Discussion about whether New Zealand should require all motorists to carry third-party vehicle insurance has re-emerged, but senior ministers say it is not on the current legislative agenda and question how much additional benefit a mandate would deliver. Transport Minister Chris Bishop said compulsory third-party vehicle insurance was not examined as part of the government’s latest driver licensing reforms and remains, for now, a longer-term policy issue rather than an active workstream.
Speaking to Interest.co.nz, Bishop described mandatory third-party cover as a proposal that has been raised over many years and said he does not oppose it in principle. “We may well have a look at it, but we didn’t consider it as part of that policy package,” Bishop said. He also referred to the existing level of motor insurance across the country. Officials, he said, have advised that a large proportion of drivers already hold cover. “So, the gains from making something mandatory are not necessarily as high as everyone else thinks,” he said.
Scott Simpson, Minister of Commerce and Consumer Affairs and Minister for the Accident Compensation Corporation (ACC), has likewise indicated the government has no immediate plans to legislate for compulsory third-party property damage cover. He noted that ACC’s no-fault scheme already funds personal injury claims from motor vehicle crashes via registration fees and fuel levies, meaning there is no legal need for third-party injury insurance. “Because ACC covers personal injuries, third-party insurance for injuries isn’t required. However, insurance to cover damage to vehicles or other property remains optional,” Simpson said.
A notable aspect of the New Zealand market is that most personal injury costs from road accidents sit with ACC rather than private motor policies. New Zealand previously operated a compulsory third-party scheme for personal injuries, introduced in 1928, with premiums collected at relicensing. That arrangement was later replaced by ACC, which now assumes responsibility for injury compensation from crashes and other accidents.
Automobile Association (AA) road safety spokesperson Dylan Thomsen said this structure means New Zealand already operates a compulsory mechanism that functions in a similar way to some overseas bodily injury schemes, even though it is not usually described as motor insurance. “New Zealand does actually have a compulsory system, similar to a lot of other countries, even though people don’t think of it that way. We do have a form of compulsory car insurance called ACC … A number of other countries overseas that have some form of compulsory insurance, it is for those injuries to people,” Thomsen said. By contrast, New Zealand has never required drivers to carry insurance for third-party property damage. Other jurisdictions such as Australia, members of the European Union, most US states, and the UK do mandate certain forms of third-party cover, but in many of those markets, the compulsory element is focused on injuries rather than damage to vehicles.
A central question is whether moving from a largely voluntary system to a mandatory one would meaningfully change the risk pool and claims profile. Past data suggests the shift may be limited. A Ministry of Transport review in 2010 found approximately 92.4% of New Zealand motorists already had some form of car insurance. At the time, then-Transport Minister Steven Joyce said mandatory third-party insurance might not significantly improve outcomes, given existing coverage levels.
Thomsen cited older survey work that produced similar figures. “The last survey that was done in New Zealand looking at this, and it was quite some time ago, we had about 92% of drivers having insurance,” Thomsen told RNZ’s Nine to Noon. Reaching full coverage, he argued, is unlikely even in markets with strict enforcement. “To try and get to 100%, probably impossible because even the countries that have compulsory insurance haven’t achieved that,” he said.
A 2021 survey by comparison site Finder, based on 1,882 New Zealand drivers, reported that 24% had been hit by an uninsured driver. That result indicates ongoing exposure to uninsured motorists despite high overall uptake. Thomsen said some drivers would like insurance but are constrained by cost, while others choose to drive uninsured. “You know, the idea that people who don’t currently have insurance and are driving would suddenly do so if it became a legal requirement, we think a number of them still wouldn’t, so it wouldn’t actually make that much of a difference,” he said.
Thomsen said any move to compulsory insurance would need to address enforcement arrangements, supporting systems and how premiums might change. He noted that some European countries report insured rates close to 98%, but only after significant investment in compliance infrastructure. “They have spent a lot in terms of enforcement. They have to have a lot invested in databases that can link up. Most of the ones that have got that high have camera networks looking at license plates quite extensively,” he said. He compared this to existing regulatory requirements such as warrants of fitness and registration. Despite being mandatory, neither achieves full compliance. “We know warrant of fitness, car registrations, those are both mandatory and compulsory, and we know not everybody has those. So, we’re never going to be able to get to 100%,” he said.
On the underwriting side, he said a mandate could change how risk is priced and distributed among policyholders. “When you have something like this, it has the potential to push premiums up for everybody to try and get that coverage,” he said. If insurers were expected in practice to offer cover to higher-risk motorists who might now be declined or priced out, that could shift some costs to lower-risk, compliant drivers. “If you’ve got that system where you have to have it, then people have to have some way of getting insurance and so we saw that there could be a risk of it just pushing up costs for people who are already complying and have insurance, and not changing much in the group of people who don’t have it.”
At present, the AA supports drivers holding insurance but does not support a legal requirement for third-party property damage cover based on the information available. Thomsen said the association “is very pro people having insurance” and considers at least third-party cover to be a “sensible and good thing to do” for anyone driving. However, he added: “We haven’t seen the case made, in our view, for making it compulsory, and that’s where it gets a little bit complicated.”
Thomsen said updated analysis would be required before industry and government could assess whether mandating cover would provide net benefits. “There hasn’t been any work for quite some time that tries to quantify how many people out there don’t have any type of insurance currently and how many motorists are currently insured. Then you need to start doing an analysis of how much of a difference do you think a policy change would make. Just weighing up what would the costs potentially be on all the people who are currently getting some form of insurance and following the rules versus how big is the group who don’t have any insurance and how much difference do you think the policy would make?,” he said.
Thomsen said that even in countries with compulsory regimes, uninsured vehicles remain on the road and are involved in crashes. “So, you still have a number of people uninsured on the roads in those countries and ending up in crashes where they don’t have insurance coverage for damage they do. We think some really thorough analysis by the government would need to be done to show that this change could deliver more benefits than potential costs and impacts for people who are already insured,” he said.
While compulsory third-party property damage insurance remains unresolved, the government’s current transport programme includes licensing reform and changes linked to road safety. Bishop recently announced measures including removing the full licence test for car drivers, reducing the frequency of eyesight checks, extending the zero-alcohol rule to all learner and restricted drivers, and revising the minimum time spent on learner and restricted licences.
Thomsen said that from a safety perspective, the AA places more emphasis on improving driver competence than on changing insurance requirements. “The most important thing in terms of road safety is around better driver training, practice, and preparation,” he said, adding that the association would prefer to see “better prepared, more skilled, more knowledgeable drivers coming through the licensing system. Insurance is about helping cover the damage after something bad happens.” Whether the state should require third-party property damage cover in addition to existing ACC injury protections remains an open policy question.
