Short-term insurers have a gleam in their eye. The department of transport’s proposed driver’s licence demerit points system could mean big gains for the industry, should it prove successful.

Heavy hitters like Outsurance, Santam and Mutual & Federal would eagerly welcome a new system that would allow them to profile their customers’ portfolio and adjust individual insurance premiums according to the demerits a client racks up. Provided, of course, that the system actually works.

“The demerit system will allow us to distinguish between good and bad drivers, which will in turn enable us to charge more appropriate premiums to individual clients … we would welcome the system,” says chief financial officer at Mutual and Federal Pieter Bezuidenhout.
But, says Bezuidenhout, customers also stand to gain as “those drivers who obey the rules of the road should find that their insurance premiums become more affordable”.

“Accident rates should decline as people become more cautious in their driving habits in a bid to keep their premiums low,” he says. “Reduced accident rates should lead to more affordable insurance premiums.”

The proposed demerit points sys-tem is due to be introduced in Tshwane from February 1 2008, according to the Road Traffic Management Corporation (RTMC), with a full national roll-out expected to follow 18 months later.

The RTMC, established in 2005, operates alongside the department of transport in managing road traffic management.

The system has been on the cards since 1998, when the Administrative Adjudication of Road Traffic Offences Act was passed. The Act provides for a demerit system, encompassing the demerit points system whereby a driver accrues points on his or her licence for any traffic offences committed.

According to Arrive Alive it has been delayed for several years pending a feasibility study and other requirements, including an assessment of technological requirements, law enforcement criteria and an analysis of human resources needed to get the system up and running.

This delay in launching the system is one of the chief reasons insurance companies are sceptical about how the demerit points system will actually work for them.

“The overall way in which the system will be implemented and controlled is vague,” says Trevor Devitt of Outsurance. “The principle, however, is excellent and will offer great advantage to us.”

But the Automobile Association of South Africa is concerned about how the system will be implemented and argues that a demerit point system will penalise law-abiding citizens further, while increasing the problem of unlicensed and uninsured drivers. “The demerit system is heavily dependent upon the maintenance of databases of information,” says Ayanda Vilakazi, the association’s director of public affairs.

“In South Africa such systems would include the eNaTIS system, as well as a database to be developed by insurers, which the authorities would be entitled to have access to,” he says. “Databases require constant maintenance and accurate updating and this alone will prove to be a major challenge in South Africa.”

In countries where the demerit system has been introduced, such as the United Kingdom, and the underlying database of information is being used, insurers are beginning to increase premiums for delinquent drivers, says Vilakazi.

“With regard to vehicle financing, a motorist who loses his driver’s licence through the demerit system might continue to own and finance his or her vehicle, but will be unable to drive it,” he says. “The finance house will not be compelled to terminate the finance arrangement, but the law might dictate that the vehicle be confiscated from the owner and resold.”

Without proper traffic enforcement, both on the ground and technologically, argues Vilakazi, and without a clear strategy behind the database of information, the demerit system will not be effective in this country.

“Having regard to the South African environment, where as many as 50% of motorists are either unlicensed or driving with fraudulent licences, more focus should be applied to correcting and preventing such illegal practices,” he says.

Bezuidenhout echoes concerns about third-party insurance risks and the problem of uninsured drivers. “Higher premiums for drivers with many demerits, coupled with the fact that third party insurance is not mandatory, could lead to a situation where drivers with many demerits become uninsured,” he argues.

This could lead to settlement delays for insured clients and possibly increased costs for the industry as a whole, he says.

“Ideally, when the demerit system is working, the government could make third-party insurance compulsory,” says Bezuidenhout.

Access to licence records and the number of points an individual has is crucial if insurance companies stand to gain from the system. Companies would prefer access to the government database, says Hendri Nigrini, executive head of risk and insurance services at Santam. Only if that access is both easy and affordable would insurers stand gain substantially.

The RTMC says that no other parties will be able to access a driver’s records without written consent from that individual. Whether permission will become a standard clause in an insurance contract remains to be seen.

How demerit points will work

  • Each driver will start with no points.
  • Points are allocated according to infringements or offences committed. There are different values for different infringements and offences and the number of demerits will be recorded on the National Traffic Information System (eNaTIS).
  • Points are allotted on the date a fine is paid or when the person is convicted of the offence in court, as in the case of traffic offences, such as drunk driving.
  • When a person exceeds 12 points, his or her licence is suspended.
  • The suspension period is calculated in months equal to the number of points exceeding 12, multiplied by three.
  • A driver who is disqualified must hand over his or her licence to the issuing authority for the duration of the disqualification.
  • Anyone caught driving while under suspension faces a fine and/or imprisonment for up to one year.
  • The driver may apply for the return of the licence at the end of the disqualification period.
  • A driver disqualified for the third time will lose his or her licence permanently and will have to apply for re-testing and issue at the end of the disqualification period.
  • Demerit points will be reduced at a flat rate of one point for every three months that pass without any more traffic infringements.

— Lynley Donnelly. Source: RTMC

Nature of demerits

  • The number of demerits depends on the severity of the offence.
  • Failure to license a motor vehicle: R500 fine and one demerit point.
  • Excessive speeding in an urban area (travelling 86 to 90kms/h): R1 250 fine and four demerit points.
  • Driving under the influence of alcohol or drugs: six demerit points and a court appearance.
  • Learner drivers driving unaccompanied by a licensed driver: R1 250 fine and four demerit points.
  • Overloading a vehicle by more than 12% to 13% of SABS specification: R1 500 fine and five demerit points.

— Lynley Donnelly. Source: RTMC