The Road Accident Fund’s (RAF) latest annual report admitted that it’s insolvent, with liabilities exceeding assets by over R206 billion at the end of March 2018. The auditor general’s report to the financial statements concluded there’s “significant doubt on the RAF’s ability to continue as a going concern.”
Lindelwa Xingwana-Jabavu, in her report as RAF acting CEO in the 2018 financial year, said on average, it was R9 billion in arrears per month with finalised claims that couldn’t be paid. The shortage of cash to pay agreed-on/court-settled claims has led to lawyers taking legal steps against the RAF for payment, by securing attachment orders against its bank accounts.
The RAF said this had further affected its ability to operate. DSC Attorneys said accident victims’ payments have all but halted. The levy to fund the RAF will increase to R1.98 per litre in April. At current prices, it represents some 13.5% of the cost of fuel.
Several government departments are pushing to replace the current RAF system with what they see as a more affordable system under the new Road Accident Benefit Scheme (Rabs) Bill. Rabs is a defined benefit scheme offering compensation to accident victims, doing away with long legal processes where every case is determined on individual merit. It’s meant to be more reasonable, equitable, affordable and sustainable. The legal profession disagreed, claiming it did not adhere to the most basic common law principles.
Reduced Legal Costs
Rabs seeks to curtail the legal process significantly: it will be based on a no-fault basis, removing the court procedure to determine who’s to blame for an accident/injury, and the victim’s right to legal action again the party is responsible.
Rabs provides for the appointment of an administrator that would consider claims and determine compensation. Medical costs would be paid on a predetermined scale and would probably only make provision for state hospital treatment. The RAF also pays a compensation lump sum for loss of income, calculated on individual circumstances. The new Rabs wants to replace this with a limited monthly income grant, cut off after 15 years or at age 60.
Gregory Whittaker, the principal actuary at Algorithm Consultants & Actuaries, said the RAF’s funding mechanism was completely wrong. Currently, the poor subsidised the rich in that a poor cleaner who travelled far to work contributed more to the RAF than a rich lawyer who travelled less. However, benefits were income-based, the lawyer would receive more compensation than the cleaner. An income tax surcharge would better align benefits to contributors.