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What’s going on with the Road Accident Fund?

‘I’m … struggling to reconcile what I see in the press every day versus the reality that we’re seeing in our business’: Elad Smadja – CEO, Taurus Capital.

NOMPU SIZIBA: The Road Accident Fund, or RAF, is often in the news for the wrong reasons. It’s often said to be insolvent and basically not able to perform its mandated function of financially assisting South Africans who’ve been adversely impacted in accidents on South Africa’s roads. And then there are stories of lawyers swindling the fund for all that they can get. So what is the reality?

Well, a study has been done by one Elad Smadja, who is an actuary. He has been looking at the real state of the RAF, and we’re going to speak to him now. He is the CEO of Taurus Capital. Thank you very much Elad, for joining us. Why was the Road Accident Fund specifically created by law and how is its operating model supposed to work?

ELAD SMADJA: Thank you very much. The RAF is a unique creature. It’s often portrayed as another SOE, a state-owned enterprise, to go with Transnet, Eskom, SAA and so on – which have all become hot topics.

The Road Accident Fund is very different in its nature. It’s not an entity that was created to make profits, to create jobs for the shareholders, being the sovereign and the state. It was created to fulfil a constitutional mandate, which is to make sure that claimants of road accidents are covered and have protection in the event that they are damaged, and they don’t have to go out and sue the person who caused those damages. It’s in a sense very similar to a grant programme in that regard. Its mandate is to pay claims. When it’s portrayed in the news that this is an entity that’s got massive expenses – well, that’s what its purpose is. Its purpose is to pay these claims. And that it does.

NOMPU SIZIBA: There’s been a lot of talk that the Road Accident Fund is not fit for purpose. What do you think would happen if the fund were to be removed altogether?

ELAD SMADJA: There was a recent court judgment, and it’s made quite clear in those papers what the state of affairs would be. Basically, if I were to drive into the back of a car, whether accidentally or on purpose, and cause damage to that individual, I would be personally liable. They could sue me for damages, for loss of future income – and you can imagine those numbers can be staggering. A typical claim can run into millions of rands. And so I’d be pretty nervous to get into my car every morning if that was the reality on the ground. And so the RAF acts as this insurer across our society, making sure that we’re not out there suing each other every day; we’ve got a recourse against the fund. So that’s the world without the RAF. It’s quite a scary reality.

NOMPU SIZIBA: There’s often talk about the RAF essentially being broke or insolvent. Does your research back up these perceptions?

ELAD SMADJA: Insolvency is an interesting measure. Insolvency looks at assets versus liabilities, and obviously if the liabilities are greater than the assets, that’s technical insolvency.

The RAF runs a very different operating model. The way that the RAF is funded is, as we know, through the fuel levies, and it’s never set up to hold assets to back those liabilities, which are its future claims. And so that measure of assets-versus-liabilities is a little bit misleading because it was never set up to hold the assets.

Its funding model is more a pay-as-you-go type scheme, where every month there are revenues coming from those fuel levies, which then go out to pay claims.

Without going into all the maths now, according to my study there are sufficient revenues coming in every month from the fuel levy, especially if the fund can do the work which it’s trying to do, which is to bring in efficiencies and lower its overheads and operating cost model.

And yes, as long as those fuel levies remain and there are no major shocks to the system – like Covid, where we didn’t see traffic on our roads for three months – the model actually does work.

NOMPU SIZIBA: Maybe it works, but there is the real problem, as I mentioned in my introduction, as apparently some lawyers make it their business to screw the fund and not conduct themselves properly. Is there the capacity in the RAF to ensure that people don’t pull the wool over its eyes?

ELAD SMADJA: There are two bunches of lawyers which you’re referring to. One is the defendant lawyers. The fund has made a decision to no longer use outsourced lawyers. You’ll remember last year there was quite a debacle around that. But that’s basically [in place]. It has freed up R10 billion a year in savings.

The fund has moved now to an operating model which hopefully is a lot more sustainable, which is: let’s not litigate every single matter until conclusion, let’s opt for a mediation and the settlement approach, because these matters on the whole are generally quite predictable. I think the merits and the quantums – there’ve been enough of these cases over the last 10, 20, 30 years that where they end up is pretty predictable upfront. And then we will use the court system and the judicial system where a case is obviously more complicated and requires more in-depth analysis and law. That’s one side of it, and it seems to be working quite well.

There are then the plaintiff lawyers. It’s quite difficult for them to screw the funders, as you say. They take a 25% contingency fee, and we can debate whether that’s too high or too low. But that is mandated by law, and that is what it is.

And then there are, obviously, the rotten eggs which will then dip into their trust accounts and roll the clients over.  That is very unfortunate, obviously, but for that there is a Fidelity Fund in the Legal Practice Council, which is there to protect claimants and ultimately provide them insurance guarantee against trust monies which are misappropriated.

NOMPU SIZIBA: So in essence, Elad, what you’re saying is that you think that the operating model has improved and you think, in principle, it’s a good thing. It was established to help South Africans who get into difficulties on the roads and so on. But what challenges do you think lie ahead for the fund?

ELAD SMADJA: I think that’s right. I’m not saying it’s a perfect model in any way, but I’m just struggling to reconcile what I see in the press every day versus the reality that we’re seeing in our business. At Taurus Capital, our business, we fund attorneys and we provide funding also for RAF claimants. We’ve over 120/130 attorneys whom we work with, and 400-odd claimants at any point in time. So we’ve got quite a breadth in terms of what the market looks like. We obviously see how these claims are or are not being paid. So the reality is that, since about September, October last year [things have] vastly improved. I think claimants and attorneys on the ground will testify to that.

Yes, there are challenges. There are challenges in our society. There are challenges around the underlying peril, which is road accidents. The carnage on our roads in South Africa is way out of proportion with other countries in the world. So there’s work to be done at a societal level, at a funding level, at an administrative level, and things to be written off. I don’t get to that conclusion.

NOMPU SIZIBA: Elad, we are going to leave it there. Thank you so much for your insights. Elad Smadja is the CEO at Taurus Capital.

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The RAF means one thing: …long brake skid marks!!

BIG WASTE OF TAX PAYER MONEY.

MAKE 3RC PARYY INSURANCE COMPULSORY AND REDUCE THE TAX ON FUEL.

and then?
You / your family member is hit by a car that does not have compulsory 1/3p cover (as happened before the current system.
Driver gets a fine.
Injured party gets NOTHING if driver does not have other insurances of assets worth attaching.
Stupid Idea

Taking legal services in-house is better idea BUT so much bribing and corruption means the troughs are open and looting takes place as before.
The only real answer is – STOP CORRUPTION – PROSECUTE THOSE WHO EVEN TAKE 10c NOT BELONGING TO THEM – and get back to business as it used to be few decades ago.

Fully agree !! It works in all civilised countries !! — Oh I almost forgot – we are not in one !!

“ At Taurus Capital, our business, we fund attorneys and we provide funding also for RAF claimants. We’ve over 120/130 attorneys whom we work with, and 400-odd claimants at any point in time.”

So basically Taurus enables litigation by ambulance chasers, which litigation drains the RAF. Taurus has no incentive for the system to improve.

Most commentators only get as far as the supply side of the RAF’s woes without mentioning the demand side: traffic crashes.

On a daily basis, our trainers encounter drivers who have a valid driving licence card but cannot steer or change gears. They could never have passed the government driving test. The extreme crash risk of these people who bought their driving licences washes up as excess claims at the RAF.

Traffic fatality rates have increased four-fold since 1998, primarily due to licence fraud, and the ongoing increases in the RAF levy are a direct oucome. It is near-impossible to size and fund the RAF or the public healthcare system for the industrial-scale incompetence of South Africa’s driver pool. The staffing requirements (and costs) alone are extreme, let alone the payouts, with dire increases in time-to-settlement as the RAF staff buckle under a claims load which is far beyond reasonable.

The answer is to fix road safety, because the RAF levy and headcount cannot be increased in perpetuity to paper over the cracks.

Along with this, South Africa should require all drivers to carry their own insurance as is done in other countries. If the RAF levy was abolished and instead paid as a monthly premium to an insurer, it’s unlikely the average person would notice an increase in costs, and insurers could then target repeat crashers for premium increases instead of all of us paying the costs of their incompetence or licence fraud.

The projected R450 BILLION deficit is the difference between current assets and liabilities that have been incurred.
You may think future fuel levies will fund future claimants – the reality is we need to dig ourselves out the hole created previously.
And there are many research papers as to how PAYG is a Ponzi scheme).
In 2003 the no fault system was proposed and we have got no where 19 years later (other than incur this huge loss). Another example of government indecision costing the country its international standing.

Nothing wrong at RAF if you are a beneficiary of the system ne !!!

A bit like interviewing wolf about guarding the sheep.

Why the insurance is not compulsory that still baffles me. Every motorist should know that by just getting into their car, there is a possibility of being involved in an accident and hence the need to have insurance.

And if they do not have insurance???

Victim suffers – can not get compensated.

RAF system ensures victims get something out – after lawyers and others got their share.

I heard that some connected businessmen offer services to lawyers to get RAF assessors pay attention to the claim as a priority.

CORRUPTION is the major cause for this fiasco, and authorities allowing it

Most of the friction in the RAF system would be removed if there were one standardized table of benefits. R100 for an arm, R200 for a leg, etc. Our insurance industry have such tables.

People that want more cover than that provided by the tables can take out private insurance.

Drivers at fault causing a claim event would still be indemnified by the RAF system.

Within a few years the RAF levy would be slashed.

It is mathematically and philosophically insane to have a system whereby everybody pays same fund contribution per liter but Johnny’s arm is worth R100 and Mary’s arm only gets her R50. Any actuary would laugh if you explained an insurance fund where members contribute the same but receive different benefits for the same claim event.

How does an impecunious jobseeker living on the breadline afford extra insurance when he goes looking for a job?
Silly idea.

Illpill:

Aaah, but exactly therein lies the stupidity and inequity!!!!

An impecunious jobseeker’s disability in the current system wins him R50. The eldest boy from a Sandton family with the right ambulance chaser team secures R5000 disability whether or not he was the driver of the BMW in the accident that injured him…

I did not say the standard table of benefits should award R5. It should award benefits at a minimum scale.

Johan Buys:

It is true in South Africa, as well as in many other countries, that you get what you pay for. If the damages suffered by a party exceeds the value of the insurance the insured party must cough up the difference. The suggestion that damages suffered in a car accident should be calculated from a standardized table is in many ways unfair and tramples on one of the most important aspects we humans have, our individuality.

It is all well and good to say you get R 1 000 000 for an arm and R 500 000 for an eye, but I’m afraid such a system is not equal or equitable. If you were a high earner by South African standards which is R 50 000 a month(shocking I know) your damages would exceed this arbitrary cap by several millions should an accident happen to you while you are still young. “This is not a problem.” I can already hear you say. “That person can take out private insurance.” The problem with that suggestion is that A that person already has other expenses and B the private insurance will be substantially higher per person should it be calculated on such a basis. This is because insurance companies would like to make a profit, and it is not a sound business decision to insure drivers for losses of income on the most dangerous roads in the world now is it?

Apart from creating a system whereby the middle and upper-middle class would struggle to afford insurance it would create another problem on the lower end. You will start overpaying the claims of claimants on the lower end. It does sound heartless to say that someone’s arm might not be worth one million rand(or whatever the calculated amount will end up being) but it is an uncomfortable truth the court comes to terms with every day.

The RAF is an insurer and it is supposed to compensate people fully for damages suffered as stated in it’s mission statement and supported by the constitution. The value of claims have already been capped at R 300 000 per year now you want to tell someone who should receive a said amount say R 4 000 000 that he can now only get half that for his lost eye and arm and that he must keep on paying at least(according to the last study and model I read by the private insurance companies) R 10 000 per month. that figure might seem high but think about your passengers. Children can’t pay the insurance, and yet they are the most vulnerable to your proposed system. Their damages often far exceeds what the standard tables could possibly cover. There is also the question of whether a child was either gifted or brilliant at school but came from a low income household. Their parents can’t afford the insurance and yet you would have their claims under settled and be left with no recourse.

Lastly let us imagine a theoretical scenario wherein you are the cause of an accident. The person you hit does not have insurance and he/she had both his or her children in the car. Will your insurance cover their damages as well? I myself who have experienced how finicky and cheap insurance companies are can assure you that they will never cover such damages to begin with. If they are willing that is a R 20 000 chunk coming out of your income every month, money which you are currently allowed to keep. I doubt you are spending that much on your fuel levies. In this scenario you are now a prime example of someone who is about to lose a multimillion rand chunk of YOUR hard earned savings.

With regards to your reply to Illpill that the Sandton claimants get more than poor claimants, I have only two points to make. Firstly given the higher income and better prospects for their children in life of course they will receive more. Secondly the fantasised notion that a good ambulance chaser gets money for rich people that weren’t even in an accident couldn’t be further from the truth. An unethical plaintiff attorney never tries anything on a wealthy person’s claim they receive too much scrutiny from the fund. They start pushing their luck on the poor peoples claims. Because these claims aren’t looked at as carefully and the attorneys overcharge on these claims because it is easier to steal from poor people than it is to steal from the wealthy.

In summary:
The tables cannot limit damages, as per our constitution. The new insurance rate will take more from your pocket than what the fuel levy is taking, and you have to take the uninsured state of the other party into account too. Ambulance chasers(the sly ones anyway) know better than to do shady things with wealthy people’s claims, they go after the poor and unintelligent.

End of comments.

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