By Sumarie Greybe
Car insurance can be expensive, so it’s not surprising that up to 70% of the cars on South African roads are not insured at all. However, every car owner should, at the minimum, consider purchasing a third-party only product, even those that are driving older cars that would not be worth repairing or replacing after a serious accident.
Let’s look at what third-party liability car insurance is and how it differs from other insurance before delving into why it’s important. Third-party car insurance protects you from the legal liability that arises from you causing damage to someone else’s property in an accident that was deemed to be your fault. ‘Property’ here includes a vehicle and its contents, but could also mean a building or set of traffic lights you collided with.
Where the Road Accident Fund fits in
Third-party liability car insurance will not pay out for costs related to the death or injury of a person involved in an accident. That’s the role of the Road Accident Fund, which is meant to compensate innocent car victims and their families for medical costs, funeral costs, and loss of income in the event of serious injury or death.
The cover provided by the Road Accident Fund depends on who is to blame for the incident. There are caps and limits that apply to these benefits, and they only cover accidents that occur on South African roads. The government-administered Fund is funded through a levy on fuel. It essentially provides a safety net for those who don’t have death, disability, and loss of income cover via a life insurance policy or medical aid to cover medical costs.
What are comprehensive and third-party cover?
Comprehensive car insurance includes cover for any damage to your own car or the theft of your car. A third-party-only policy only protects you from legal liability to another party. This cover is important for every car owner because the other party in an accident or their insurance company can sue you for the damage if an accident is deemed to be even partially your fault.
Despite the availability of third-party only policies, most South Africans buy comprehensive cover (often because it’s a requirement to get a car loan) or nothing at all. The reason is usually that car insurance seems expensive for a struggling household. Yet the legal and financial risks of driving around without at least third-party cover are enormous.
An accident could mean financial ruin
When a driver without insurance is involved in a collision where he or she is at fault, insurance companies representing the other vehicle’s owner may take them to court to recover the cost of the damages. In some cases, the insurer could ‘attach’ assets like their home or car to sell and recover the costs.
Repayment agreements, however, are far more common. In these repayment agreements, the driver will agree to pay a large part of their disposable income each month to the insurer. These agreements often last years and involve high interest payments.
Another consequence of a large portion of drivers being uninsured, is higher comprehensive premiums for those who are insured. When calculating comprehensive premiums, an insurer estimates what the likelihood is that, following an accident where their client was not at fault, they would be able to recover the damage from the other party.
That likelihood is of course reduced when fewer people have third-party only insurance, resulting in higher comprehensive premiums. This is one of the major reasons why the insurance industry is encouraging the government to help reduce the portion of drivers that don’t have third-party insurance at the very least.
Compulsory third-party insurance might be incoming
The government indicated early last year that it was considering making third-party insurance compulsory for vehicle owners in South Africa, as it is in many other countries. Though we have heard no more about this proposal since then, we would still welcome it as a way to safeguard drivers from severe financial consequences in the event of an accident.
In the interim, it is worth highlighting that next-generation digital insurance products are making third-party cover more affordable. The providers of these products can offer low premiums because they don’t carry overheads like legacy systems and call centres.
Sumarie Greybe is the co-founder at Naked
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