Naked, the artificial intelligence-driven digital insurance provider, has welcomed a proposal in the Finance Minister’s Budget Speech that government opens a debate about whether third-party insurance should be made compulsory for vehicle owners in South Africa.
The car insurance provider says that compulsory third-party insurance would not only help to insulate drivers from damages that are not their fault, but also protect low-income drivers from severe financial consequences when they are involved in a collision that is deemed to be their fault.
Says Ernest North, cofounder at Naked: “South African insurers should embrace this proposal and work closely with government to make third-party insurance more affordable. More than 70% of cars in SA are not insured at all, meaning that drivers are subjected to unacceptable and unnecessary risks. It is within our power to change that picture.”
Third-party car insurance protects car owners from the legal liability that arises from when their vehicle causes damage to someone’s property (the car and its contents) as well as the property of local authorities. The insurer will also typically assist if there is a legal dispute.
“This cover is usually automatically included in comprehensive car insurance policies. Third-party only policies are an alternative for people to don’t want to insure their own vehicles for accidental damage, typically because the value of their car is so low that it would not be worthwhile,” says North. “But in practice few such polices are sold in South Africa – people typically buy comprehensive insurance or none at all.”
“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 pursue legal action to recover the cost of the damages,” says North. “In some cases, an insurance company will aim to attach an at-fault driver’s assets. Repayment agreements, however, are far more common.”
In these agreements, the driver will agree to pay a significant portion of their disposable income each month to the insurer. Because these agreements can last years and involve high interest payments, the effects can be ruinous for low- or mid-income earners and their families. “This is why car insurance is a legal requirement for every vehicle on the road in many countries, and should be in South Africa,” says North.
North says that high premiums – around R200 per month for R5 million of third-party cover – price third-party insurance beyond the means of many ordinary South Africans. “A big part of the reason for this unaffordable cost lies in high industry operating costs – for example, legacy systems and call centres,” says North. “New generation insurance providers are leveraging technologies such as artificial intelligence and digital distribution to bring these costs down and make cover more affordable. For example, at www.naked.inure people can buy a third-party policy from as little as R38 a month from our app or website, giving them R5million liability cover without any excess.”