How new Aarto bill will affect insurance premiums

President Cyril Ramaphosa has signed the Administrative Adjudication of Road Traffic Offences (Aarto) Bill into law. The bill proposes introduction of a demerit system for South African drivers, and it is expected to fundamentally change driving in the country.

The Aarto Bill will result in the setting up of a demerit system for drivers, who lose points for traffic offences, which may result in the loss of a driving licence.

In the wake of this new bill, a few insurance service providers have suggested that the bill may have harsh effects on the insurance industry, one of them being the suspension of motorists’ licences which could increase insurance premiums or excess for SA drivers in general. 

The immediate concern for most motorists will be around how much this new bill will affect their insurance premiums. Old Mutual Insure insurance expert, Christelle Colman, says: “The demerit system could potentially be linked to an underwriting criterion 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.”

Depending on how well and efficiently the bill is rolled out, this new law could see good drivers benefit from better premiums with the bad drivers being penalised. The transport department says the new law will help reduce road deaths across the country.

The bill does however paint a bit of a dim picture when it comes to how it will affect the insurance industry. Colman says: “The highest risk is that drivers could lose their licences 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.  We already have a very 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.”

To further compound matters, the repossession of drivers’ licences would cause drivers’ claims/cover to be forfeited. Colman cautions that, “based on current policy wording cover will not exist if a driver does not have a valid driver’s licence. It will also be very difficult for insurance companies to waive this requirement as it is law to have a valid driver’s licence.”

Amid all the mixed reactions from the greater South African public, Old Mutual Insure has already started with preparations for the implementation of the new bill and is currently reviewing their underwriting criteria to see what their approach will be.

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