could mean substantial premium savings could be expected if those other parties were required to be financially responsible with third-party insurance cover. However, this latest Ministry of Transport survey adds comfort to those wanting to avoid the hassle of compulsory cover "“ revealing apparent "low levels" of overall exposure. From the industry perspective, if those insured are used to, and unfazed by,  premiums that are perhaps inflated by as much as 25% or more "“ costs they seem to have no problem passing on "“ there will seem no great incentive to change the status quo. After all, they take in more than $1.1 billion in motor vehicle premiums, and pay out about $800 million in claims, according to industry data. It is a profitable business to be in, and changing it to cover a big new group of clients who by their very nature are trying to avoid paying their "fair share" can only mean new cost and effort for the industry. They are more than happy with their current customers who seem content to pay extra on their premiums to cover the cost of claims caused by the uninsured. The debate about the value of compulsory third party car insurance is far from over. For another perspective on this issue, see this piece in the Sunday Star-Times by Rob Stock.