Bringing the troubled Road Accident Fund (RAF) back to financial stability will require an urgent regulatory and operational overhaul, including the fast-tracking of claims and doing away with lump-sum payments to car-crash victims, transport minister Fikile Mbalula told MPs on Wednesday.
The regulatory and operational overhaul would focus on reducing the number of days it takes to process a claim from the current 1,475 days to 120 days. This will also reduce the need for litigation, thus cutting legal fees, which is a major cost burden for the fund, Mbalula said. He said the proposed changes to RAF operations were part of a five-year plan to turn around the entity.
The RAF, the state-backed insurance fund that provides compensation to the victims of road accidents, collects about R43bn a year through a levy on the fuel price. However, it has operated on a financially unsustainable model for decades and has been dogged by allegations of corruption, malfeasance and fraud, which had affected its ability to settle claims.
It is regarded as one of the biggest threats to the state’s finances as the government would be obliged to step in and make payments should the fund fail to honour settled claims.
“Bringing the RAF back to financial stability will require both a regulatory overhaul and operational improvement … The need for the RAF to pay claims periodically rather in lump sums cannot be overemphasised,” Mbalula said.
The minister, who was leading a delegation of RAF executives to brief parliament’s finance watchdog, the standing committee on public accounts (Scopa), on the fund’s financial statements for the 2019/2020 financial year, said of the R43bn annual fuel levies, about R11bn flows to attorneys, making legal fees the second-biggest cost after compensation to accident victims, while medical costs eat up another R2bn.
As at end-March 2020, the RAF accumulated an annual deficit of R5.3bn and claims to the value of R14bn, but these could not be paid due to the cash flow challenges. Claimants had to wait an average of 1,475 days for their claims to be settled. Claims have increased at an annual rate of 8.4%, from R61bn in 2018 to R78bn in the 2020/2021 financial year, and are expected to increase to about R103bn in 2023/2024. As a result, the accumulated deficit is expected to rise to R518bn.
RAF CEO Collins Letsoalo said the regulatory overhaul would involve ensuring the fund starts paying compensation in instalments, or progressively, rather than in lump sums.
“The rationale is that most of the RAF claimants would need care [for several years] and we have seen that much of the lump-sum payments were quickly spent within a year or two. But also from our side, there is no asset and liability matching. So we receive our money [from the fuel levy] monthly but we have to pay claims in lump sum, which then creates the liquidity issues that we have,” Letsoalo said.
Medical fees
The other issue is the medical fees. The RAF is paying about five times more than what medical aids are paying for the same kind of treatments.
“This is simply because for the longest of time we didn’t have RAF-specific medical tariffs. So we are working at that and introducing medical protocols,” Letsoalo said.
He said the biggest overhaul would be establishing defined benefits for the scheme, meaning there would be a cap on payouts. This would require legislative changes.
Letsoalo said because payouts are linked to a claimant’s earnings or earnings potential, the wealthy tended to benefit more than the poor.
“We have to get to a maximum amount for everyone … others can afford their own [additional] cover. This is a social security scheme and people who can afford to do so have to have their own cover.”
A process to reform the RAF has been under way for more than 20 years, culminating in the tabling of a reworked bill that sought to cap lump-sum payments on loss of earnings claims, the biggest burden on the fund.
However, ANC MPs in parliament’s transport committee withdrew support for the bill in August 2020, arguing it would be too costly for consumers, who would need to contribute to funding the old scheme’s liabilities as well as the new one.
In the Budget Review tabled in parliament in February, the Treasury said it was considering various options to address the RAF’s accumulated liability. Ultimately, the intention is to pay down claims over a reasonable period of time, it said. The Treasury recommended that in the meantime, parliament should reconsider the bill that was rejected by the transport committee.
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