Joe Hendren

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Tuesday, May 22, 2007

Costs of insurance for young drivers must be lowered

Jeremy at Aucklander at Large dismisses the call of the Transport Safety Minister Duynhoven for compulsory third party vehicle insurance and says it simply will not work.

Duynhoven claims requiring third party insurance for all drivers would I have an impact on the behaviour of the so called boy racers. "That very soon changes behaviour because people realise they are not in a position to drive if they have a lot of speeding tickets, a lot of vehicle offences or a vehicle which is modified with a very high premium because if they misbehave their premiums then go through the roof."

Like Jeremy I think the Minister is dreaming if he thinks the kids think 'premium' when they are burning the premium unleaded.

But unlike Jeremy would like to see all drivers required to have at least third party insurance, so long as it can be made affordable.

If many young drivers cannot afford insurance, the insurance industry needs to take some responsibility for this. Simply put, by stupidly inflating the premiums on the young, the insurance industry have told young drivers they are not wanted as customers, even if they have a clean driving record.

As a 31 year old male driving a slightly underpowered Mazda Familia station wagon I did not expect to be quoted nearly $700 for insurance*. For the crime of not requiring car insurance for the previous two years (I had been overseas) I did not qualify for any discounts. Now that I have moved to Auckland I am told my premium will nearly double in August, while I will get a 30% no claims discount, my premium it will be more than I paid in Christchurch last year. While the insurance industry may claim it is legal to insist the young pay more, there must also be a point, in terms of degree, where there is a possibility of challenging this under the Human Rights Act.

Before third party insurance could be made compulsory I believe any social democratic government worth electing should first consider intervening in the insurance market to lower premiums. The introduction of the state owned Kiwibank into the banking market has lowered fees and forced the other banks to offer banking packages for those with few beans in the beanbag.

So why not also allow Kiwibank to offer lower cost insurance packages? The only difference between the insurance offered by Kiwibank and Westpac would be the cost.

The irony is that the Government used to operate State Insurance, and this 'brand' is still in use by the private sector many years after privatisation. To my mind State Insurance, and their owners the Insurance Australia Group, continue to trade on the state's good name in false pretences - this has irked me for some years. If 'State' wasn't a commercially valuable brand they would have dropped it by now. Perhaps this also tells us New Zealanders are not as hostile to the 'state' as the far right would have us believe.

Drivers already pay a kind of insurance premium for accident injuries when they licence their vehicles, so why can't government owned insurance cover the vehicles as well? (though ACC need to be told it is not acceptable to adopt the ethics of private insurers)

I have sympathy for requiring compulsory third party insurance as I believe being hit by a driver without insurance can lead to unjust and highly costly situations, for both the person hit and the person having to pay the bill. Messy court action may be required, increasing the costs of time and money for both parties. But more often than not, an insurance company sues or threatens to sue the uninsured driver for everything they have, and then some. If premiums are simply unaffordable, and a car is the only way to get to work - an accidental swipe of a BMW can cause a person to be financially crippled for years - is that really a just outcome?

A parallel argument could be made here about the ability of those on very low wages to afford the 'premium' to be part of Kiwisaver (4% of wages). Will we see a future government blame the non savers for not having the disposable income to make contributions, and use this as an excuse to remove universal public superannuation? Will they be left financially crippled in old age?

I would also like to see more restictions placed on the lending institutions to offer easy car finance - as finance on a fast depreciating asset like a car should be subject to greater restrictions to ensure the banks and the loan sharks are not simply ripping people off. Why not teach the boy racers better saving habits?

If all drivers had complusory third party insurance this would be for the benefit of everyone - a public good - so the use of public money to fund state intervention in the insurance market could be justifed IMHO.

* The quote was from State Insurance - I found a slightly cheaper premium elsewhere.

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At 10:46 am, Blogger Rich said...

In the UK you'd pay that in pounds, at least.

I think the real question is whether a cheap car culture is essential to NZ? In London, having a car is a major expense and most people don't bother.

Do we *have* to stay with cheap petrol, no insurance requirement and the developed world's slackest construction standards? Or can we move to a society where car ownership is optional for urban New Zealanders because we have an adequate system of public transport?

At 10:54 am, Blogger Rich said...

BTW, I wouldn't insure anything with State. They are notorious for not paying claims.

At 12:40 pm, Blogger Joe Hendren said...

For the record Rich I completely agree with you about the need to change to a culture where public transport is the preferred transport option.

The issue is that we are not there yet, and I don't think it is fair to use only 'financial incentives' as in higher and higher costs as a way of getting people out of their cars.

A low paid factory worker on a nightshift is unlikely to currently have any other reasonable transport options other than a car.

For a real public transport culture to develop we need to find ways to encourage the snobby high paid white collar workers that taking a train is not derailing your status - they won't care about increased costs.

Once we have this group on public transport - they will insist on regular services and more comfortable seats!

But I must say one reason I support the recently announced fuel tax in Auckland is that Aucklanders have had opportunities to vote for public transport - but they voted for Banks instead. So increasing costs is an option in some cases, but I would prefer we tried other policies aimed at increasing public transport use among all income groups.

At 8:17 pm, Blogger Rich said...

I think if the trains (or buses) were faster than driving (as at least trains are in most cities) they would attract more custom.

BTW did you see my proposal last year for a 2-tier fuel price?


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