Costs of vehicle insurance system don’t add up: Brotherhood of St Laurence report

03 November 2017

The owners of 2.3 million uninsured vehicles in Australia risk the cost of accidents that many can’t afford, while insured motorists pay a total of $1.3 billion more for their coverage than they would if all were insured, finds a Brotherhood of St Laurence report.

“We need to rethink Australian motor insurance,” said Tony Robinson, the Financial Inclusion Senior Manager of the Brotherhood, a national anti-poverty group. “However, mandatory insurance is not the answer as it will punish poor people. This new report aims to spur public discussion on how to improve the current system, and sets out some steps towards this.”

The report, titled Pranged: the real cost of optional vehicle insurance in Australia, says the main reason motorists give for being uninsured is the cost, and that Australians on low incomes are less likely to insure their vehicles.

Mr Robinson said: “Many can’t afford to insure their vehicles yet are dependent on them for daily living, particularly in outer suburban and regional areas where housing costs less but public transport is scarce or non-existent. Yet accidents can incur repair costs that are financially crippling – for insured cars the average insurance claim is $3,000.”

The report says there is also confusion about what is included in the compulsory third party insurance paid with car registration. Some mistakenly think that it includes damage to other cars or property. However state governments mandate compulsory third party insurance only for personal injury or death, while insuring for damage to cars or other property is left up to the owner — either comprehensive insurance or cheaper third party property policies.

It says motorists who take out insurance pay more in order to cover the risk of loss arising from accidents caused by vehicle owners who are uninsured, whether that’s through choice or because they cannot afford to. Insured motorists pay $1.3 billion more for their coverage than they would if vehicle insurance were universal.

Other costs of the current system include:

  • The proportion of workload at community legal centres advising clients who are either uninsured drivers who caused accidents or others caught up in accidents involving uninsured drivers.
  • The proportion of workload at community financial counselling services helping clients who are uninsured drivers deal with the cost of accidents.
  • The cost of disputes over property damage caused by at-fault drivers that progress to the courts, both for the tax payer in court costs and for the parties involved the court charges and solicitor fees. A survey for the report of Victorian magistrate courts over a three-day period found that 24.7 per cent were vehicle property damage cases.
  • The report says the steps towards a better system include:
  • Insurers run an awareness campaign about the need to buy property cover separately as it’s not covered by compulsory third party insurance. This would encourage uninsured drivers who can afford coverage to buy it.
  • State governments make policies more affordable for people on low incomes by considering removing stamp duty from vehicle insurance policies developed by insurers for low income drivers.
  • State governments consider tribunals as alternatives to courts to resolve vehicle accident disputes. One model is New Zealand’s Dispute Tribunal where insurance disputes and other matters are heard by an accredited referee whose decision can be enforced by a court.
  • Some third party property insurance policies include an Uninsured Motorist Extension (UME), which provides some protection if the driver’s vehicle is damaged by an uninsured motorist who is unable to pay. Standardising the UME in third party property policies to cover $5,000 in damages would benefit low-income Australians who cannot afford comprehensive cover. If insurers are not willing to do this the Australian Government should consider mandating that standard.

Download the report.

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