new demerit system and insurance

In August 2019 Cyril Ramaphosa signed the new Aarto Act (Administrative Adjudication of Road Traffic Offences) which will enforce the new demerit system in South Africa.

Many drivers have read about the new demerit system but haven’t yet realized how this act will affect their insurance. Insurers certainly have thought of how this will abruptly impact the industry. One of the biggest impacts will be the suspension of drivers’ licenses, this will most likely increase consumers’ insurance premiums or their excess. To check that your insurance premium is competitive do this 5-minute online car insurance quote:

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“The immediate concern for most motorists will be around how this new act affect their insurance premiums. The demerit system could potentially be linked to underwriting criteria as it does reflect driving behaviour. Drivers with a poor record on this system could face higher premiums but that would be at the discretion of each company”, says Old Mutual Insure’s Christelle Colman.

Colman mentioned that it will also work the other way around, depending on how well the act is rolled out and implemented. The law can see those good drivers with a healthy record get better insurance premiums.

 “The highest risk is that drivers could lose their licenses due to speed fines (even minor ones) which could potentially mean that their existing motor policies will not respond or that they will not be able to get motor insurance,” she said.

“We already have an extremely high percentage of uninsured vehicles on the road. This will increase uninsured vehicles on the road and will also have a severe impact on the recovery process after an accident.”

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To expand on the matter, the repossession of driver’s licenses will cause the driver’s cover and claims to be forfeited. If we look at the current policy wording for vehicle insurance, it states that the driver will not have cover if the driver does not have a valid driver’s license. How will car insurance providers handle it when a client’s driver’s license gets suspended? Does the consumer keep paying for their car insurance even though they are unable to be covered? We have too many questions and too few answers.

Insurance companies won’t typically be able to amend this requirement because it is law to have a valid driver’s license to be a driver.

Many insurance companies have already started to look ahead and make preparations for when this new demerit system comes into effect such as Old Mutual Insure. Insurance companies will have to review their underwriting criteria and come up with a fresh game plan to see how they will be able to adapt to this new bill.

All we know for sure is that the new demerit system and the Aarto Act will have a major impact on everyone, from driver’s to insurers to licensing departments.

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