Road Accident Fund restructuring and alignment: Department of Transport briefing

Committee: NCOP Public Services

Chairperson: Mr M Sibande (Mpumalanga, ANC)

Date of Meeting: 28 Feb 2012

Summary

The Department of Transport briefed the Committee on the intended restructuring of the Road Accident Fund (RAF), to bring it in line with the comprehensive social security system. The Department noted that at present the Road Accident Fund aimed to compensate those injured in road accidents. Although the common law provided for damages, in fact the injured party often ended up not being compensated because the person causing the injury had no means to pay the compensation. The Road Accident Fund Act had therefore established a Fund, to be administered by government, from which injured people could claim. This Fund was currently funded by a levy on fuel, currently at 88c per litre. The RAF covered  past and future hospital, medical and related expenses, but more recent amendments had also resulted in a capping of the amount that could be claimed for loss of earnings, and provided that damages could not be claimed in addition to the compensation. The RAF currently faced a number of challenges. Because it operated on a fault-basis, the system was complex, the administrative costs were high, and there were numerous delays in getting reports, treatment and payments. It would be restructured into a no-fault system, operated by the Road Accident Benefit Fund Scheme Administrator (RABSA). The new system would apply to all categories of road users, for injury or death. The transition from RAF to RABS would take effect in 2014 and would be aligned to the National Health Insurance. The RABS agenda was in line with the long term national plan fighting poverty and inequality. Cabinet had approved the RABS policy and the Department of Transport was drafting the legislation, which it was hoping to pass later in the year.

Members expressed concern about abuses of the RAF system in the past and questioned whether it was possible to exclude lawyers from the process, given the number of frauds perpetrated in the past, and how the Department planned to avoid spurious claims by foreigners who may try to abuse the system. They stressed that strict monitoring would be necessary, and in this regard asked what plans were already in place, what financial controls were in place, and whether the RAF was presently complying with the Public Finance Management Act. The Department noted that RAF had just received its fifth unqualified audit in a row. Members asked when the backlogs could be assessed and addressed, and how the transition would take place, They questioned whether sources of funding other than a fuel levy had been considered, asked how ‘funeral costs’ would be defined, and whether there was any prescription on how the benefit must be spent, whether there would be the possibility of advancing funds to injured parties while waiting for their final payout, and noted that the current location of the RAF offices was not ideal, and that perhaps RABSA, in addition to mounting communication campaigns, might wish to consider collaborating or being housed with other departments. They commented that it would be crucial to have regional risk management mechanisms. They wondered if corrupt law firms could be named and shamed.


Minutes

Road Accident Fund Restructuring: Department of Transport (DoT) briefing
Dr Maria Du Toit, Deputy Director-General, Department of Transport, briefed the Committee on the intended restructuring of the Road Accident Fund (RAF) into the Road Accident Benefit Scheme (RABS). She noted that the scheme of awarding compensation to those injured in road accidents could be traced back to 1946. According to common law, damages (compensation) could be claimed by an injured party from the person who was responsible for the injury or harm. However, in most cases, the person causing the accident was unable to pay damages, and therefore government decided to take over the compensation. The RAF was currently funded by the imposition of a levy on fuel, currently at 88c per litre.

There had been various ways in which the scheme operated, and, the 2005 Road Accident Fund Amendment Act removed the common law right to claim for damages. Instead, an injured party could claim, under the RAF, for past and future hospital, medical and related expenses, funeral expenses, past and future loss of support, general damages for pain and suffering and also for past and future loss of earnings. Recent amendments capped the claim for loss of earnings at R197 000 annually.

The Taylor Committee report on a Comprehensive Social Security System for South Africa (2002) suggested a restructuring of the RAF. The RAF currently faced a number of challenges. Because it operated on a fault-basis, this required that the merits be determined in each case, so the system was complex, the administrative costs were high, and there were numerous delays in getting reports, treatment and payments. The RAF was now to be restructured from the current fault-based motor vehicle accident compensation system, to a no-fault system of benefits that would be operated by the Road Accident Benefit Scheme Administrator (RABSA) as part of a Comprehensive Social Security System.  The new no-fault benefit system would apply to all categories of road users, for injury or death.

Some of the highlights of the new system included recognition of both earners and non-earners, access to medical care in South Africa, benefits with thresholds and ceilings and a flat rate funeral benefit. This policy was approved by Cabinet on 7 September 2011. The Department of Transport (DoT or the Department) had already commenced drafting the legislation, and a draft should be published in February or March 2012. Final approval was contemplated in the third term of Parliament. A business plan would also be drafted, to ensure a smooth transition from the RAF to the RABS Administrator (RABSA).

It was hoped that the new entity could be established in 2014, with a ring fenced financial structure, and that by then a Board and Executive officers would be appointed. It would be aligned to the National Health Insurance. The RABS agenda was in line with the long-term national plan to fight poverty and inequality.

Discussion
The Chairperson asked how the Department and RAF proposed to curb possible instances where foreigners might try to take advantage of the system, by fabricating accidents. He also pointed out the huge loopholes that had arisen in the past, because of poor financial management. He wanted more details on how the system would be monitored. He asked for assurances that any other loopholes that had been found with the Road Accident Fund would be dealt with. He raised the issue of the necessity of risk management committees. He questioned what would be done about the backlogs.

Dr du Toit said that the questions raised about foreigners were rather sensitive and tricky, but that there would be discussions with other Southern African Development Community (SADC) states to ensure that a coherent service could be established. She pointed out that different countries in the region had different mechanisms around insurance of motor vehicles. The main focus of the Bill would be on South African citizens.

The Chairperson expressed his dismay at the amount of abuse of the system that had been perpetrated, through unscrupulous lawyers, and he wondered if compensation of claimants could not be made directly to those claimants, so that no legal practitioners were involved in the system.

Dr du Toit said that government was advised against changing the current system of payments, as this may not pass Constitutional muster and could amount to breaches of contract.

Mr H Groenewald (North West, DA) also asked what methods would be employed to stop abuses.

Dr du Toit assured the Committee that internal controls and risk management mechanisms were in place. She added that, apart from the internal controls, the potential for abuse would be stopped by instituting a stringent control system involving all stakeholders. A flawless electronic system was also another way to prevent abuse of the RAF.  The electronic database had been improved but there were still some other challenges.

The Chairperson stressed that no restructuring of the current RAF would succeed if the Department was not well-equipped. He asked if the RAF was compliant with the Public Finance Management Act (PFMA).

Dr du Toit pointed out that the RAF had received a clean audit for the fifth year running, and already had an efficient executive, so there was confidence in its current systems. The RAF did comply fully with the PFMA. The RAF tabled Annual Reports. She assured Members that the King III principles of  corporate governance principles were being fully implemented in the RAF and would continue to be in the RABSA.

Mr Z Mlenzana (Eastern Cape, COPE) asked how a “funeral” would be defined under the new policy. He also wanted to know if there was any prescription around how the money for a funeral must be used.

Mr Jacobs raised the question whether RABSA would work with certain funeral parlours, and wondered if persons on disability grants could get assistance in applying for grants.

Dr du Toit responded that “funeral coverage” would related to the amount of money needed to bury or cremate the deceased.

Mr Terence Gow, RAF Project Manager, Department of Transport, noted that the current RAF Act provided for a once-off payment to bury or cremate the deceased, RABSA would not seek to prescribe how the money would be used, and this would be a once off payment. 

Mr Mlenzana asked what would happen in the waiting period before funds were approved, and asked if any advances would be given to the claimants.

Dr du Toit stated that questions around the possible advancing of funds would have to be addressed, but the possibilities of fraud must also be reduced.

Mr Mlenzana requested some clarity on the ring fencing of the deficit, and what time frames were expected.

Dr du Toit pointed out that the fiscus may not be prepared to ring fence the RAF. In response to questions about backlogs, she said that these could only be determined when the new entity came into operation.

Mr D Feldman (Gauteng, COPE) asked if there had been investigation into any other possible funding sources for the RAF, apart from imposition of a fuel levy.

Mr M Jacobs (Free State, ANC) asked how the funding of the RAF is calculated from the fuel levy.

Dr du Toit noted that for the moment, only a fuel levy source of funding was being considered. Any other changes to this would require political direction, from the legislature. She said that the fuel levy calculations were quite complex. The funding model was developed by National Treasury.

Mr Feldman pointed out that an efficient database was at the heart of the system and asked whether such a system would in fact be implemented.

Mr Feldman questioned the relevance that RABSA would bring, and asked if the RAF system was in fact necessary, pointing out that many other social grants already existed.

Mr Jacobs asked about existing liabilities, and how these would be handled.

Mr Jacobs raised queries on the operational mechanisms, and both he and the Chairperson commented that the location of the current RAF offices was problematic.

Ms M Themba (Mpumalanga, ANC) requested that the policy and operations of RAF and the new RABS should also be disseminated in the languages that ordinary people on the street would understand. She urged that the DoT should offer road shows and workshops to educate the public.

Dr du Toit told Members that the new RABSA would embark on an intensive programme to educate people on the Fund. She pointed out that the RAF did have regional and provincial offices. The RAF has also already embarked on outreach programmes in hospitals. She acknowledged that the RAF needed to go on road shows in all provinces and get the community involved.

Dr du Toit added that another critical issue would be the job security of current RAF staff, as the new entity would have a new mandate and focus. This was a matter that would need to be considered in the business plan.

Mr M Jacobs (Free State, ANC) urged the RAF not to work in isolation. He thought it would be important for it to work with other departments, including the Department of Home Affairs.

Dr du Toit said that consideration would be given to having offices in other departments, such as the Department of Social Development.

Mr Jacobs said that he thought a regional risk management mechanism was crucial.

Mr Groenewald asked how many litres of petrol were sold in South Africa each day.

Mr Gow pointed out that other sector of the transport network that don’t use roads receive rebates from the fuel levy.  Figures will be forwarded to the Committee.

The Chairperson pointed out that corrupt law firms should be named and shamed.

Dr du Toit said that the RAF did not release information on clients. Any communication with lawyers was confidential and privileged.

The Chairperson again urged the DoT to be wary of foreigners who may try to take advantage of the RAF system.

The meeting was adjourned.