|Short-term insurers have a gleam in their eye. The department of transportâ€™s proposed driverâ€™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 customersâ€™ portfolio and adjust individual insurance premiums according to the demerits a client racks up. Provided, of course, that the system actually works.
â€œThe 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 â€¦ we would welcome the system,â€ says chief financial officer at Mutual and Federal Pieter Bezuidenhout.
â€œAccident rates should decline as people become more cautious in their driving habits in a bid to keep their premiums low,â€ he says. â€œReduced accident rates should lead to more affordable insurance premiums.â€
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.
â€œThe overall way in which the system will be implemented and controlled is vague,â€ says Trevor Devitt of Outsurance. â€œThe principle, however, is excellent and will offer great advantage to us.â€
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. â€œThe demerit system is heavily dependent upon the maintenance of databases of information,â€ says Ayanda Vilakazi, the associationâ€™s director of public affairs.
â€œIn 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,â€ he says. â€œDatabases require constant maintenance and accurate updating and this alone will prove to be a major challenge in South Africa.â€
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.
â€œWith regard to vehicle financing, a motorist who loses his driverâ€™s licence through the demerit system might continue to own and finance his or her vehicle, but will be unable to drive it,â€ he says. â€œThe 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.â€
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.
â€œHaving 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,â€ he says.
Bezuidenhout echoes concerns about third-party insurance risks and the problem of uninsured drivers. â€œHigher 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,â€ he argues.
This could lead to settlement delays for insured clients and possibly increased costs for the industry as a whole, he says.
â€œIdeally, when the demerit system is working, the government could make third-party insurance compulsory,â€ 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 driverâ€™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
— Lynley Donnelly. Source: RTMC
Nature of demerits
— Lynley Donnelly. Source: RTMC