Why is car insurance for vehicle damage not compulsory in New Zealand and Australia?

Background

This is a brief summary of the car insurance laws in Australia (Aus) and New Zealand (NZ). Note that this is a high level overview with opinion , more research and voting being recommended. Also see some possible pros and cons in the following Logic Table>

What is insurance?

Insurance is purchased to provide financial protection or reimbursement against losses resulting from accidents, injury, or property damage. An insurance company pools clients’ risks to make payments more affordable for the insured.

What's moral hazard?

A situation when an individual can take advantage of a situation, knowing that all the risks and fallout will land on another party.

Context

Mandatory car insurance is in place in the UK, USA and Europe and that covers both damage to property as well as personal injury. Whether this leads to a more efficient system is open to debate.

What is the current situation in Aus and NZ?

In AUS basic CTP (compulsory third party ) insurance is required, which is legally required and covers injuries to OTHER people in an accident (that doesn't include damage to vehicles or property, although if at fault you may still be liable.) In NZ there is NO REQUIREMENT to have any car insurance but personal injury is covered by ACC (including visitors).

Why is there no mandatory property damage insurance required?

Possibly because essentially liability can be proven and sorted out amicably (IOU..!?)… but and this is a big but.. what if it isn't or what if the other party is responsible but can't pay? That’s when insurance (in my view) is fairer and more efficient and should become mandatory.

Chart showing that premium increases as risk increases... HOWEVER, not all high risk drivers are insured..

This sketch show the current bell curve of premiums paid, but cut off as a % doesn't pay. The dash line shows that premiums decrease as the risk is spread.

The premiums are currently covering all drivers anyway including the uninsured! So logically, it follows that the premiums of the better drivers should reduce somewhat, if those uninsured paid into the pot. *Insurance works by spreading risk over a wider base.

Therefore, if more people are paying in but the risk pool is the same, see chart 1 above, it should reduce premiums overall but with more people paying so the risk is spread out more. It feels like those who do pay insurance are basically covering the uninsured as they are also on the road but not paying premiums. If the insurance company acted unfairly then yes there would need to be market regulation there. Possibly there are some changes to the industry needed that would even it all up and make it all more efficient. I don’t have access to the insurance company or government data.

Actions

So, if the premiums reduce for the better drivers, the worse drivers pay their way and are encouraged to drive more safely (WIN, WIN !?) this suggests we need mandatory vehicle damage insurance and that’s when insurance (in my view) is fairer and more efficient. Well, I could be waiting a wee while for what I think is more efficiency, so, why isn’t there a proper analysis and report completed with findings shared by the NZ & AUS governments and transport agencies, or drivers could vote on it, that would be really democratic!

Future situation

Worth noting that dash cams could help reduce insurance but again this may go against the "leave me alone" principle.

Other links

Stuff article:-

https://www.stuff.co.nz/nz-news/360690463/compulsory-or-not-debate-around-car-insurance-explained

A government article notes that other countries with compulsory insurance, still have people without insurance (it seems to not mention that this is illegal however):- https://www.beehive.govt.nz/release/report-vehicle-insurance-released#:~:text=A%20survey%20of%204%2C000%20New,that%20have%20compulsory%20vehicle%20insurance.

Would you like to see a blog on how to improve your insurance and save money?

** (possibly the most old school Kiwi as statement here)

* Bad drivers can't be insured or can't afford it? If you can't afford insurance you can't afford not to insure.. Do they understand what insurance even is? Not insuring bad drivers seems crazy!

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