No-Fault Road Accident Benefit proposals; Shova Kalula update: Department of Transport briefings

NCOP Public Services

13 September 2010
Chairperson: Mr MP Sibande (ANC Mpumalanga)
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Meeting Summary

The Road Accident Fund (RAF) briefed the Committee on its history, the system of compensation for injuries suffered in road accidents, and the proposals to introduce a no-fault system of compensation, as well as the advantages that it would have to claimants and the Fund. Whereas the fault-based system had proved complex, conducive to protracted litigation, and difficult to administer, as well as being very expensive, the proposed no-fault system would facilitate a streamlined and easier structure for the application and granting of compensation to victims of road accidents, without having to prove fault. This would also discourage so-called “perverse incentives” which had motivated claimants to abuse and milk the system in the past. Members raised concerns about the exorbitant amounts claimed by lawyers in fees in the past, the abuse of the system through false hospital claims, and asked how many instances of fraud had been uncovered. They also queried whether the findings of the Satchwell Commission of Inquiry had been implemented, and questioned what was to happen with the new policy, pointing out that it was usually the function of the National Council of Provinces to hold public hearings on such matters. They further queried the claim backlogs, what had caused them and how these were to be addressed, and asked about the capping of claims and whether it applied to foreign claimants as well. Members wondered if the new proposed system might not simply replace the current problems with others, and questioned how carefully implementation would occur and what checks and balances there might be.

The Department of Transport outlined the reasoning behind and implementation of the Shova Kalula Bicycle Project. Its goal was to distribute at least one million cycles by 2011, targeting mainly learners, youths and adults having to walk long distances. It was also intended to create jobs through the establishment of micro-businesses. It had been instituted to try to address the problem that around 73% of scholars in South Africa walked long distances to school, and had no alternatives, either because public transport was not available or because they could not afford it. Members asked many questions, which elicited more information on the implementation of the scheme, including that it had intended to use locally-produced bicycles but that in fact had ended up importing bicycles from China, and the fact that the scheme had been slowed down pending further investigations into its impact and future implementation. Many Members suggested that the scheme should be aborted, feeling that it had not been properly thought out, that the money might be better used being put to education or the building of more schools, and suggesting that there were far too many loopholes, including the fact that bicycles were to be given to local government to administer, that there were no facilities provided at schools to store the cycles, that there did not appear to be a proper policy formulation and that far too little was being done to create local jobs. They criticised the apparent lack of integrated approaches and agreement between the Departments of Transport and Education. Members also wondered what was to be done to avert fraud, whether family members would benefit, what incentives were being provided to provinces, whether any factories were to be set up, whether workshops were to be established, and that it seemed to be a temporary solution that was unproven. Members also criticised the lack of consultation with the NCOP on both issues.

Meeting report

Proposals for the No-Fault Road Accident Benefit Scheme (RABS): Department of Transport briefing
Mr Terence Gow, Project Manager, Road Accident Fund, tabled and presented on the proposals for the No-Fault Road Accident Benefit Scheme (RABS). This was proposed to change the current fault-based compensation system that the Road Accident Fund (RAF) was administering, to a no-faults system that would benefit all parties, both claimants and the RAF.

It had been found that the current system encouraged so-called “perverse incentives”, which resulted in spurious and even fraudulent claims. It also encouraged disputes, which in turn created long backlogs and were conducive to unscrupulous lawyers being able to abuse the system. In the past, this system had also resulted in the payment of exorbitant amounts in compensation to foreign claimants. The current no-fault system would streamline the claims procedure and allow for the prompt payment of compensation, by obviating the need for a lengthy and often difficult determination of fault. In future, claims would be based simply on the fact of an accident, without the need to determine who had been responsible for that accident.

Mr H Groenewald (DA North West) asked what consultation there had been with the relevant Portfolio Committee in the past. He said that he could not recall this Committee having been consulted.

Mr Gow apologised if this Select Committee had been omitted, but said that the Portfolio Committee on Transport had been briefed on 3 February this year.

Mr M Jacobs (ANC Free State) asked about the cost of administration, and questioned and why the Department of Transport did not have its own in-house lawyers instead of outsourcing lawyers at great cost.

Mr Gow replied that the RAF was trying to move towards a no-fault claim system precisely so as to avoid disputes between claimants and the RAF, which would in turn cut down on both the need to use lawyers and on costly administration. This was intended to ensure that, irrespective of fault, all parties involved in an accident would be compensated.

Mr Jacobs also asked for how long claims would be capped, in the light of the rapidly and frequently rising cost of living.

Mr Gow replied that caps had been implemented on 1 August 2008, and in two years these caps had risen from R160 000 to R180 750. They were also updated every three months, with the revised figures being published in the Government Gazette.

Mr Jacobs asked who would run the RABS.

Mr Gow replied that that RABS Administrator would run the scheme, and that liabilities of the Fund would be ring fenced..

The Chairperson pointed out that the Satchwell Commission of Inquiry into RAF matters had revealed that lawyers were earning exorbitant fees in road accident claim cases. He enquired whether this was still the case. He also noted that in the past money had “disappeared in hospitals” and he wanted to know how many lawyers had been arrested in this regard.

Mr Gerrandt could not say how many lawyers had been arrested in regard to hospital claims but said the RAF had approached the Department of Health with the intention of raising the number of hospitals at which the RAF had in-hospital representation, from 65 to 120. For between 80% and 90 % of claims, the RAF now had a direct relationship with hospitals, which was not previously the case.

The Chairperson also noted that in the past, it had sometimes taken between three and five years to settle claims, and often large sums had gone to lawyers.

The Chairperson pointed out that another problem had been that overseas claimants had demanded to be paid in foreign currency, resulting in a huge financial burden to the RAF. He asked if this could that still happen. He asked if caps applied only to South Africans.

Mr Gow replied that foreigners had been paid in foreign currency up until 1 August 2008, when the Road Accident Fund Act had been amended. Currently, all claimants were paid in South African rands, and only up to the caps that applied at the time of the accident. There had been some debate, when the RAF Act was amended in 2008, whether foreigners’ claims should be covered at all. There was currently no principle of reciprocity, as applied in some other countries, where a foreigner would only be compensated by a State if that latter State’s nationals would be compensated by the foreigner’s own country if they had suffered accidents in the foreign country.

Prior to the amendment of the Act, a Swiss claimant had been paid R525 million, and following this it had been suggested that such claims be capped at R160 000 per annum. This was done by the Amendment Act. He added that the no-fault system would compensate claimants only for medical expenses, and would not offer compensation for future loss of income, which had accounted for the major portion of that Swiss national’s claim. He said that the RAF was currently wasting a lot of money on legal fees and the sooner legislation could be passed to establish a no-fault claim system, the better for all.

The Chairperson enquired to what extent the recommendations of the Satchwell Commission had been implemented. He also asked whether there were still backlogs, and if so, how many claims were outstanding, and for how long, and what was being done to address them. There had been reports on backlogs of 250 000 claims, and asked what the Department of Transport could do (other than what it had already tried) to address the problem. This problem had been one of the major concerns raised by the Satchwell Commission.

Mr Jacobs asked whether by moving to a no-fault scheme, the RAF was not replacing one problem with another and whether this would not result in more claims in future.

Mr Jacobs asked how long the backlogs had existed.

Mr Gow noted that the current system required a complete claim form to be completed as well as a form to be filled in by a doctor, where there were injuries, and this was a complex and time-consuming process. By the move to a no-fault system the compensation was worked out according to a relatively simple formula.

Mr Gow noted that the RAF had commenced a consultation process on the recommendations of the Satchwell Commission, and in 2006 had published a strategy document. There had been consultation on this. The Minister had published a draft policy document. Once the draft had been finally approved, a report would be prepared and submitted to the Minister, who would then make a decision and take the revised policy to the Cabinet for approval. New legislation could then be drafted for submission to Parliament, and full public hearings were likely to be held.

Mr Groenewald also noted that a draft policy had been published in the Government Gazette for public comment on 12 February. He pointed out that public hearings were usually the duty of the NCOP.

In regard to the backlogs, Mr Gow said that these were caused because of the problem of funding, which had to come via National Treasury.

Mr Andre Gerrandt, Acting Chief Executive Officer, Road Accident Fund, said that the RAF had been insolvent for almost thirty years, and often benefits had been unaffordable and unsustainable. Had National Treasury funded the RAF from the start on a fully-funded basis, rather than on a pay-as-you-go basis, there would have been no deficit. A revenue-requirement model had been developed by actuaries and had been presented to National Treasury in 2007. In 2009, the RAF had received a 17.5% increase (as opposed to the normal 5% given in the past). However, this was still insufficient, and for about two thirds of the month, the RAF was short of cash, and could not pay. This resulted in a backlog of about 250 000 claims.

Mr Gerrandt noted that as of 31 March 2010, over 50% of claims were younger than two years. He reiterated that under the new Act there would be no general damages awarded for less serious injuries. Hospital or supply claims had been brought down to 90 days.

Mr Gerrandt also spoke to the RAF’s financial position. Benefits, including funeral costs, were unaffordable. He added that the requirement for a determination of fault before compensation was paid out, under the current system, was also time-consuming and complex. The category of general damages (pain and suffering claims) was the most abused category, and in 2009 the RAF had paid R11.3 billion, R4.7 billion of which was for general damages claims. Around 90% of all claims used to be for R100 000 or less, and many were for whiplash neck injuries. The Amendment Act of 2008 had also put a stop to claims for less serious damages, and now damages were paid only for serious injuries. Compensation for loss of future income (which accounted for at least 80 % to 90% of legal fees) was a highly subjective and problematic calculation, and this too was a vexed issue in the past. Unfortunately an “industry” had developed around this which effectively milked the system, and there was also considerable cross-subsidisation by the poor of the rich in this regard. The payment of fixed benefits, however, would obviate such costs and problems, resulting not only in fixed and more determinable costs, but also in a simper administrative system. The current system had been developed in the 1940s and was based on common law principles. It had protected the rich. The no-fault system was fairer across the board.

Mr Gow said that in regard to the no fault system, it was important to distinguish between law enforcement and the kind of “social security” system, which the RAF provided. Under the new system no advantage would attach to any party in the accident, so that there were no “perverse” incentives to deny or admit anything in relation to the accident. There were also no perverse incentives in having injury or temporary disability stretch out for a long period. In addition, there was a proposal in the draft policy that self-inflicted harm should be excluded from compensation, he said.

Under the current and proposed system, because the system was funded through a fuel levy, the average foreigner who came to South Africa was only a risk to the State while he or she was the country, and not after returning to the country of normal residence, because that person would be covered for treatment only while he or she was actually in South Africa, subject to the locally applicable claim caps) Thus claims for exorbitant amounts, such as had happened in the past, would no longer be possible.

Shova Kalula Bicycle Project: Department of Transport (DOT) Update
Mr Whity Maphakela, Project Director, Department of Transport, reminded Members of the objectives of the Shova Kalula bicycle project. He then outlined the current steps in implementation of this project. Its goal was to distribute at least one million bicycles by 2011, targeting mainly learners, youths and adults having to walk long distances to reach schools or places of work. He pointed out that about 73% (10 million) scholars in South Africa walked to school daily, many for distances exceeding 5 km each way,  and most of these were from rural areas. Such learners had no choice but to walk, because of either poverty or the unavailability of alternative transport. They were however endangered in doing so, and often arrived tired. It was these learners who formed the target of the system.

He added that the project would also create jobs through the establishment of micro-businesses for the manufacture and distribution of the cycles.

Ms L Mabija (ANC Limpopo) asked what measures had been taken to ensure that service providers from the various provinces would benefit from the Shova Kalula project, since the project was being administered at a national level.

Mr Groenewald also asked how many sustainable jobs had been created by the Shova Kalula project. He too, enquired about the provincial spread, and asked in which province the manufacturing factory was situated, how many cycles would be imported, and from where.
He asked whether local manufacturers should not be given preference, in view of the urgent need to create jobs in South Africa.

Mr Jacobs urged that there was a need to discourage importation because the scheme had the potential for, and should be used to create local jobs.

Mr Groenewald asked what measures would be taken to ensure that one person or family did not receive more than one cycle.

Mr Groenewald asked how strong and durable the cycles were,  and whether they were manufactured in one size for all users. He pointed out that certain areas such as Sekhukhune had very poor roads, so that durability was essential.

Mr Groenewald cautioned that there always seemed to be lack of alignment, at least in the North West, between the provincial Departments of Transport and Education, so there was a need to examine the feasibility of integration.

Ms Mabija also asked whether there had been consultation between the Department of Transport (DOT) and the Department of Education (DoE).

Mr Jacobs asked whether the Shova Kalula Bicycle Project was a permanent or temporary one. He also asked if there was a move towards using bicycles instead of having a transport subsidy for learners to use existing transport, such as taxis.

Mr Jacobs asked how learner/cyclists would manage in inclement weather such as rain or cold. He also asked about parking facilities at schools. He noted that he had not seen any maintenance shops.

Ms Mabija asked whether regulation of the allocation of cycles should not have preceded distribution.

Mr R Tau (ANC Northern Cape) praised the Shova Kalula concept because it addressed not only the transport needs of young people but also their wellness. However, he was concerned about the extent to which there had been public involvement.

Mr Tau pointed out that in most families the bicycle would be seen as an asset with economic value, and this might lead to abuse. He asked whether there should not have been an educational drive to engender an appreciation of the real value before actual distribution.

Mr Tau was also concerned with security of the cycles.

Mr Tau cautioned that there was a need to ensure that there was not corruption in the system.

Mr Tau asked whether female learners would also be expected to use the one-size-fits-all cycles or whether they would be catered for separately.

Ms M Themba (ANC Mpumalanga) asked whether, in view of the high cost of such projects, the DoE had not been consulted. She wondered if it might not make more sense to build new schools nearer to learners’ homes (within a five-kilometre radius) rather than providing cycles. She thought that the cycle option was not a permanent solution.

Mr Maphakela replied in general terms to the questions. In regard to the provincial spread, he said that tenders were open to everyone and the Department of Transport (DOT or the Department) had ensured that they reached all the provinces. The Department also encouraged provinces to put money aside (for instance, R5 million), so that local companies could assist in the roll-out. He said that a National Coordinating Committee was responsible for controlling and administering the system in all the provinces. The Department sought to engage the provinces to have a standardised roll-out policy. Standards were in the process of being finalised and would then result in regulation, hopefully before the year-end.

There was a monitoring and evaluation framework where cycles were stored in provincial warehouses. Until now, no claims for missing cycles had been received. He pointed out that the losses were most likely to occur during the delivery phase.

Since the scheme had started, 22 cycle shops had been established nationally and had been transferred to the provinces. Some provinces had established micro-businesses. Of these, 12 were fully functional and sustainable. There were currently no cycle manufacturing plants but only assembly plants in the country. The Department was intending to establish whether a manufacturing plant was economically feasible. It was hoped that local plants could be established, but as yet it was unsure where they would be placed.

He noted that during phases 1 to 3 of the project, 33 000 cycles had been procured from local dealers. However, the design of those bicycles was found not to be ideal and a suitable local prototype had been designed. In 2008/09, 26 100 cycles had been imported from China. In 2009/10, another 15 000 cycles had been imported. This was done because no local manufacturer could make the bicycle. A decision had been taken to look at establishing a local plant.

Cycles had been designed to accommodate female learners and to be durable. Currently no parking bays were being constructed, but according to a Memorandum of Agreement, schools had to allocate an area for parking of the cycles.

The provision of cycles benefited not only the learner, but family members as well because they would also have access to them (although the primary user would be the learner).

The Department had been unable to influence the DoE with regard to establishing schools nearer to residential areas. However, as a general policy, learners were discouraged from attending a school further away if there was another school closer to them, by not providing such a learner with a bicycle.

Ms Themba asked how learners identified their bicycles when they were parked.

Mr Jacobs asked whether the scheme was a temporary or permanent one.

Mr Jacobs also asked for more specifics on micro-businesses, and where the shops were located.

Mr Groenewald was worried about the figures presented, and said he felt the project should be aborted. If as many as 500 000 cycles a year were needed, yet the Department was saying that it was not feasible to set up a factory, then he felt that this was symptomatic of corruption. He questioned the advisability of importation of cycles from China, asking what was being done to create jobs locally. He asked if this was the only cycle project in the country.

Mr Groenewald also felt that it was wrong in principle to hand out cycles to municipalities and then leave them in their hands. He thought that there was a substantial amount of investment being made in the wrong direction. He asked about the possibility of having different colours for each province so as to make the control of the cycles easier. He also asked for an oversight visit to monitor what happened to cycles.

Ms Majiba said that she, coming from a background of poverty, was disappointed in this project and would also recommend that it be suspended. She pointed out that taxpayers’ money was being used to support the Chinese industry rather than to address unemployment and other problems in South Africa. She believed that there were far too many disadvantages, and that money should rather be allocated to building new schools, which was a permanent investment, rather than a temporary one such as this project. Projects such as this tended to enrich individuals while the majority of the population remained poor.

Mr Tau cautioned the Committee not to be too emotional. This project had, in good faith, sought to address socio-economic problems. He thought that it was necessary rather to agree on which areas should be examined, to decide where improvements or modifications were needed. The Committee should then get progress reports.

The Chairperson said the dissatisfaction of Members should act as a wake-up call, and a strong statement that in future the Department should consult all houses of Parliament.

The Chairperson asked why the national Road Traffic Act had to be reviewed.

Mr Msondezi Futshane, Director of Rural Transport Development, Department of Transport, noted that 26 100 cycles were rolled out in 2008/09 and 15 000 in 2009/10, but in this year the project had been halted, in order that an impact assessment could be done and a feasibility study was also being conducted on the establishment of manufacturing and assembly plants in the country. He stressed that the DOT supported the creation of local jobs and wanted to consult as much as possible in this regard. He pointed out that this was the only cycle project by the National Department of Transport at present, but stressed that all the provinces had bought into it and many NGOs were rolling out the cycle programme. After delivery of cycles, the Department received lists of beneficiaries from schools, including the site location of containers. He said the Department could provide a list of locations where jobs could possibly be created.

The Chairperson reiterated the need for the Department to consult thoroughly with both the NCOP and the NA.

The meeting was adjourned.


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