Paper on compulsory third party vehicle insurance
Hon Harry Duynhoven
Minister for Transport Safety
18 June 2008 [Embargoed until 1.00pm] Media Statement
Comment sought on compulsory third party vehicle insurance
New Zealanders are being urged to have their say on the introduction of compulsory third party vehicle insurance for all motorists.
Transport Safety Minister Harry Duynhoven has today released a discussion document seeking information on vehicle insurance in New Zealand. The intention is to gauge public opinion on seeking a compulsory third party scheme. This would require all motor vehicles to be covered with at least third party insurance. Many motorists choose to do so already, as it is a low cost protection.
“About a quarter of vehicles in New Zealand are not insured. The insurance industry estimates the cost of uninsured motorists is between $53 million and $85 million each year. At present, those who have vehicle insurance are paying for the costs of all motorists through their insurance premiums, said Mr Duynhoven”.
Unlike in other countries where compulsory schemes exist, the New Zealand system would only cover property damage, as ACC already provides cover for personal injury sustained in a motor vehicle crash. Motorists will still be able to choose to have comprehensive insurance to cover damage caused to their own vehicle and property in a crash.
“A compulsory third party regime would address issues of equity and road safety. At-fault insured motorists would be protected against potentially hefty costs in the event of a crash and responsible drivers wouldn’t be left out of pocket.
“Compulsory third party insurance would also be a major incentive in getting people to take greater responsibility for their driving behaviour, especially younger drivers.
“I know there is considerable public interest in this issue and this discussion document is an opportunity for people to have their say. Public feedback will help fill information gaps on vehicle insurance in New Zealand and encourage discussion on the design, enforcement and compliance costs of a compulsory third party vehicle insurance scheme,” said Mr Duynhoven.
The discussion document on compulsory third party vehicle insurance along with the submission form, are available at www.transport.govt.nz. Submissions close on Friday 8 August 2008.
Q&As for the Compulsory Third Party Vehicle Insurance Discussion Document
1. What is compulsory third party vehicle insurance (CTPVI)?
CTPVI would require all motor vehicles driven on the road to be insured with at least third party insurance. This insurance is designed to cover property damage, including damage to other vehicles. It does not cover damage to the motorist’s own vehicle.
People would still be able to purchase comprehensive insurance to cover damage caused to their own vehicle and property if they crash.
2. Are mobility devices affected by CTPVI?
In New Zealand, mobility devices aren’t considered motor vehicles. Therefore, people who use mobility scooters and other mobility devices won’t be affected by compulsory insurance.
3. What about the Accident Compensation Corporation?
The Accident Compensation Corporation (ACC) provides cover for personal injuries caused by a motor vehicle crash on a public road. The ACC scheme is unique to New Zealand. It provides comprehensive, 24-hour, no-fault personal injury cover and entitlements for everyone in New Zealand.
Because ACC provides cover for injuries, a CTPVI scheme in New Zealand would only cover property damage (for example, to vehicles, fences and buildings).
All other countries with compulsory insurance cover either personal injuries only, or personal injuries and property damage. It can be difficult to compare a possible New Zealand CTPVI scheme with the compulsory insurance systems in other countries, as they insure different things, but it is still useful to look at the compulsory insurance systems they have.
4. Didn’t New Zealand have compulsory vehicle insurance in the past?
Yes, New Zealand did have compulsory insurance in the past – but only for personal injury. The insurance premiums were paid at the same time as vehicle relicensing. Compulsory insurance for personal injury caused by a vehicle was introduced in 1928, but was replaced by ACC.
Property damage insurance has never been compulsory for motor vehicles in New Zealand.
5. Do other countries have compulsory insurance?
Yes, many other countries have a compulsory insurance regime, but none has compulsory insurance for property damage only.
Australia has a form of personal injury insurance similar to New Zealand’s system prior to the introduction of ACC.
The United Kingdom, most Western European countries, the United States, and most of the provinces of Canada have compulsory insurance for both personal injury and property damage. In most other countries there are many insurers, and each insurer is able to set their own premiums, as they can in New Zealand.
6. Does New Zealand need CTPVI?
About a quarter of all vehicles in New Zealand are not insured. The main benefit of compulsory insurance is financial protection for everybody involved in a vehicle crash – the owner(s) of any property damaged and the motorist who is at fault.
The owner of damaged property would have the cost of replacing or repairing property covered by the at-fault motorist’s insurance. The at-fault motorist would be protected from having to meet the often hefty costs of repairing or replacing property themselves.
A CTPVI system may have some road safety benefits. High-risk drivers would have a high annual insurance premium, which could provide an incentive for them to reduce their risk by safer driving, obeying the road rules and driving non-modified/performance vehicles.
The discussion document brings together information on insured and uninsured driving in New Zealand, and seeks input from those who would be affected – private vehicle owners and fleet vehicle owners – as to whether CTPVI is necessary, and if so, how it should operate.
7. Has New Zealand looked at introducing CTPVI before?
Yes, the question of whether to introduce compulsory third party vehicle insurance to New Zealand was considered by a Select Committee Inquiry in 1988. The Committee recognised the problem posed by uninsured motorists, but decided that a compulsory insurance system was not suitable for New Zealand at that time.
Compulsory insurance has been raised with the Minister of Transport and the Minister for Transport Safety periodically. A petition was considered by Select Committee in 1994, and the Ministers have received a large number of letters on the topic in the intervening years.
8. How would CTPVI affect my insurance premiums?
We don’t know how a CTPVI system would affect individual motorist’s annual insurance premiums.
Currently, the costs of claims are spread over the 75 percent of all motorists who are insured. With compulsory insurance, the cost of those claims will be spread over a wider pool of motorists. This may reduce individual premiums.
9. Who will CTPVI affect the most?
The CTPVI scheme would most affect motorists who currently do not insure their vehicles. These motorists would have to purchase insurance at an annual premium that their insurance company believes would cover their on-road risk.
High-risk motorists who do not have motor vehicle insurance will be faced with a high cost to become insured. Low-risk drivers will need to purchase insurance, but their annual premium would be lower than that of high-risk drivers.
The discussion document raises the possibility of exempting vehicles from CTPVI if they are already exempt from the ACC levy (as part of vehicle re-licensing), and those vehicles that can be proved to be covered by another insurance policy, for example with a farm or other business, such as adventure tourism.
10. If my vehicle is already insured, would I need to do anything if CTPVI was introduced?
No. CTPVI is about getting people who do not have any vehicle insurance to purchase some form of coverage. Third party insurance would be an absolute minimum, but that wouldn’t prevent someone from purchasing coverage beyond this minimum, such as comprehensive insurance to cover damage to their own vehicle.
11. What does the Insurance Council think of CTPVI?
The Insurance Council of New Zealand (ICNZ) has reservations about compulsory insurance; however, it is prepared to work with the government to develop a system if it’s decided to introduce CTPVI in New Zealand.
However, it should be noted that the parent companies of insurance companies operating in New Zealand, are themselves in countries where compulsory third party vehicle insurance applies.
The ICNZ represents insurance companies in New Zealand and 95 percent of all motor vehicle insurance policies are with ICNZ members.
The ICNZ believes that young motorists would end up with higher premiums if insurance was made compulsory, as a lack of driving experience puts them into a higher risk bracket.
Also, while CTPVI would mean insurance companies would get more business, they might also have to insure people they normally wouldn’t want to insure, such as high-risk motorists.
The CEO of the ICNZ, Chris Ryan, has also voiced concerns about how CTPVI could be enforced.
The discussion document looks at the issues raised by the ICNZ and also asks whether the public thinks the insurance industry would need to be regulated if CTPVI was introduced.
12. How can the public have its say?
You can send your submission to firstname.lastname@example.org, or fill in the submission form online at www.transport.govt.nz, or send your written submission to: Compulsory third party insurance project, Land Transport Environment & Safety Group, Ministry of Transport, PO Box 3175, Wellington. Submissions close on Friday 8 August 2008.