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The Road Accident Fund disaster

Victims could be left destitute, despite the high fuel levy we pay for accident insurance.

Both the chairman and the chief executive officer of the Road Accident Fund (RAF) admitted in the latest annual report that the fund is insolvent, with liabilities exceeding assets by more than R206 billion at end March 2018. The annual report states that the fund “has been insolvent since 1981”.

The total liabilities with regards to claims agreed to during the reporting period, but not paid at the end of the year, amounted to R38.3 billion. Outstanding claims liabilities – claims settled in previous years that still need to be paid – exceed R177 billion.

The Auditor-General’s report to the financial statements concludes that there is “significant doubt on the public entity’s ability to continue as a going concern”.

RAF chairman Peter Mathebula says these figures explain clearly that the current compensation system is totally unsustainable:

“The RAF only has five cents’ worth of assets for every R1 of its liabilities.”

Lindelwa Xingwana-Jabavu, in her report as acting CEO of the RAF in the 2018 financial year, said that, on average, the fund was R9 billion in arrears per month with finalised claims that could not be paid due to insufficient cash resources.

The shortage of cash to pay claims that have been agreed to or settled in court has led to lawyers taking legal steps against the RAF for payment by securing attachment orders against the fund’s bank accounts. The RAF says that this has had a further effect on the fund’s ability to operate properly.

Meanwhile, motorists and motoring organisations call for a reduction in taxes and levies on fuel whenever petrol and diesel prices increase. This includes the levy to fund the RAF, which will increase to R1.98c per litre in April when this year’s increase in the RAF levy comes into effect.

At current prices, the levy represents some 13.5% of the cost of fuel and would probably increase the RAF’s revenue this year to more than R44 billion (maybe as high as R48 billion) depending on the effect of higher fuel prices on consumers’ demand for fuel.

Push to replace the system

Given this difficult situation, several government departments are pushing to replace the current RAF system with what they see to be a more affordable system under the new Road Accident Benefit Scheme (Rabs) bill. The new act to legalise the Rabs might be tabled in parliament again during the next few weeks, following an unsuccessful attempt to pass the bill last year.

In simple terms, Rabs is basically a defined benefit scheme that will offer compensation to accident victims and do away with long legal processes where every case is determined on its individual merit. The idea is that the Rabs is a more reasonable, equitable, affordable and sustainable system, according to the RAF and other government departments such as the department of transport and National Treasury.

The legal profession disagrees with this, claiming that the new scheme will be a total disaster and does not adhere to the most basic common law principles. Several lawyers say it would not pass scrutiny in terms of the Constitution.

Victims will lose the right to argue their case in court

The most common response from the legal fraternity is that the new Rabs Act infringes on the individual’s rights to argue their case in court. Nevertheless, the RAF confirmed to Moneyweb that the bill is currently on the National Assembly’s list to receive attention.

The Rabs seeks to curtail the legal process significantly. Firstly, it will be based on a no-fault basis, meaning that it will remove the court procedure to determine who is to blame for an accident or injury, and to what extent. Secondly, the new law will remove the victim’s right to legal action against the party that caused the accident.

The new Rabs makes provision for the appointment of an administrator that will consider claims and determine the amount of compensation. Medical costs will be paid on a predetermined scale and would probably only make provision for treatment in state hospitals.

The most significant difference between the current RAF system and the Rabs that seeks to replace it is the way in which the systems calculate compensation for future loss of income of an accident victim.

Future loss of income a bone of contention

Jean-Paul Rudd, personal injury attorney at Adams & Adams Attorneys, says that of great significance is that children who are permanently injured in motor vehicle collisions will only have limited claims for loss of income under the new Rabs. “The claims will be calculated based on the national average income, completely disregarding the child’s academic potential.

“To add insult to injury, the bill takes away a victim’s right to sue the common law wrongdoer,” says Rudd.

“By way of an analogy, a child intending to study medicine, but who is permanently injured in their final year of schooling, will receive compensation based on the average national income, as opposed to what they could have earned from a career in medicine. The same holds true for students who have completed their studies but have not yet entered the labour market.”

Payments to victims have stalled

DSC Attorneys, a specialist personal injury law firm, says the RAF has been in financial difficulty for some time and the situation has come to a head. “RAF assets were seized by sheriffs of the court towards settlement of the fund’s outstanding debts, and payments to accident victims all but ground to a halt.”

DSC director Kirstie Haslam has been studying the new Rabs bill in detail. She has followed its progress since its beginning and has been participating in the parliamentary debate about its structure and implementation. The firm voiced its concerns about the Rabs in a series of articles and has highlighted its shortcomings.

The two aspects that seem the most serious are compensation for medical costs and loss of earnings. Under the current system, the RAF pays a lump sum for past medical expenses and gives an undertaking to cover future medical expenses. The Rabs will pay medical costs at contracted healthcare providers, directly to the supplier, which limits accident victims’ choice of doctors and facilities.

The RAF also pays a lump sum by way of compensation for loss of income as calculated taking into account individual circumstances. The new Rabs wants to replace this with a limited monthly income grant, which will be cut off after 15 years or at the age of 60.

Lawyers up in arms 

Some lawyers are up in arms that RAF lump sum payments will be cancelled as it (the fund) provides for claims on a contingency basis, where people who cannot afford legal fees can still negotiate presentation on a basis of ‘no win, no fee’.

This opportunity to get legal representation on a contingency basis has a downside and has been open to abuse by expensive lawyers and equally expensive medical experts who brag on their websites how they “vanquished” and “defeated” the RAF in glorious courtroom battles.

The RAF complains that the legal process of submitting legal bills to the fund, and the time constraints with regards to the process of taxation and payment of legal and other fees, put them at a disadvantage in that they need to carefully check claims for legal costs when attorneys ‘overreach’ on their bills to recover legal fees.

The RAF annual report states that more than R3 billion was saved in the last financial year by scrutinising legal bills through the process of taxation.

Gregory Whittaker, principal actuary at Algorithm Consultants & Actuaries, a consultancy firm that specialises in the quantification of damages in personal injury and accident cases, says there are several reasons why the RAF is in a critical state.

Attorneys aggressively pursue claims

“Claims for loss of income now form the largest category of claims against the RAF because attorneys aggressively pursue [these] claims for even the most minor of injuries, resulting in significant fees to call experts to justify these claims. Claims are poorly defended by the RAF, resulting in overinflated claims,” says Whittaker.

Moneyweb asked Algorithm Consultants whether SA can afford an insurance system that covers 100% of victims’ losses.

“The problem is that the RAF is not compensating for actual loss, but for hypothetical loss and a large volume of claims are settled on a so-called ‘differential contingency’ basis. This is merely speculation and results in inflated claims values,” says Whittaker.

Funding mechanism ‘completely wrong’

He says the funding mechanism of the RAF is completely wrong. At the moment the poor subsidise the rich in that a poor cleaner who travels far to work contributes more to the RAF than a rich lawyer who travels less than 100km per week. However, the benefits are income-based and the lawyer would receive substantially more compensation than the cleaner for the same injuries.

An income tax surcharge instead of a fuel levy will align benefits to contributions, says Whittaker. “Look at the UIF and Workmen’s Compensation schemes, where contributions and benefits are earnings-based. The RAF is the odd one out – contributions are not earnings-related, but benefits are.”

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Or perhaps do away with this insolvent monument to govt incompetence and pass legislation that mandates every road user must have insurance on their cars, including 3rd party liability.

This is the system in Western Australia. I have just received my registration renewal notice for a 2008 Mazda 2. The total annual amount is $678 (R6,950) which includes an insurance component of $356 (R3,650). Soon my car’s book value will be less than my annual registration cost.

Same in Chile – can’t register a car without proof of basic insurance covering liability to others. The insurance industry actively competes on pricing to offer the basic insurance.

What does government know about insurance???

Close it down, make it compulsory to have 3rd party insurance.

More competitive and cheaper.

Long overdue.

The fund has been insolvent since 1981 LOL!

Only in SA where people lie to try and get their point across or exaggerate, domestic subsidizing the rich lawyer because of travel distance!!!
Noting UIF a great scheme that is fair how exactly because this is a lie?

What is the median claim value today versus 1999?

The ambulance chasing scumbag lawyers that created this gravy train will fight a defined benefit scheme as if their lives depend on it. For once I am pro government.

R2 per liter is totally absurd. It is a quarter of the actual basic fuel price. For what? The claims of injuries and death? Do the stats on accident rates – it is NOT possible for those claims to be a quarter of the cost of fuel transport.

Actually it is possible. Because if you “do the stats” you will discover that since 1999, the RTMC has only reported on fatal crashes, which are 1% of all crashes. Non-fatal crashes and the cost of treament and rehabilitation of injuries arising are completely excluded from government statistics bundles, none of which have complied with the Stats SA standards for statistics issued by organs of government since 1998.

This vast data vacuum enabled the RAF to continue paying claims without any statistical comparison of whether the rates of injuries they were funding matched the statistically recorded prevalence of injuries. It’s a spectacular breeding ground for fraud and maladministration.

Also, you talked about “accident rates”. The fatality and injury rates (fatalities or injuries / 100mvk) doubled between 1998 and 2006, when the government stopped issuing it. Using proxy data, it can be confidently proposed to have at least doubled again. The RAF levy would have had to keep pace similarly to fund these rates which is why the fund has never managed to reach parity.

Also, a lot of the cost is borne by the public health system and never comes near the RAF. Estimates vary, but the figure of R100bn pa is out there in addition to what’s paid out by the RAF.

So yeah, it’s convenient to blame the lawyers, but they just lined up at the trough. If government got control of road safety data and actually used it to develop policy, we could remove the trough altogether.

It doesnt work, it never has. Lawyers are clogging the courts and getting rich off it. You self insure anyway and those that are poor cant anyway so make it a faster simpler system. Rather use the money to improve driving conditions and reduce accidents and lets stop funding lawyers.

Should I even say it? “We used to have third party insurance. 2 disks on the windscreen”
Do it again and do away with this lawyer get rich scheme.

It’s funny how the loudest shouts are coming from the lawyers, the same people who are complicit in inflating claims as they get a %, and definitely don’t want the gravy train to stop.

Totally agree. And in the new proposed system claims will likely be much lower, hence they’re not happy

I read an article recently that the RAF rents 1 Office Chair for R2000.00 per month. How many chairs do they have? You can get a good chair from Makro for R3000 once off. Wonder who purchased these chairs and rents them to RAF. Just one example off corruption.

Wally Stowe

This is actually not about corruption, and more about incompetence and financial disarray. Any assets that these disgraceful entities have are immediately attached by claimants, so they have to resort to renting everything. It is the same at the Gauteng department of health, I believe. They have to rent all of their office equipment to fend of sheriffs seizing their assets to meet unpaid clinical negligence judgements. The ANC’s solution is always to reduce wronged parties’ right to compensation, instead of fixing the rot and delivering decent healthcare!

Another disaster. And we want to do the NHI – how’s that going to play out, you think?

What isn’t a disaster that has been touched by this useless Government.

Times have changed since the 1970s. We no longer need this fund. Take away the levy completely and give the fuel price a break. In modern times people choose if they want life cover or not. What’s the point of being covered on the road while you are nit covered falling off a step ladder or from your bike in the veld.

Couple things..

1. Third party insurance should be mandatory.. why was it stopped?
2. Life Insurance is an optional.. (u skimp, u pay)
3. All public transport should be forced to have adequate cover for the persons carrier, trucks proportional to risk ie heavy trucks vs nationwide transit.

Point 3 is the big one and why RAF will never go away.. it would literally kill the industry in cost. I reckon this keeps coming back to traffic laws, accountability and ownership of actions.. something the ANC & undermined in society.

I wonder what % of cases involve public transit & trucks.. perhaps people should be made aware of the fact that trucks are on the road because unions demand it.. taxis allowed to do as they please because taxi associations demand it.. so maybe they should pay for their induced expenses too.

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