The effect of the Agreement
Motor Insurance customers need to be aware of an agreement between many vehicle insurers operating in New Zealand known as the Knock For Knock Agreement.
This Agreement has been in place and operating successfully for several decades. A new version of the Agreement takes effect from 12am, 1 June 2025 and will apply to all qualifying crashes from this point forward.
Participating insurance companies (Signatories) agree that in the event of a crash involving two or more vehicles comprehensively insured, each Signatory will bear the insured loss incurred for their own customer’s vehicle without seeking reimbursement from the Signatory of the driver who is at-fault in the crash. The Agreement does not, however, apply to any cover for the costs of an alternative vehicle or compensation for loss of use of the vehicle. The insurer of the at-fault party is required to reimburse the insurer of the innocent party for claims paid under these policy extensions to the extent that the at-fault party is liable and has cover under their policy for these losses.
The main benefit of this Agreement is the reduction in time and administration costs involved in resolving disputes around legal liability and managing the quantum of each crash for all affected parties. Without the Agreement, insurers would need more claims staff than currently required and incur more legal costs; these savings may then be passed on to all customers in the form of reduced vehicle insurance premiums. Customers can also benefit through avoiding time-consuming and potentially stressful involvement in disputes which may end up at the Disputes Tribunal or in Court proceedings.
Over time, it is assumed that a Signatory’s customers will be at fault as often as they are the innocent party in a crash and therefore, each Signatory’s losses and gains are expected to even out over time. The Agreement is seen as a practical approach to resolving what would otherwise be a large number of claims between Signatories, a proportion of which would likely end in dispute.
IAG NZ also applies the Agreement internally where more than one qualifying IAG NZ customer is involved in the same collision. This allows IAG NZ to gain the same efficiency and cost reduction benefits internally, which ultimately benefits our customers.
Customers with a premium subject to Profit Share rebate or Burning Cost adjustment are affected
The premium payable for customers with these (and similar) arrangements are directly affected by the Agreement. In some instances, customers with these arrangements will benefit from the Agreement as their insurer will avoid having to pay for losses that would ordinarily be attributed to them. For example, the insurer of an at-fault customer will not be required to pay the innocent customer’s insurer for damage to the innocent party’s vehicle, reducing what would otherwise be the total cost of that claim. However, in some instances, customers with these arrangements will be disadvantaged by the Agreement, for example, where the innocent party’s insurer is required to pay for damage to their customer’s vehicle without being able to recover from the at-fault party’s insurer, resulting in increasing the net cost of that claim.
Not all policies issued by a Signatory are subject to the Agreement
Subject to exceptions, the Agreement applies to collisions involving two or more vehicles that are each comprehensively insured by a Signatory under a motor vehicle policy which also includes cover for liability for damage to third-party property (and other like policies as defined by the Agreement) provided that, for collisions prior to 12am on 1 June 2025, the excess payable must not be more than $10,000 in respect of damage to the vehicle for the Agreement to apply. For crashes occurring on or after 12am on 1 June 2025, there is no excess limit.
The Agreement doesn’t apply to vehicles insured for Third Party Only or Third Party Fire and Theft. The insurer of a vehicle with these covers will be required to settle all claims for third-party damage when their customer is legally at-fault, subject to the policy limits and conditions.
What about uninsured losses and Loss of Use/Loss of Earnings cover?
The Agreement doesn’t affect claims against at-fault parties for uninsured losses or other proven losses not covered by their policy. The Agreement also doesn’t apply to any cover under a policy for the costs of an alternative vehicle or compensation for loss of use of the vehicle; these can be recovered against the at-fault party to the extent the law allows.
Excesses
For collisions before 12am on 1 June 2025, an excess of up to $2,000 (representing the lesser of the customer’s excess or the amount of the damage to their vehicle) is refunded/waived by the customer’s own insurer where they are the innocent party in the crash. Where the excess and damage to the vehicle exceed $2,000, the innocent party may seek to recover from the at-fault party the amount of their uninsured damage that exceeds $2,000 up to the amount of the excess (the maximum excess must not be more than $10,000 for the Agreement to apply).
For collisions on or after 12am on 1 June 2025, the Signatory of the innocent party will reimburse/waive the excess (or up to the amount of the damage if less than the excess) paid or payable by their customer in respect of the damage to their vehicle. The Signatory of the innocent party will not seek recovery of the excess from the Signatory of the at-fault party.
Can a Signatory opt out of the Agreement for a particular policy/customer?
No. The insurer can only make a decision as to whether or not to be a Signatory to the Agreement. All policies of a Signatory that fall within the parameters of the Agreement are subject to the Agreement without exception.
Also, see the comment above about IAG NZ applying the Agreement internally where we have more than one customer involved in the same crash.
What happens in a collision where one vehicle is insured with a Signatory and the other isn’t?
For the Agreement to apply, both vehicles must be comprehensively insured by a Signatory. If one of the vehicles is not comprehensively insured by a Signatory, then the innocent party (or its insurer) may seek to recover its losses from the at-fault party (or its insurer).
Is it fair that I miss out on my recovery when I’m innocent?
The overall benefit of the Agreement means that at any point in time, an innocent customer may feel they have missed out on recovery and this may be detrimental to their premium. However, the reduction in the costs of claims staff and avoiding disputes, in addition to the insurer of an at-fault customer not having to also cover the innocent party’s damage (where the Agreement applies), may ultimately reduce the customer’s premium.
