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Listen: Road Accident Fund insolvent for 35 years

Why RAF CEO Eugene Watson believes the potential Road Accident Benefit Scheme would be a ‘ fantastic transformation’ for the fund.

 

RYK VAN NIEKERK: The Road Accident Fund (RAF) is one of the most important government agencies, as it provides a lifeline to those injured in vehicle accidents. Unfortunately the RAF faces a myriad of headwinds affecting its mandate to efficiently pay out compensation to accident victims.

With me in studio is Dr Eugene Watson, he’s a medical doctor and the CEO of the RAF. Eugene, welcome to the show. We know the RAF is battling financially; how would you describe the financial health currently?

EUGENE WATSON: Thanks for having me. I wouldn’t call it healthy; the truth is we are an entity that has been insolvent since 1981. We have liabilities in excess of R150 billion, which is 15% of total tax revenue in the last financial year. We receive a huge amount of money in the form of fuel levies and we are still short of money on a daily basis. So basically we are a big institution, we receive a lot of money to do our work, we’ve received even more money in the last financial year because we are working but it just isn’t enough.

RYK VAN NIEKERK: Just to put the R150 billion into perspective, those are claims you have not yet paid out?

EUGENE WATSON: There are three types of claims. So R10 billion of that amount would be claims that are finished: we’ve done all the work, we just wait for the monthly fuel levy to come in to be able to honour them. Then you have R135 billion worth liability, which is forecasted: it’s made up largely, about R100 billion, of claims we have on our book; they are in the process of being finalised, so we may have just received them, they may be in court on trial. And the third category is an 1:41, an actuarial provision: we don’t have a claim yet but we know that there was an accident that happened in the last financial year and inevitably in three years that claim will arise and have to be worked on.

RYK VAN NIEKERK: How many claims do you receive?

EUGENE WATSON: In the last financial year we’ve done very well. Part of our mandate as a public entity is to promote access, so we’ve received 188 000 new claims, which is higher than the year before and, in fact, higher than the year before that as well, which is proof in part of the effectiveness of our access points, but also [of] the fact that people need the services of the RAF.

RYK VAN NIEKERK: 188 000 claims.

EUGENE WATSON: Yes, it’s about 700 a day.

RYK VAN NIEKERK: How many of those actually go through the system and there is compensation paid?

EUGENE WATSON: Well, if we use the same time period, last year we had 188 000 in, our team worked very hard. 188 000 were finalised and about 230 000 payments were made on those we had in the system. So we are managing to keep current, despite the fact that there are more claims.

RYK VAN NIEKERK: But the R150 billion – how would you ever catch up?

EUGENE WATSON: It tells you an important point that the RAF, if you consider it to be a menu, our law provides a menu of services and benefits but the price tag is in excess of what we have. So you are basically buying food you are unable to pay for and if you want to solve it you either need to increase considerably the value of income we have, alternatively you need to rationalise the benefit.

Are motorists going to pay another R1 or R1.54 per litre on top of the existing fuel levies to fund what we have, or alternatively we need to look at what is a better dispensation, because we know this one has been insolvent for 35 years.

 

RYK VAN NIEKERK: How much of the fuel price per litre goes to the RAF?

EUGENE WATSON: In total at the moment it’s R1.54. So for every litre of petrol you buy, the first R1.54 comes to the RAF.

RYK VAN NIEKERK: How long does the average payout take?

EUGENE WATSON: It depends on the type of claim. If we had this conversation five years ago I would have said to you it takes 2 500 days for a claim to be finaliSed. At the moment we have met our targets for the financial year; we’re down to an average of about 1 000 days, which is very good, considering many of these cases go to trial – it takes two years to get to the court. If it’s a smaller type of claim, like a funeral claim, we turn it around in 30 to 60 days. Medical bills we turn around in 30 to 60 days. If it’s loss of earnings it typically can be much longer. It is also disputed, so that can be about a year. And then, of course, you have the general damages or pain and suffering, which can actually be run all the way up to court in many instances and that takes a long time to prove, mainly because you need to show the impact of the crash on the person and you need maximum medical improvement, which takes about 18 months.

RYK VAN NIEKERK: Let’s talk about the RAF cases in court. In the High Court in Pretoria around 90% of all the cases they hear are RAF cases and it seems to clog that system.

EUGENE WATSON: It sounds true. Our current law enables that environment. If we think of personal claims, this is claims for compensation, we finalised about 71 000 last year: 57 000 of those were represented by attorneys and 15 000 went to court. So we are the single largest defendant in the country. It varies from court to court what proportion, but it is a huge amount of work for something that the ordinary person may not think needs actually to be there or needs to be litigated to begin with.

This is some of the exciting work under the Road Accident Benefit Scheme, where you will see an end to that and if you think practically about the courts, if you pull out 15 000 trials then immediately our court system becomes more efficient too, which benefits the country.

RYK VAN NIEKERK: But when does a case go to court?

EUGENE WATSON: It depends on whether the parties, so the plaintiff and the defendant, agree on the compensation which is due to a claimant. In many instances that gets disputed: it can be income, the loss of earnings, it can be a loss of support, the general damages, the pain and suffering, and sometimes you may even have disputes over prospective or future medical care. In most instances you’d settle when a claimant is represented by an attorney, you would settle the matter before court in two-thirds of instances, but in one-third you see it go all the way to trial.

What I’m pleased to say, although going to court is an expensive exercise, we’ve seen in the last financial year that the difference between what the plaintiff wanted and what the court ruled on is give or take R3 billion, which is significant on any scale.

RYK VAN NIEKERK: But this is where a lot of people criticise the RAF: it’s a very big legal business, personal injury lawyers, it’s a big segment of the whole chain from the RAF payments and that the system is being exploited and it’s not a very efficient system. There are lawyers like Ronald Bobroff & Partners, who’ve now fled the country, because they did exploit their own clients and, per definition, the RAF. What are your views on the efficiency of the current system?

EUGENE WATSON: The current law is inefficient; it’s an old law. It’s based on proving negligence, determining the extent of that negligence in the crash involved, then determining what somebody has lost – allowing for in those two steps contestation. The most efficient system would be a defined-benefit package, where you know that if you have this type of injury then this is what you qualify for, no matter who you are and no matter what the circumstances are. Like your medical scheme, you can have two completely different people who visit the same doctor, the scheme pays a standard rate for a defined benefit.

But without a doubt it is inefficient. We spent over R5.6 billion on legal fees last year. Although we saved money in some of the trials, as I mentioned, the reality is that the intermediary costs are significant. There is no other business where you run, I think the figure is, about 13% of expenditure just on intermediary fees, which is what we have in our experience.

What we are doing though, besides improving our litigation, we’ve encouraged more and more people to come directly – because you can come directly to the RAF. A lot depends on whether people believe us and buy into our story, our offering, and what we are pleased to say is that in five years it’s gone from about 10%, 12% to 35%. So one in three new claims are people who trust us and who come directly. There is no ways you’d be able to dupe people into believing your service offering and continue to improve that percentage if you weren’t actually honouring your promise.

RYK VAN NIEKERK: But there are many personal injury lawyers, who actively market their services and boast about the amounts they have negotiated with the RAF.

EUGENE WATSON: Well, I think if I was a personal injury attorney I would do the same: you want to grow your business; you want to get clients; you want to offer your value proposition. The ethics of how you market those services, the ethics of whether you think that’s right or wrong I think is a subject of debate. But they are there and that is what they do. With contingency fees, as an example, you do see more and more that there are some attorneys who use that as an incentive, so the way they run their business is ‘let’s get as many claims as possible; let’s get the high-value claims; if we secure high value, of course, we get a large percentage of that’. That Act exists, contingency fees are legal, the agreements need to comply with that law. But we can, of course, always have a debate on whether you think that’s the best thing, because if I motivate for somebody’s claim to be a very large amount on the basis of how badly they are injured, is it right then when the medical care is paid out that you are getting a commission on that, if you see it in that aspect? Of course personal injury lawyers would argue that there is value in their services.

RYK VAN NIEKERK: Have you actively taken steps against lawyers, which you perceive are exploiting the system or even breaking the law, such as Ronald Bobroff?

EUGENE WATSON: We do a lot in terms of protecting the best interests of the RAF and beneficiaries or claimants, so we have a big forensic team. Last year we stopped about R423 million before being paid in terms of fraudulent claims.

When people report these cases we look into them. We do need to respect the attorney-client relationship and the rules around that, so there’s a limit to how involved we can get. If we think there is something irregular, we have a relationship – we have actually signed an MOU – with the Law Society and we report these cases for them then to look at self-regulation, investigation and further action.

 

Straight fraud: we have had arrests of professionals, legal professionals, medical professionals, public servants and claimants.

RYK VAN NIEKERK: How big is the problem? Sometimes the media do make a lot of noise about individuals. Is it a thing that keeps you awake at night?

EUGENE WATSON: Are you talking about contingency fees?

RYK VAN NIEKERK: I’m talking about lawyers exploiting the system for their own benefit and not for victims.

EUGENE WATSON: We go to work, as the RAF, always looking for the best interest of claims because we understand that it’s not just a claim; it’s not just money. At the end of it there is a person whose life today and into the future is going to be affected by the decisions we make. You can’t overcompensate for one or under-compensate another claimant – you need to be fair. So it’ something we continuously look at and work on.

RYK VAN NIEKERK: There is a process on the go to restructure the way the RAF works and [try] to address some of the issues you have raised. The biggest ones are you want to institute a Road Accident Benefit Scheme which doesn’t pay lump sums, as is currently the case, but rather a monthly payment to claimants. Why this change?

EUGENE WATSON: It’s been decided a long time ago. Actually in the early 2000s Cabinet approved a policy; strategy was developed; it was published for comment. It’s not popular if you are part of the intermediary community that thrives off today’s dispensation. But if you just look at the extent of crashes, if you consider how long term the impact is on a person and their family, and you consider the probability of a household becoming poor when there’s a crash, you can’t exclude people, even though they are all equal contributors by way of a fuel levy, on the basis of negligence or loss because it’s very hard to prove loss for a poor person.

So what the policy looks at is how do you see somebody, recognise they have been in a crash, that they need assistance? How do you provide a minimum amount to ensure that at least at an income-, a medical-, as well as at a funeral cost level that everybody gets to participate in the system. So that would be the one. The second…

RYK VAN NIEKERK: Just to interrupt you there, so what you are saying is that a professional individual will be able to claim for loss of income and that amount can be substantial, but if you are unemployed and you don’t have a loss of income, you get nothing?

EUGENE WATSON: Well, what have you lost? If you have no income you haven’t lost anything, so you can’t prove a loss of earnings. You may be entitled to medical care; you may be entitled to funeral benefits if the person involved lost their life; but you can’t get compensated under the current system for what you lost. If you make the mind shift to social security and benefits you then work from the basis of we have a pie, how do we slice this pie into enough slices to make sure that no one falls below or through the crack? And that’s what you see too frequently in the RAF dispensation. If you take a high earner, as an example, even today, there are limits to what the RAF would pay them. They would not be compensated entirely for their loss on the basis of affordability. Your opening question was what is our deficit in R145 billion? It tells you that one truth is that whatever dispensation it is, it is going to have to be more affordable and accessible to everybody.

RYK VAN NIEKERK: I’ve read several newspaper articles where RAF spokespeople were quoted that these massive payments on tens of millions of rands would disappear – is that the case? Would professionals actually get less within this new system?

EUGENE WATSON: Well, at the moment we should look at practice. So the average RAF claim is R143 000. The average income claim is R750 000, give or take, which is way above the national average income. So we already see the benefits are skewed towards higher earners, but there is a limit.

So if we look at income support, it taps out at a little over R200 000 a year, so even your high earner is not going to get that high salary that they currently get. So your poorest of the poor who has been paralysed, who has been rendered a quadriplegic in a car crash, we wouldn’t just look at them and say, sorry, because of your circumstances there is nothing we can do for you, but we thank you for contributing to the fuel levy.

RYK VAN NIEKERK: Another change is the no fault policy. Why this change?

EUGENE WATSON: Fault tracks back to negligence: so you did me wrong, therefore I sue you to make amends, so to speak, for what you have done to me. But you need to prove that. So there is a huge amount of work that goes into what took place at the accident: did everybody do the right thing? Who did the wrong thing in that crash? More importantly, were you the victim doing the right or wrong thing at the time? Then you offset these two values.

It become very difficult when you start leaving urban areas; it becomes difficult when you have hit and runs; so to start proving all these facts…. As you prove all these facts, you realise time passes by and now you are dealing with a retrospective incident, when neither the institution, nor those representing the claimant are present and it becomes very hard to ascertain what exactly happened. So a lot of people get excluded on that basis. Last year I think our actuaries pointed out about 46 000 people registered a claim, but just looking at the merits it couldn’t proceed.

RYK VAN NIEKERK: Will this whole new process have a smaller dependency on the legal system?

EUGENE WATSON: The new system is essentially going to do away with that intermediary micro-economy. There won’t be contestation; there will be defined benefits. You’re in a crash: how did it affect you, what are you entitled to, these are the limits, there you go. So you will save a lot of money by excluding those intermediary fees, which allows you to spend more of that money on medical care and the like.

If you think about in today’s world, on the basis of negligence and merits, somebody who is badly paralysed but was partially negligent will not be compensated in full for their medical needs. And it’s unfair if somebody deserves a wheelchair, on the basis of the contribution to negligence you pay for half the wheelchair, expecting them to pay for half the wheelchair; you pay for half the commode, you pay for half the house renovations – that’s not a system that works. Then you think about the paralysed person who didn’t pass the negligence test, they’re just left out in the lurch.

RYK VAN NIEKERK: But there has been a lot of criticism of these changes. You’ve explained it in a certain way; another way to interpret it is that victims will not actually get what is due to them.

EUGENE WATSON: Well, I think there are two ways of looking at it. The first is criticism, you always need to look at where it comes from, so if it comes from people who are profiting in today’s environment, it is expected. If you look at the stakeholders we’ve engaged – we’ve engaged over 250 groups of stakeholders – your medical fraternity, your social fraternity, your patient, your claimant, your commuter fraternity, are all supportive of the policy. It’s not come this far without support; they may not have as loud a voice as those who are critical of it, but there are many people who support the change.

The second thing I think just on the criticism level that the policy is, it depends how you look at it. Who speaks for the poor person? Who says: ‘I am poor, I was knocked over, I was badly injured. For my entire life I’m going to need medical care but I don’t meet these legal criteria. But I do pay for petrol, be that in the form of me and 15 million other people riding in a taxi, which has a fare, which is made up in part of how much fuel costs or directly when I put fuel in my scooter or my car’. What do you say to those people?

RYK VAN NIEKERK: If the principles have been approved by the government in the early 2000s, why hasn’t it been implemented yet?

EUGENE WATSON: I think it’s been heavily contested, as we say. So each step of the way is met with a wave of resistance in some form or fashion. Where we are at the moment: we have a Bill. It’s been published twice for comment; it’s been through the Nedlac process; it’s been seen by the State law advisor; it’s been discussed extensively in government. The Treasury supports the Bill and we are almost at the point of it going to Cabinet. I certainly can’t explain what has taken this long, but what I know is that we are actually at the precipice of getting a decision by the decision makers on this policy.

RYK VAN NIEKERK: If it is implemented soon how will it transform the RAF?

EUGENE WATSON: I think it’s a fantastic transformation. The first is as a country we would legitimately be a caring country: we’d look at citizens affected by these crashes and boldly be able to say we’re there to help you. The second is we’ll do it not to the detriment of some groups and to the benefit of a smaller group of people. The third, financially, if we are talking Moneyweb now, it’s expected that within eight years of moving to no fault it will be solvent, the arrangement and the RAF liability would have worn down.

Throughout the world almost every other country that had an RAF-type arrangement has made the move and they are all beginning to post surpluses – in fact, my Namibian counterpart earlier this year said for the first time they are solvent. Our colleagues in Botswana actually mentioned that their fuel levy reduced because the institution is now able to run on its own asset base. Australia, Canada, the USA, they have these arrangements and they work. You can never have a sustainable dispensation if your income and expenditure don’t match – it’s impossible and the minute you match the two, you offer benefits you can afford, then you are off and away.

RYK VAN NIEKERK: Thank you, Eugene. That was Dr Eugene Watson, he is the CEO of the Road Accident Fund.

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He makes a good case for the changes. I did however once hear that you would not be able to buy private insurance to make up the shortfall in the loss of earnings as a higher earning person. Does anyone know if this is still the case?

Under RABS if you earn more than R 220 000.00 per year you will receive no benefit from RABS – thus you must secure “top up” cover.
A person in this earning bracket probably has a medical aid and as such even though he / she contributes to RABS, will receive absolutely no benefit from it.
The public needs to be made aware of all the facts and the impact of RABS.
Mr. Van Niekerk would be well advised to interview someone like Mr. Pieter de Bruin or Mr. Nogoako Mohlaloga from APRAV (google them at : aprav.co.za).

RABS will not benefit the poor and illiterate as they will simply not
be able to gain access to any of the benefits.

My understanding of this is that even those earning more than R220k per year will be able to claim that R220k, and will have to sort out the shortfall themselves.

The medical aids are entitled to claim back what they pay for road accident costs. They merely advance the amounts for medical expenses immediately to cover the costs of the members. How often they actually do this is uncertain, and the question remaining is what about the legal costs involved of sorting out the claim.

If the medical aids cannot recover the costs which the RAF is supposed to pay for, this affects their premiums negatively.

RABS will not benefit the poor or illiterate, the road crash victims that
would be in dire need for assistance and compensation as they would
simply not be able to gain access to the benefits.

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