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Listeners’ questions on the Road Accident Fund: Dr Eugene Watson – CEO, RAF

The RAF has been technically insolvent since 1981.

HANNA BARRY: We are talking to Road Accident Fund chief executive officer Dr Eugene Watson this evening. Eugene, welcome to the show.

DR EUGENE WATSON: Thanks Hanna, thanks for having me on air.

HANNA BARRY: It’s good to have you here. Now, the Road Accident Fund, just to give our listeners a bit of context – for those who don’t know – provides compulsory social insurance cover to all the users of South Africa’s roads. It’s known for making some very significant payouts to victims of road accidents, also being fleeced by some lawyers I think who fight for these payouts on their clients’’ behalf. We call those ambulance chasers.
    The RAF’s primary source of funding is the tax levied on petrol in South Africa, and in his recent budget speech Finance Minister Nhlanhla Nene announced an increase of 50c/litre in the Road Accident Fund levy. This brings the total RAF levy to R1.54/litre of petrol for the 2015/16 financial year. So that’s what we are chatting to Eugene about.
     Eugene, before we look at some of the figures – and I did mention how much of the price of petrol is going towards the RAF – tell us what is the average RAF payout more or less, and what is that meant to cover?

EUGENE WATSON: I think there are different categories of claims we pay out. We pay out for funeral claims an average of R11 000 per funeral. Half of all the deaths on our roads – the funerals for those deaths – are funded by the RAF.
    Then you have general damages. This is an average of R300 000 per payout.
    You have loss of support, where the breadwinner has lost their life or can’t support family – you are looking at a little more than R450 000.
    And then you have the most expensive category, which is loss of earnings, where the breadwinner themselves is no longer able to work. And at the moment that average is R750 000 in the payout.
     When you see that in the context of our country, it certainly necessitates a discussion on why we need to change the RAF. The average taxpayer’s income is R220 000, the national average income is R43 000, the average grant income per year is R16 000 – and yet you have our loss of earnings capped at R750[ 000]. That’s a significant disparity in terms of those numbers. But, if you put all those amounts together, you put R150 000 or so claims, and we spend R22bn a year in compensating crash victims who qualify under our Act.

HANNA BARRY: That’s incredible. There’s a few things that you mention there – certainly the changes that are on the horizon. We will get to those. You mention paying out around R22bn – or rather, I think that’s what you received, roughly, last year in claims if I’m not mistaken. But you paid out about R15bn – is that right?

EUGENE WATSON: No, it’s actually slightly the other way around. Our fuel levy income last year was R20bn. That’s the R1.04 you are talking about. We’ve improved our productivity. Two years ago the RAF hit an all-time low and we were asked to improve our performance. Different things were implemented and the increase in claims expenditure is proof that this transformation is taking place. So there was a shortfall of about R2bn, which we funded from cash the fund had accumulated in prior years when we just weren’t productive.

HANNA BARRY: We are gong to get to that shortfall in a sec. We have a caller on the line – Richard from Cape Town, good evening. What’s your question or comment for Eugene?

RICHARD: Yes, good evening. I’d like to ask if the Road Accident Fund won’t insist on the lower speed limits which a couple of our cabinet ministers have told us could cut the death on our roads by as much as 40%. And I also want to ask him if the policing on the roads could not be brought in line with other countries. I believe we have 17 000 or 18 000 traffic cops in South Africa, and I’ve been toad by the Road Traffic Management Corporation we need well over 100 000. Now this would reduce the pressure on the Road Accident Fund very dramatically. I want to ask if we can’t do something about speed and about policing.

HANNA BARRY: Thanks, Richard. Two things there. Can we lower the speed limits to actually reduce the number of accidents on our roads? Certainly speeding is the cause of many crashes. And then the policing – we have 17 000 to 18 000 traffic cops on the road. We should have in the region of 100 000. What is the Road Accident Fund doing on speed and on policing?

EUGENE WATSON: We are part of the transport family. There are other entities like the Road Traffic Management Corporation, which deals with the enforcing. Richard is right – speed, visible enforcement, sober driving, non-drug driving, non distracted driving, as well as some of the other initiatives are core to ensuring that we reduce road fatalities. Richard gets it that if you make the roads safer fewer people die, fewer people are hurt. There’s less money for us to pay. It’s the equivalent of a short-term insurer suggesting you have burglar bars at your house. So road safety is a business imperative for us.

HANNA BARRY: Eugene, just quickly on that – do you know what road accidents – and I know this figure is notoriously open to debate – what do road accidents cost the South African economy annually – rough ballpark?

EUGENE WATSON: The figure that’s been worked out by actuaries using the United Nations formula is about R306bn in total – direct, indirect cost to person, property, infrastructure and the economy for people who are off…

HANNA BARRY: Isn’t that like 10% of our GDP?

EUGENE WATSON: It is. The World Bank actually suggests on average for a country like South Africa of about 3% to 4% of GDP. No matter how you slice it or dice it, it has a huge impact on our country – not just for today. You are also pulling young people out of the future economy, and that has a long-lasting impact on our country.

HANNA BARRY: The staggering cost of road accidents on the South African economy is actually in my opinion a crisis. A national emergency should be declared. When I drive on the road every day I see why it’s a national emergency. The RAF is reported to have a R98bn shortfall. And I’ve heard you say this before – it’s technically insolvent. Now, tell us about how the levy on fuel which has now been increased is going to help stop that gap.

EUGENE WATSON: I think there are two gaps we are actually talking about. The first is the insolvency – that’s our balance sheet. Since 1981 the RAF has been insolvent. The reason for that is because on our balance sheet you provide for claims incurred, but not yet reported or paid. So you are basically saying at a point in time like today how much money will I still pay in the future for claims which came in the past. If you had to close shop, what would still have to be honoured?
    But you don’t do the same for the assets, for the cash that you will get in future to pay those claims. So that’s the liability. The reason the fund continues to operate, we pay our bills, we hire staff and work, is because the fuel levy has been adequate to allow for our monthly cash flows. What’s happened in the last three years because productivity improved, we’ve  basically doubled claim payments in 24 months. But the fuel levy didn’t double.
    So you reach a point where you’re paying more than you have cash on hand. You can’t tell a claimant, look, I’m not going to settle your claim. You settle it but unfortunately you’ve got to wait until the fuel levy comes in. And that’s the immediate pressure, and that’s where the 50c which is about R10bn a year will help us greatly.

HANNA BARRY: Ian from the Eastern Cape is on the line. Ian, good evening.

IAN: I wanted to ask whether the levy applies to all fuel sales in South Africa.

HANNA BARRY: Meaning petrol and diesel?

IAN: Well, let me give you an example. I spend a substantial portion on fuel to cut my lawn or to do agricultural activities, which are not specifically road-related. I as just wondering whether that levy applies to that fuel spend.

HANNA BARRY: That’s a great question. Thanks, Ian. Eugene?

EUGENE WATSON: There is a diesel rebate for non-road use of diesel, and the largest recipients of that rebate would be a company like Eskom. Mines, farms, like Ian is mentioning, would be eligible for the rebate. I’m not sure of the modalities for individual users, but about 8% of our monthly fuel levy actually goes back as a rebate.

HANNA BARRY: Interesting. Ambulance chasers, attorneys who often offers services free to consumers – on a sort of no win, no pay basis? It’s called contingency fee agreements. Are these lawyers still a, problem? Do they chase the Road Accident Fund?

EUGENE WATSON: Well, I’m glad you are giving them names. For the record I call nobody anything. About 21% of our expenditure goes to legal fees, which is R4.6bn/R4.7bn a year. It still continues. What we’ve done as the RAF is go out to communities to say the law allows you to come directly to us. People are showing their confidence in the RAF. It’s not always perfect, but it’s beginning to improve significantly and we are almost at one in three new claims come in directly to us, which means people aren’t bound to pay this 21% of their payout to their lawyers.
    We have also had cases where people have charged in excess of the maximum contingency fee as per the law, and that is being dealt with by the courts and by the Law Society.

HANNA BARRY: And we’ve covered that quite extensively. Now they are going after doctors’ malpractice claims, it seems.
    Eugene from Port Elizabeth is on the line. What’s your question for Eugene?

EUGENE: Yes, good evening. I’d like to find out why there seems to be a total reluctance on the part of government to implement a progamme that curbs road traffic accidents. I’ve submitted proposals – I’m a physiotherapist – and the Road Accident Fund has been a pillar of our income over the years, sadly. I’ve submitted numerous proposals to various governments of South Africa. Nothing comes to fruition. Nothing is being implemented.

HANNA BARRY: I think Eugene touches on a very important point. Thanks, Eugene. Eugene here in the studio, being part of the transport community, as you aid, why is more not being done at government level?

EUGENE WATSON: Look, I think a lot is being done by the government. But the world changes. So you are not always going to see the impact of your interventions. You guys would know as Moneyweb there are about a million new cars sold each year. You’ve got a whole lot of people who qualify as eligible drivers. We have the largest network of roads on our continent – I think we are in the top five worldwide. So you have more and more transport. You then also have 15m people travelling daily in a taxi and your risk of a crash is high. Then you also have smartphones, you have tablets, phablets, and you have people doing things in the car they shouldn’t be doing. So you have a new…

HANNA BARRY: Distracted drivers. But I think – and that comes back to one of our first callers – that enforcement is the issue because, as you have more drivers on the road, you need more people to enforce the driving behaviour.

EUGENE WATSON: I think enforcement works, definitely. Visible enforcement gets us all to slow down and behave ourselves. But you are never going to be able to enforce 11m vehicles. It’s impossible, no matter how you increase the size of the enforcement force. But you do need drivers to take responsibility and that’s some of what is really lacking. In terms of Eugene’s question, we have a team of people in the Department of Transport who are interested in helping. He really should just try one more time and we’ll see how we can facilitate his suggestions getting to the Minister.

HANNA BARRY: There you go. From Eugene himself. Perhaps send it to the dti or send it to Moneyweb, and maybe we can do something with that. My e-mail address is Perhaps we can expedite that.
    Just, Eugene, on fraudulent claims. We heard in the news this week that some police officers, two doctors, were arrested in KZN because of a syndicate that defrauded the RAF of more than R12m. Are fraudulent claims a big problem for the RAF?

EUGENE WATSON: Without a doubt it is a problem. Like any insurer you are collecting money, you pool the money, then you pay it out for claims that happened in the past. You are not a witness to when that accident happened. So you do have people creating false claims, false values of claims, false claimants. We have a team of 90 people who are devoted to rooting out fraud. Last year we arrested almost 480 people and we will continue to do more. The case this week is just a testimony to the steps we are taking.

HANNA BARRY: Dr Eugene Watson, thank you.


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