In the third article in this series on short-term insurance, in association with Santam, we look at third-party vehicle insurance.

Comprehensive vehicle cover is obviously the best cover to have for your car, because, subject to various conditions and your prescribed excesses, it covers you for all losses in an accident, for theft, as well as for perils such as hail damage and fire. But it is also the most expensive type of cover.

Insurers offer lower levels of cover for your car that are more affordable – typically, these are limited to cover for third party, fire and theft, and third-party-only cover. These types of policies may be attractive if:

* You have an older, low-value vehicle, and it is paid off; and/or

* You don’t drive the car very often or very far.

For example, you may be retired with a 10-year-old car worth R30 000, and use it only to drive to your nearest shopping centre a couple of times a week.

If you do opt for limited cover, however, you need to know exactly what is covered and what is not. Importantly, third-party cover will protect you financially against the potentially crippling costs of causing damage to someone else’s vehicle, especially if it is an expensive model.

Who is the third party?

The third party in an insurance claim is the person who has suffered a loss because of your actions and who lodges a claim against you. The first party is you, the person insured, and the second party is your insurance company, which is responsible for settling the claim.

Rowland Ramalingam, head of specialist claim services at Santam, says: “The third party is anyone, apart from you, to whom you have caused damage. It extends beyond natural persons to juristic persons, such as businesses.”

In vehicle insurance, the third party is most likely to be the driver of the other car in an accident that you caused, but it may be a retailer, for example, if you drove your car through a shop window. Some policies may exclude certain people in their definition of third party, such as members of your household, Ramalingam says.

What does it not cover?

Third-party insurance does not cover your loss in an accident, says Ramalingam. In other words, any damage to your car or other property of yours is not covered, and you would have to pay for it out of your own pocket. If the accident is not your fault, however, you can claim against the other party (see “Who pays what in an accident”, link below).

Often, fault does not lie entirely with one party or the other. For example, even though fault may lie mostly with you – you reversed out of a driveway without looking, for example – the driver who crashed into you may also be partly to blame, for not taking evasive action.

In this instance, the insurer will apply the principles of “apportionment of damages” and pay out accordingly. The apportionment of the damages indicates the amount of damages payable in relation to the amount of fault resting on each of the two parties, Ramalingam says,

What is the difference between what insurers cover and what the Road Accident Fund covers?

Ramalingam says the Road Accident Fund (RAF) covers personal injury to the third party, but not damage to material possessions such as his or her car. Your third-party policy covers you for the other party’s material damage, but it extends to personal liability cover for an event outside South Africa. It will also cover you for an “emotional shock” claim against you by a party who is not directly involved in the accident, something not covered by the RAF

(see “When to claim from the Road Accident Fund”, below).

What are the price differences for the different levels of cover?

The lower levels of cover – third party, fire and theft policies and third-party-only policies, cost less than comprehensive cover. The pricing differs among insurers, so it’s a good idea to get a number of quotes, on both comprehensive and limited cover. A good broker will be a great help in this regard.

How much am I insured for?

Ramalingam says your liability limit depends on the level of cover selected, which would normally be sufficient to fully cover the damage to the other vehicle, minus your excess, for which you are responsible.

Do third-party-only vehicle insurance policies require less underwriting?

Your own car is not insured, so its value is not taken into account. But most underwriting for a policy concerns the driver, and how much risk you, as the regular driver of the car, pose to the insurer. Ramalingam says the value of your vehicle is not important, but your age, driving style and claims history certainly are, and these will be taken into account in the calculation of your premium.

WHAT YOU CAN CLAIM FROM THE RAF

If you are the third party in a car accident and are injured, you can claim for loss as a result of bodily injury from the Road Accident Fund (RAF). Under current legislation, you may claim only from the fund and not from the first party or his or her insurer. You can lodge a claim directly with the fund or go through a lawyer, in which case the lawyer will charge you a fee, normally based on a percentage of the claim.

According to its website, the RAF will pay out for medical expenses, limited loss of earnings, limited loss of support on the death of a breadwinner and funeral expenses. As with third-party insurance claims, there may be apportionment of damages according to the extent of each party’s fault in the accident.

BENEFITS OF MANDATORY COVER

Mandatory third-party vehicle insurance will lower the cost of cover for South African consumers and could also reduce the number of road accidents, since it will bring down the number of damaged vehicles on our roads, says John Melville, head of risk services at Santam.

“In South Africa, 65 percent of vehicles are not insured. Unlike many other countries, we also have no compulsory third-party damage insurance, which means that third parties – who are not at fault in an accident – typically cannot recover their damages and either have to pay for repairs themselves or, if they are insured, claim the additional expense from their insurer,” Melville says.

He says this means that South African insurers pay out more in claims per policyholder than in countries where all drivers are obliged to have third-party insurance, and are thus able to cover any damage they may cause. This has pushed up the cost of motor insurance, making it less affordable for low- and middle-income car owners.

“A situation where 35 percent of drivers are, in effect, subsidising the rest is clearly not a sustainable model in the long run. Rising costs may also lead to the number of insured drivers decreasing,” Melville says.

According to South African Insurance Association (SAIA) statistics, 10 years ago two-thirds of motor insurance claims were related to theft or hijacking. Today, more than 70 percent of claims are for accident damage.

“By introducing compulsory third-party motor insurance, the cost burden would be spread across a much larger pool of drivers, which will bring down the cost of insurance. Uninsured persons – who will also pay a small premium for third party cover – will be protected from protracted law suits and potential financial ruin if they cause damage to an expensive vehicle,” Mellville says.

He says that, if everyone is insured, there will be funds available to repair more vehicles after accidents, which will reduce the number of damaged vehicles on our roads and therefore improve road safety. “Despite the best intentions of our law enforcement agencies, it is impossible to keep damaged vehicles off our roads in situations where their owners critically need transport, but since they aren’t insured, cannot repair their vehicles properly after an accident,” he says.

Since 2011, SAIA has lobbied for the introduction of mandatory third- party vehicle cover. “Santam, which manages more than 20 000 motor-related claims a month, fully supports this proposal. It will certainly be a strong step towards a more sustainable model in the motor insurance landscape in South Africa, to the benefit of insurers, but most of all, consumers.

“The implementation of such a solution will only be effective, however, if it is enforced through an appropriate legislative framework, such as the legislation for third-party bodily injury cover provided for through the Road Accident Fund,” Melville says.