Car insurance—it’s one of those things that seems important... until it’s not. Unlike places like Australia, the UK, and the USA, Kiwis aren’t legally required to have it. Sounds like freedom, right? But here’s the catch—without compulsory cover, one bad day on the road could leave you staring down some seriously hefty bills. No one wants that.
So, why does New Zealand take a different approach? And what would happen if car insurance became mandatory? Let’s break it down, compare our system to the rest of the world, and figure out whether we're getting a fair deal—or just rolling the dice.
Why consider compulsory car insurance?
While car insurance isn’t required in New Zealand, many believe it could offer significant benefits. From financial security to road safety and fairness, there are several compelling reasons why mandatory insurance could be worth considering. Let’s take a closer look at some key points.
Financial security
In 2009, the Ministry of Transport conducted a survey, which showed that more than 92% of drivers in New Zealand had car insurance. However, this data is now 15 years old. We don't know how many drivers have insurance today. This missing information is a significant issue. It could cause financial problems for people who do not have insurance.
Encouraging safer driving
In the UK, many people believe that car insurance encourages safer driving. When drivers have insurance, they usually drive more carefully. They know that if they get into an accident, their insurance costs could increase. There are tough penalties for those who don't have insurance.
These rules aim to lower the number of uninsured drivers. Even though there isn't strong evidence that mandatory insurance actually makes driving safer, these laws are part of broader plans to improve road safety. Could New Zealand benefit from this? It's worth considering whether stronger rules on car insurance can make our roads safer.
Reducing uninsured drivers
Uninsured drivers can be dangerous. In Australia, there's a smart solution for this problem. Drivers must have Compulsory Third Party (CTP) insurance when they register their cars. This ensures that almost every vehicle is covered for injuries in an accident.
However, if you want coverage for property damage or theft, you need to buy extra insurance from a private company. Could New Zealand benefit from this idea? Linking third-party insurance to vehicle registration might help many people obtain the essential third-party insurance they need. This change could also make things fairer for all drivers.
Understanding the impact of uninsured drivers
A survey in 2021 showed that around 24% of drivers in New Zealand had accidents with uninsured drivers. This is a major financial risk since car insurance isn't required there. Due to this issue, 89% of people believe that car insurance should be mandatory. Many are concerned about this situation, but there's still no clear solution.
Looking to better understand car insurance? Check out our further reading section for useful tips and insights.
Challenges in implementing compulsory car insurance
Considering the benefits of compulsory car insurance is one thing, but what about the challenges?
While mandatory insurance could provide financial security and safer roads, implementing it comes with its own set of hurdles. From increased costs for drivers to the practicalities of enforcement, let’s explore some of the key challenges New Zealand would need to tackle.
Increased costs for drivers
Car insurance prices are going up, which makes it tough for people to save money. You might feel that skipping insurance could help you save. But if you have an accident, it could end up costing you much more later. You need to find a balance between cost and coverage. Car insurance rates can change a lot depending on where you live. For example, drivers in Auckland usually pay more than those in Wellington. It's important to know these differences when you decide if compulsory insurance is right for you.
Practical challenges
We need to find ways to track drivers who do not have car insurance. It is important to have clear rules. This helps apply penalties and check who is following the rules. However, this process can be hard and expensive. For instance, the UK spends a lot of money on this system every year. New Zealand should consider if it is ready to take on this task.
Potential for higher premiums
Mandatory insurance can increase costs, especially for high-risk drivers. In the USA, many states have strict insurance rules. This has led to higher average premiums, making it hard for some people to afford driving. New Zealand might face similar problems, which could affect those who can least afford it.
The average cost of full coverage car insurance in the US is NZD$3,691. This is based on information from NerdWallet (on 18.11.2024). Full coverage covers three types of insurance: liability, comprehensive, and collision. It provides better safety than basic plans. In the US, the price is much higher than in New Zealand. The average yearly cost for comprehensive car insurance in New Zealand is only NZD$1,346.
How compulsory car insurance works in Australia, the UK, and the USA
So, how do other countries handle compulsory car insurance? Looking at how Australia, the UK, and the USA approach mandatory cover can provide valuable insights. Their systems have evolved to address key challenges, from ensuring fair coverage to managing costs. Let’s take a closer look at how compulsory car insurance works around the world.
Australia
In many areas, you need compulsory third-party (CTP) insurance to register your car. CTP helps cover injuries to others in a car accident. It does not cover property damage. Because of this, many people in Australia purchase extra insurance. This can include third-party property damage or comprehensive insurance. This extra protection helps keep their cars and belongings safe.
United Kingdom
Every driver must have at least third-party insurance. This type of insurance covers injuries to other people and also covers damage to their property. If you drive without insurance, you can face serious penalties. These can include fines, points on your driving record, or a driving ban. These laws help lower the number of uninsured drivers.
United States
Most states require drivers to have liability insurance. This insurance helps cover injuries and property damage in an accident. The minimum amount of insurance needed can vary by state. A few states might allow other options, like surety bonds or cash, instead of regular insurance, but this is rare. Stronger insurance laws often lead to fewer uninsured drivers. However, young drivers or those considered high-risk usually pay more for insurance. This is due to their age, lack of experience, and location.
Curious about car insurance costs? Dive into our further reading section at the end of this blog.
Why is car insurance not mandatory in New Zealand?
So, why is New Zealand different? Unlike countries such as Australia, the UK, and the USA—where car insurance is a must—Kiwis take a different route. Our system leans on the Accident Compensation Corporation (ACC), which covers personal injury costs. But does that mean we’re fully covered? Let’s take a closer look at why car insurance isn’t compulsory here and what it means for everyday drivers.
New Zealand’s ACC provides no-fault personal injury cover, funded through registration fees and levies. This means that if you’re injured in a car accident—regardless of who’s at fault—your medical costs are taken care of. Unlike other countries, we don’t require mandatory third-party insurance for injuries because ACC fills that gap.
But here’s the catch—ACC doesn’t cover property damage. If you’re hit by an uninsured driver, you’re left with the repair bill. That’s a big risk, and many Kiwis rely on voluntary insurance to avoid being out of pocket.
The lack of compulsory car insurance also reflects New Zealand’s value of personal freedom. While other countries depend on insurance to manage medical costs and liability, ACC offers a unique safety net. But does it go far enough? With no requirement to cover property damage, should we be rethinking how we protect ourselves on the road?
Want to make smarter insurance choices? Explore our further reading section for useful guides and advice.
The takeaway: is it time for a change?
So, where does this leave us? New Zealand’s approach to car insurance offers flexibility, but it also comes with financial risks for those without cover. As we weigh the pros and cons, it's worth asking—should we reconsider the way we do things?
New Zealand’s current system strikes a balance between personal freedom and individual responsibility. But is it time to rethink that balance? The lack of mandatory property insurance leaves gaps that put many drivers at financial risk. Compulsory car insurance could close those gaps, improve road safety, and make things fairer for everyone.
Still, it wouldn’t be without challenges—higher costs and enforcement headaches could be a real hurdle. So, where do you stand? Would you trade some flexibility for more fairness? Either way, it’s worth exploring your options. With Quashed, you can find coverage that suits your needs and keeps you protected.
Be the boss of your car insurance
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Further reading
Check out these helpful articles for insights and tips.
Why is Car Insurance So Expensive?: Understanding what drives premium costs.
How to Lower Your Car Insurance Costs: Tips to reduce your premiums.
Car Insurance Guide: An introductory guide explaining the basics.
Debunking Car Insurance Myths: Common misconceptions explained clearly.
FAQs
Is car insurance compulsory in New Zealand?
Currently, car insurance in New Zealand is not required.
What are the benefits of having compulsory car insurance?
Compulsory car insurance keeps everyone safe in a car accident. It helps pay for damage to other people's property. If you get comprehensive insurance, it can also cover the damage to your own vehicle. This offers extra protection. Just remember, you may need to pay an excess.
How would compulsory insurance affect car ownership costs?
Compulsory insurance can increase your costs as a car owner because you have to pay for it. However, if you are involved in an accident, insurance can help lessen the cost of damage you face. This can also make it easier for you to manage the cost of insurance better.
Can uninsured drivers currently face penalties in New Zealand?
In New Zealand, you don’t need to have car insurance. But if you drive without it and get into an accident, you could have big problems. You might have to pay for damages or get a fine. An insurer may not help cover your costs, and you could have legal issues. It is a good idea to get legal advice if you are in this situation.
Are there any proposed changes to make car insurance compulsory in New Zealand?
New Zealand does not plan to make car insurance mandatory right now.
How does ACC impact the need for compulsory car insurance in New Zealand?
New Zealand’s ACC covers injury-related costs, unlike other countries where car insurance includes personal injury claims. This reduces the need for compulsory insurance and helps keep premiums lower.
Would car insurance premiums increase if it became compulsory?
Possibly. Making insurance compulsory could push premiums up as insurers cover high-risk drivers. However, a larger pool of insured drivers might help balance costs over time.
What happens if someone without insurance hits me?
If you have comprehensive cover, your insurer will handle the damage and may try to recover costs from the at-fault driver. Without it, you may have to take legal action to recover losses.
Could third-party insurance be included in vehicle registration costs?
Adding third-party insurance to rego fees is an idea used overseas. While it could reduce uninsured drivers, it would raise rego costs and create enforcement challenges.
Why don’t we insure drivers instead of vehicles?
Insuring drivers sounds fair, but in New Zealand, policies are tied to vehicles because insurers assess risk based on the car’s value, safety, and repair costs. It also simplifies policy management.
Would compulsory insurance reduce the number of uninsured drivers?
Not necessarily. Some drivers avoid rego and WOF, so they may still ignore insurance. Compliance would need strict enforcement to make a real impact.
Is self-insurance a good alternative to buying car insurance?
Self-insuring means covering accident costs yourself. It might work for minor repairs, but major accidents could leave you financially exposed, making insurance the safer option.
Does New Zealand already have high voluntary insurance rates?
Yes, New Zealand has a high number of insured drivers compared to some countries with compulsory insurance. Many Kiwis see the value of being covered without legal requirements.
This article provides general information only and does not constitute insurance or financial advice. Insurance policies vary between providers, and you should check with your insurer or a licensed adviser for guidance specific to your situation. For full details, refer to Quashed’s terms and conditions.
