In December 2009, a report on levels of vehicle insurance in New Zealand was developed as part of a Ministry of Transport review of the issue of compulsory third party insurance. 

A survey of 4,000 New Zealanders found that 92.4 percent have some form of motor vehicle insurance, while only 7.6 percent of vehicle owners had an uninsured vehicle or did not know whether their vehicle was insured. This is a level similar to countries that have compulsory vehicle insurance.

Read the December 2009 report on vehicle insurance here (PDF v7.0, 1MB, 6 pages)(external link)

Questions and answers

What does this research show?

The research found that the number of uninsured private vehicles in New Zealand is not high and is comparable to jurisdictions with compulsory third party insurance. It also found that young people did not own the majority of uninsured vehicles. While 70 percent of uninsured vehicles were owned by people under the age of 40, there was a fairly even split between those aged under 25 years and those aged over 25 years.

Why was this research carried out?

This survey was carried out to improve information about the level of private vehicle insurance. Compulsory third party insurance was identified in the Safer Journeys discussion document as an initiative for increasing the safety of young drivers so it is important that the potential impact of such a scheme are carefully considered.

How was this research carried out?

The survey had a sample size of 4,000 and was carried out on the telephone.  Participants were asked whether they owned a vehicle, and if so whether they were insured. Those who did not have vehicle insurance were asked why they did not. The maximum margin of error for this survey is plus or minus 1.5 percent.

What reasons were given for people not insuring their vehicles?

The most common reason given by people for not insuring their vehicle was that they could not afford to do so. Other reasons included that the person had not got around to it, they thought that their vehicle was not worth insuring, or they thought that they were a safe driver and did not need insurance.

How does New Zealand’s level of insurance compare to other jurisdictions?

The report found that the level of vehicle insurance in New Zealand is comparable to countries with compulsory vehicle insurance.

In the United Kingdom where vehicle insurance is compulsory, about six percent of all motorists are estimated to be uninsured. Insurance requirements vary across the United States but many states have compulsory injury insurance. The national percentage of uninsured motorists is estimated to be 13.8 percent.  Some Western European states with compulsory regimes have achieved very high levels of private vehicle insurance. For example, in Sweden it is estimated that less than one percent of the driving population is uninsured.

What is third party vehicle insurance?

Third party vehicle insurance covers the at-fault driver for the cost of damages to others’ property in a crash.

In some countries third party vehicle insurance is compulsory and the main reason for this is the need to provide cover for the cost of injuries sustained in a crash. Some countries require personal injury insurance (such as Australia), while other countries require insurance for both personal injury and property damage (such as the United Kingdom). New Zealand does not have compulsory third party insurance so this cover is optional to vehicle owners. However, the cost of injuries is covered by the Accident Compensation Corporation.

How does New Zealand differ from countries that have compulsory vehicle insurance?

Other jurisdictions that have introduced compulsory vehicle insurance have done so to cover the cost of injuries, and in some cases, property damage as well.

In 1928, New Zealand was one of the first countries to recognise the social and financial consequences of crashes caused by uninsured third parties. Consequently, a compulsory third party vehicle insurance scheme for personal injuries was established. When the Accident Compensation Corporation (ACC) was set up it took over the role of providing for injuries sustained in crashes. In effect, New Zealand has had a compulsory third party injury cover for over 80 years.

As New Zealand has ACC to cover the cost of any injuries sustained in a crash, any compulsory vehicle insurance scheme introduced here would only be for property damage.  The Ministry of Transport is not aware of any country that makes only property damage insurance compulsory. The research shows that a high number of people choose to insure their vehicle for property damage.

Are there safety benefits from compulsory third party insurance?

Compulsory insurance has been suggested as a mechanism to reduce the likelihood of young drivers owning ‘high risk’ vehicles, as they could be more expensive to insure. However, it should be noted that in other jurisdictions, such as the United Kingdom, the very high insurance premiums for ‘high risk’ vehicle owners are often due to the inclusion of a personal injury element in the insurance, as the costs of injuries often greatly outweigh the costs of any property damaged. Similar levels of annual premiums are unlikely to be seen in a property-damage only system.

This research suggests that compulsory insurance may not have significant safety benefits. As New Zealand’s rate of insurance is already very high there is a smaller scope for increasing levels of vehicle insurance.