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