The cost of being uninsured
BETWEEN $3.50 and $5 of every $100 you pay in car insurance premiums is the cost of covering you against damage caused by uninsured drivers.
New Zealand does not require car-owners to have third party insurance, so it is insured drivers who shoulder the tens of millions of dollars in costs to cover damage by the uninsured.
AA Insurance estimates that 3.5 per cent to 5 per cent of premiums paid is the price insured drivers pay to shoulder this risk. The insured are also contributing more than their fair share of Fire Service funding, because the fire service levy paid on car insurance is avoided by the uninsured.
But AA Insurance says not all the risk is assumed by the insured. Those who choose not to take out the relatively cheap third party insurance available – which can cost as little as $10 to $25 a month – face substantial risks.
In many cases they are pursued through the courts by insurance companies, and can end up paying off debts over more than a decade if they are unfortunate enough to hit a top-end luxury car, or take out power equipment.
In one case, said AA Insurance, which handled $5.8 million of claims involving uninsured drivers in the 12 months to the end of August, a debt owed to it which was incurred in the 1990s is still being paid off (see box).
AA Insurance says it generally recovers around a quarter of the overall debt owed to it as a result of paying claims resulting from crashes involving the uninsured. The rest gets sent to debt collection agencies to pursue.
But like many in the insurance industry, AA Insurance is not in favour of making car insurance compulsory.
Instead, AA says insurers need to do more to get the message out about how cheap it is to get third party insurance cover, which insures a driver against damage they cause.
A few years back, an intensive marketing campaign by AA Insurance saw it swell its third party insurance book, showing there was a pent-up demand for the cover.
A few years ago compulsory insurance was mooted as a possible mechanism for forcing the worst boy racers off the road as convictions for hooning offences would put their premiums beyond their ability to pay.
Instead, car-crushing was the country’s chosen panacea.
As the numbers of uninsured did not seem too high, and insurers were concerned that business would become tricky should they be forced to offer insurance to everybody – hoons and convicted drink-drivers included – and the idea was dropped.
Nobody is sure just how many drivers are uninsured, and the regional variations are considered to be ‘‘lumpy’’, but official figures produced by a Ministry of Transport survey estimated around 7.6 per cent of drivers. Insurers, in contrast, believe the figure to be around 20 per cent.
Perhaps the clincher in New Zealand was that countries where insurance is compulsory – car owners can’t get a registration disc without it – allowed law suits for personal injury damages. Here, though, personal injury cover is provided for all through the ACC levy on registration and fuel, so vehicle insurance solely covers damage to property.