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Road Accident Fund hits the wall

R17bn shortfall and increasing by the minute.

South African Airways and Eskom are not the only state entities in a fiscal mess. 

The Road Accident Fund (RAF) brought an urgent application in the Pretoria High Court this week against the Sheriff of Centurion East, Absa Bank and 346 claimants that have in the last six weeks sent the sheriff to attach all the monies in its eight Absa bank accounts. 

The application is in two parts:

  • In Part A the RAF is asking the court for breathing space. It wants the court to suspend its obligation to pay R173 834 583.23 overdue to the 346 claimants.
  • In Part B the RAF asks for an order against itself that it pay the above amount by no later than February 29, 2020. It also seeks an order that it be relieved from paying court-awarded compensation to claimants before a period of 180 days from the date on which a court order is served on it.

The intractable problem

The founding affidavit deposed to by the acting CEO of the RAF, Collins Letsoalo, paints a stark picture of how hopelessly insolvent the RAF really is and suggests that, failing a government bailout and a radical plan of action, the black hole will simply deepen.

The RAF is a social security scheme to compensate the victims of road accidents.

Letsoalo: “The scheme can only work for all of us if victims of road accidents are treated equally to the extent that it is possible when it comes to dates on which they are paid their compensation. [The RAF] is liable to compensate any person injured in a motor vehicle accident, where the driver of the vehicle was negligent. With this low threshold for liability, the RAF attracts liability every day.”

Letsoalo told the court that the RAF does not generate its own funding but is reliant on the Road Accident Fund levy (currently R1.93 per litre of petrol or diesel).

Read: The Road Accident Fund is hopelessly insolvent

The RAF in its current form will always be insolvent

He proceeds to detail that settled claims accrue at an average of R4.3 billion a month and the RAF’s sole income – from the fuel levy – is R3.5 billion.

Letsoalo: “It is clear that the RAF is by law burdened with extraordinary liability which exceeds the money allocated to it by law. This makes it impossible for the RAF to satisfy all judgment debts granted against it. At the date of this affidavit [November 28], the RAF owes its claims creditors not less than R17 billion.” (Trade creditors, payroll and operational costs are not even mentioned in the papers.)

Read: Why is income protection cover necessary?

A national crisis

To put the road accident payment crisis in perspective, claims against the fund accrue at R14 137 416 per day, R589 059 per hour, R9 817 per minute and R164 per second.

RAF legislation indemnifies the wrongdoer. In other words, a claimant may by operation of law not claim from the driver whose negligent or reckless driving caused their personal injuries. It may only be claimed from the RAF. In first world countries every vehicle has to be insured and claims for personal injury are made against the driver or owner of the vehicle and the insurer of the vehicle stands in the shoes of the wrongdoers and pays the claim.

Read: Why are there so many uninsured South Africans?

Cash management plan

In the court papers, under this heading, Letsoalo sets out that the RAF has decided on a five-point plan:

  • Available funds must be paid equitably to claimants;
  • It needs to have the flexibility to deal with “exceptional circumstances which may require payment on an urgent basis”;
  • RAF staff and operational expenses need to be paid first so that claimants claims can be processed and paid;
  • Long overdue payments must take priority and in date-received order; and
  • Court-ordered payments (which are the bulk of payments) must be paid first and only thereafter will claimants who settled directly with the RAF be paid.

Attorneys are part of the RAF’s problem

Letsoalo: “Most of the claimants’ attorneys know and understand the applicant’s financial position. There are other attorneys who, despite knowledge of the RAF’s financial position, advise their clients to issue writs of execution authorising the Sheriff to attach the RAF’s bank accounts. This has happened on many occasions.

“Even if the applicant were to pay all the amount it receives by way of the RAF [fuel] levy to satisfy judgment debts against it, it would still not be enough.

“This is the reality of the social security scheme operated by the applicant.”

Attachment of bank accounts creates chaos

Letosalo stated in court papers that “the RAF does eventually pay all judgment debts against it” and that no purpose was served by attaching bank accounts as there was already a queue of claims creditors and that by doing so “it only serves to cripple the RAF’s operations and ability to ensure that there is an equitable order of paying judgment debts”.

He goes on to inform the court that social security justice would be stymied by the few attorneys whose clients attach the RAF’s bank accounts.

Writs of execution cause embarrassment

The RAF’s head office in Pretoria is in possession of over 1 000 writs (some for multiple claims), and some are for “millions of Rand”.

Not only does the sheriff beat a trail to the RAF’s HQ every day with more writs but other sheriffs serve writs on the RAF’s regional offices on a daily basis.

Letsoalo says the RAF’s operations are brought to a standstill and he makes mention of “the embarrassment which is caused not only to the RAF but also to the Government of the Republic of South Africa which designed the social security scheme operated by the RAF”.

Read: Government sets up demerit system for drivers

With the holiday season approaching, drivers not realising that a driver’s licence is a privilege and not a right, the lack of effective traffic policing, and an increasing road accident rate, it is simply a matter of time before the RAF is brought to its knees.

Read: City of Cape Town to fight Aarto

Absa confirmed to Moneyweb that it would abide by the decision of the court. No response had been received from the sheriff by the time of publication. It is customary in matters such as this for the sheriff to abide by the decision of the court.

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It truely is sad. What the RAF needs is the skills of a product development and design actuary, yet it only employs a valuation actuary who each year signs off the schemes Assets and Liabilities. It seems the valuation actuary has no to little say in the scheme design.

Whilst the scheme has reduced and capped benefits, which was a positive move. The next step of the RAF should be a change to an income benefit approach rather than a lump sum approach. Using an income approach enables the scheme to build an investment reserve, which has economic benefits such as funding economic growth and reducing Asset Liability Mismatch risk. In addition an income approach ensures that all claimants can immediately receive some benefit.

Above that an investment reserve would allow the RAF to invest in preventative measures reducing road accidents e.g. physically investing in road safety (like mass transport solutions) or offering rebates to safer drivers (like discounts on replacing airbags, cash for clunkers programmes and monitoring driving hours by professional drivers).

Private Sector involvement could involve reinsuring the residual risks.

I hope the author of this article takes some of these win-win possibilities into consideration before fully privatising the RAF.

Paying out an annuity is the last thing the ambulance chaser lawyers want! They need their fee NOW.

Nope; privatise the 3rd party aspect and make it compulsory and competitive between insurers. Ditch the fund; it is only there to be looted by ANC cadres. And that is why, like SAA, it won’t be closed.

The premium for a compulsory 3rd party insurance is estimated at R400 p.m. taking the current levels of road crash deaths and injury into account.

I disagree. The RAF does not need any more actuaries of any more staff. It was created in order to nationalise the third party insurance business. So what it needs is to be closed down and the business handed back to competitive private sector business.

As it is now, it benefits firstly its own staff, then secondly (and mostly) the ambulance chaser attorneys. Claimants are further down the list and these are not treated fairly.

In Dec 2010 a barrel of oil was in rand +-R600, with a fuel price of R6.80/l. Today we pay R830 for a barrel of oil and R16.50/l (instead of R9.30/l). The additional R7.20/l is tax increases over the last 9 years.
And still the RAF is bankrupt? I think we are 9th in personal taxes per GDP and 12th in business taxes, and still most of nothing in service delivery. Our population growth is 1.3 million/year. We will run in a food crisis within 5 years, and still we believe in EWC. Instead of taking hands we put codes on our skin color, as if to believe our skin color will relieve us from poverty? Food inflation at 15% per year, and we believe we have a 4.5% inflation? Really?

Not to worry, another bailout is waiting in the wings at the cost of a higher levy on petrol.
In other words give more and they will take more and waste it more until the next bailout.
Why not use the green taxes that are paid on car tyres that was implemented some time ago? We never heard a thing of what this tax is used for.
Ah well, there will be no surprises when this fund is also in the “red” and the proverbial begging bowl is extended. The one with the “codes” as mentioned earlier.

Nobody can survive by paying out more than they take in. So the cover they are providing is excessive.

They need to adjust their payouts downwards to match their income. This will take a few actuaries to calculate.

Problem solved. losers will be injured parties, but start by cutting the payout to the negligent ones.

Negligent crash victims are not covered by the RAF. Claimants who are contributory negligent are not legally entitled to full compensation but compensation is adjusted according to their contributory negligence. You condone the downward adjustment of income. If you are injured in a road crash, your loss of income will currently be assessed as if you earned R15 500 p.m. irrespective of your actual earnings. This is discriminatory as a person earning R15 500 will receive 100% of his/her loss while a person earning R31 000 only receives 50% of his/her loss. It also compromises a claimant’s ability to support his family. The actual source of the problem is the number of road crashes and the fatalities and injuries it causes. The accepted international norm is about 7-21 fatalities per 100 000 motor vehicles. SA’s count: 134 per 100 000 motor vehicles.

Another useless organization brought to you by the government., Bleeding you dry one day at a time

I speculate that a committee will eventually be formed to uncover potential wrong doing at the RAF, I further speculate that they will announce that the RAF has wasteful expenditure, unlawful expenditure and fraudulent claims totalling billions of rands. A Zondo type commission will be formed and a list of “celebrity figures” arriving in big black luxury cars will give evidence and claim they had no knowledge of the evidence while smiling and waving at the news crew on the steps of the commission venue, like some sort of Oscar evening. The announcement of this commission will be early enough to allow any potential perpetrators enough time to move the suspect funds off shore and either emigrate or be appointed to parliament.

Bring back compulsory 3rd Party insurance – and take the legal “profession” out of the loop wherever possible.

I have also heard it on good authority from someone in the medical profession who is involved in the RAF, that the real culprits are the lawyers. Apparently they are milking this thing dry to the point where it fell over.

Common knowledge, I think.

If compulsory 3rd party insurance which delivers far less final benefit because of profit and administration costs is reintroduced and taking the culture of non-compliance into account, imagine how many uninsured motor vehicles will be on or roads which will present a further potential hazard for road crash victims.

You obviously don’t have the questionable advantage of being old enough to remember when 3rd party insurance was mandatory in SA. Cars had to carry a disc on the windscreen, renewable each year just like the present licence disc, which means it can be checked by a traffic officer (assuming any are actually doing their job). This can only increase numbers of insured vehicles.

Obscene salaries for top management in this bankrupt SOE. But make no mistake the attorneys are equally greedy and corrupt.

Reading all the daily news reports about bankrupt government entities, tethering on the brink of disaster – one missed “government bailout promissory note” away from the whole house-of-cards coming down. SAA. Transnet. Post Office. RAF. Etoll. PRASA. Municipalities. The list go on (and on)…

I then get to read of the vile dislike certain esteemed members of the communist party hold for Businesses in South Africa with their spotlighted “white” & “male” management teams – and I am left shaking my head.

#DisillusionedSouthAfrican -_-

I was reading about the New Zealand (if I recall correctly) RAF/workers comp scheme the other day and apparently it was so flush that it started including other types of accidents as well.

There is something deeply wrong if we have 4.5bn in RAF claims every month, surely that number can’t be right.

As with anything ANC run, there must be other leakages causing this and hence we are stuck with a insolvent entity that pulls R2 from every litre of petrol sold, staggering amount of money here.

It’s give or take R60bn pa which is feasible considering the total cost of crashes to the economy (R154bn pa according to the recent CSIR report, but estimated more widely at R309bn pa in 2012).

The problem is that RAF funding is predicated on road safety stats from 25 years ago. Since then, fatality risk has tripled, but we have no stats on anything apart from absolute fatalities, making it impossible to determine real-world compensation requirements.

The ultimate issue is not so much that the RAF is under-funded, but that the ANC government has destroyed road safety, causing inordinate and unbudgeted demands on the RAF, the healthcare system and private insurers. It’s a problem that should be fixed at the input level of road use standards, not at the output level of compensation.

Unfortunately the phrase “problem fixed” is unlikely ever to appear in a report on the ANC government’s performance in any sphere.

Perhaps the author could provide an update on the RABS bill which supposedly replaces the RAF with a more sustainable model. It should have gone to Parliament this year. The lawyers don’t like it.

The RAF in its present form is a creature of statute and can do little to alleviate its position (it saves about 10% of its revenue by taxing legal bills !) It’s not an SOE – there is no underwriting involved, the funding and benefits are prescribed by law.

Judging by its audit reports it’s well run within the constraints of inadequate funding and an overambitious mandate.

RABS has been referred back to the Portfolio Committee on Transport. It is estimated that it will cost R223 billion p.a. The budget for road crash victim is approximately R36 billion. Apart from this the existing RAF liability must be ring fenced and financed during the transition from RAF to RABS.

Well, it won’t fly on those figures. But then, what is the other R187bn for ? Surely can’t all be overhead.

I thought it was called ‘the attorneys benevolent fund’.

Dare I say it:

The RAF are to Attorneys, as what Medical aid schemes are to health practitioners.

It’s a FUND (collective monies) that can be more conveniently be tapped into, and making a living out of, as opposed to extract as-and-when private cash payments from the public.

Why is Collins Letsoalo involved at the RAF? He is unimaginably out of his depth.

His four-year tenure as Acting CEO at the RTMC was chaotic, followed by an even worse stint as Acting CEO at PRASA. (If you’re not familiar with what went down there, Google it, you will not be disappointed!) Then he was shifted to the DCLA which produces driving licences, as Acting CEO, and now he pops up as Acting CEO of the RAF. Anyone who regards the RAF as a “social security scheme” is arguably ill-equipped to run it.

His track record suggests he should be nowhere near the levers of power. The SOEs need to be run by professional managers if Gordhan is serious about stopping the rot.

This is ridiculous..When is all this going to stop? Little wonder SA is heading down the road to junk..We work expecting Government to spend our hard earned taxes with diligence, yet the comrades at SOE’s and municipalities steal the fiscals money and all that is left are two opposing factions, the one concocting ways to steal even more! What a pity our leadership and in particular our Leader do not possess foresight or lay claim to the urgency of the dire problems..Another dismal quarterly growth just reported..And the leadership are absent with implementing harsh action

Like most other quasi state institutions – get rid of it. Back to compulsory 3rd party insurance.

The life companies won’t let matterswith merit drag on indefinately just to make the lawyers rich (hopefully).

get claims done and settled and let the cadres fleece another cashcow

System was changed from compulsory insurance which was introduced in 1946 to fuel levy in 1986 because the insurance companies could not provide cover for the premiums considered to be affordable by the public. A few of the insurance companies were also liquidated.

I don’t think the current government is capable of experiencing embarrassment. Not a good argument to make.

The RAF cash flow crisis is a long-standing matter having its genesis in 2002 when the then CEO stopped early settlement and introduced the defending of claims irrespective of whether opposition is warranted as a cash flow tool. Since then the RAF’s legal account has grown from R1,2 billion to R13,3 billion in 2018 to a total of R33,4 billion for the past 5 years. Legal fees for the unjustifiable defence of claims in the past 5 years which by far exceeds its current cash flow deficit of R17 billion. This practice has been severely criticised by the courts as it causes considerable wasted cost and jam-logs court rolls (an average of 1 864 cases are monthly on the Pretoria High Court roll). In addition its delayed payment program into which it has been forced is costng some R2 billion p.a. in costs and interest payable to claimants and delayed compensation of claimants for up to 7 years. In addition it is spending millions on what can be considered as non-core expenditure. It recently spent R1 million on the refurbishment of the Mount Frere Hospital emergency ward and substantial amounts on its campaign to canvas and influence claimants to avoid legal representation. The claims so canvassed are then dealt with by RAF claims handlers sometimes ending in further expensive litigation because of wrong advice given and/or the under-settlement of such claims. To add to the RAF’s woes, the number of claims it faces is steadily rising. In 2017 it faced 93 000 personal claims for injury and death and 2018 113 000. In comparison Australia, Namibia and Swaziland have personal claim counts of about 3 000 claims p.a. Clearly, the RAF cannot survive if it continues to follow its current path and the Government keeps on neglecting road safety by not introducing practical and effective crash reducing road safety measures other than the bi-yearly Arrive Alive campaigns or campaigns which say they are 365 but which actually involves politicians calling for responsible behaviour from drivers. Research shows that effective law enforcement can significantly reduce road crash deaths and injury. In this regard S.A is lacking in capacity (some provinces have 1 traffic officers for every 1 500 drivers. Also the WHO rates our traffic law enforcement at 30% and the enforcement of BAC at 25%. Road crashes cost our economy R146 billion p.a. of which 24% is for compensation for personal injury and death. Action is urgently required to meet this insidious national crisis.

The gift that keeps on giving. My reckoning is that the ANC cadres running the show into the ground and who decided to defend everything give the cases to their “lawyer” chums, who charge exorbitantly and probably kick back a buck or two. Proudly brought to you by the ANC.

Again… government must let the PIC fund this. Case closed.

Staggering incompetence. Completely dysfunctional.

Surely the ANC Government will go down in history as one of the most destructive governments ever. My theory is that when you are obsessed with ‘race’ you literally cannot think rationally on any issue. Sounds like the ANC to me and then when you add ‘arrogance’ the destruction is off the charts.

As an Attorney, I had an open and shut case but the RAF defended the case and only after 3 days of evidence suddenly conceded the merits. Who was milking the system? Not me. All I wanted was justice. Be careful of generalising especially when you don’t kow all the facts

A study of the 2018 Pretoria High Court Roll reveals that 86% of all cases at an average of 86 per day are against the RAF. 99,56% of all cases defended by the RAF are settled on the steps of the court and are probably capable of early settlement without litigation. The RAF Act contains a litigation discouraging provision which places a claimant at risk of being liable for all costs when the RAF makes an offer. In all the cases heard by the Pretoria High Court this section was never applied because the RAF did not make any offer until it was forced to do so because the matter was on trial. For more information on RAF litigation see March 2019 De Rebus (attorneys journal).

I have a conspiracy theory.

The RAF identified the potential threat of the EV market long in advance. They realised that when EV takes over, they won’t have any turnover on fuel sales off which to levy their fee.

They then decided to convince their comrades at Eskom to break the only energy supplyer, and as its a monopoly with consumers having no viable alternative, they thereby ensure fuel dependancy and the income stream of the RAF.

This would be a great conspiracy theory if it held any water. It breaks down at the first assumption, which is that any SOE has the ability to execute a plan, nevermind one with more than a two week time horizon.

Pray, tell me what is newsworthy about this article.

If the regulators were doing their job they would have picked up that the RAF had hit the wall by simply observing the number of default judgements that had been awarded against it over the past 3 or so years.

Over the past 2 months or so a local newspaper allotted 2 pages to the sales in execution against the RAF, no dissimilar to that what is expedited regularly against the Minister of Police.

Their offices at various centres must be totally bare at present which raises the question as to when and where do the RAF officials work!

Once again the Raf is another example of how and why Government shouldn’t meddle in micro management of the country. If 3rd Party insurance was not affordable for all, then those who could not afford it should not be driving cars…they would be forced to take public transport. The strong demand for public transport would have resulted in a growth in the sector increasing jobs, investment etc.

As usual, Government wants a quick fix, and cannot see the benefit of short term loss for huge long term gain.

Ditch the Raf, enforce 3rd party insurance, hell even life insurance for drivers, and spend the 45 billion on developing some decent public transport.

We need some bold actions, and out the box thinking. Government seems obsessed with flogging dead horses.

From my personal experience:
Firstly, my medical aid appointed attorneys on my behalf to claim from RAF. By implication if you do not claim, you my be personally responsible for medical costs. As part of the claim process (some years after the accident) you are sent for medical and psychological evaluation. First by your attorneys to their specialist and then by the RAF to their specialist – at least three sets of evaluations by each party. Whilst all evaluations were done, not all submitted reports, but I am sure they submitted their invoices.

During this process, both parties can settle out of court. This did not happen and a court date was duly set. On the court date both parties appeared in court, each with their own Senior Council (very expensive). In court, a postponement was requested for both councils to deliberate during which time a settlement is agreed to. The advantage is that the settlement is made a court order and as stated in the article, court orders are paid first.

So yes it is good business for lawyers and certain medical practitioners. Perhaps legislation and legal process is to blame, but prevention is far better than cure. The biggest failure of all is road traffic management. There is virtually no enforcement of moving violations (negligent diving), other than speeding.

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