Road Accident Fund Strategic Plan 2012/13

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18 April 2012
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

The Road Accident Fund (RAF) outlined its history and detailed the various challenges and difficulties it had faced over the years, under both the Motor Vehicle Accidents Act and the Road Accident Fund Act. A number of commissions of inquiry were set up to investigate its problems. A new business and operating model was set up in 2006, a new corporate strategy was approved in 2007, and new claims management system was set up in 2008. However, it was noted that many of the persisting challenges were linked to the delictual system of fault-liability under which it currently operated. These challenges included subjective assessments of future earnings, complex determinations that required employment of expert medical and actuarial personnel, an expensive administration system, and high medical and legal costs that took up about half of the RAF income. Lawyers were not obliged to disclose contingency fee arrangements to the RAF, and the time taken to settle a claim was unpredictable, with perverse incentives of longer settlement times attracting higher legal fees. The merits of the case often could not be easily determined. There was no accident database that could assist in estimating future liabilities, and legislation and precedent inhibited the system, compounded by unreliable and inaccurate claims and headcounts. RAF, despite its best efforts, had been unable to finalise all backlogs, although they had been reduced, and legal practitioners were asked to identify claims requiring urgent attention. There was a high potential for fraud.

RAF intended, in the run up to 2014, to improve processing efficiency, enhance the value proposition to clients, develop a service oriented organisational culture, reduce fraud and enhance community involvement. From 2013 to 2017 it would amend the current legislation, to align it to principles of social security, and accumulate a surplus. By 2017 it hoped to have amended the legislation and set up a new Road Accident Benefit Scheme (RABS), which would use a no-fault system that would be customer-centric and operationally effective. Improvements would be made to claims processing, reduction of fraud and the new operating model would be established. The benefits of the new model were outlined. The planned legislative amendments were also described in more detail. The new RABS would focus on communities, hospital service centres, and mobile service centres, and it was intended that more energy would be put into home-based care and rehabilitation of accident victims. It was also intended to cooperate more closely with other road agencies and to stress the need for road safety awareness.

Members asked how RAF dealt with cases of hit and run accidents, what it was doing in rural areas, how it assisted families when the victim was a breadwinner. They were concerned about instances where legal practitioners were unscrupulous and asked if there was a standard fee charged by practitioners. They noted that RAF must minimise the potential for   fraud and corruption, asked how it was addressing white-collar crime in the organisation, and urged RAF to hold continuous and increased public education awareness campaigns. RAF described the scope of its campaigns and awareness, but Members recommended use of community cooperatives. Members also enquired how the backlogs would be reduced, and felt that some provinces needed expanded services.

Meeting report

Road Accident Fund (RAF) strategic plan 2012 – 2017 briefing
Mr Mandla Mvelase, Acting Chief Executive Officer, Road Accident Fund, gave a short introduction to the background of the Road Accident Fund (RAF). Initially, it was known as the Motor Vehicle Accident (MVA) Fund, but its founding legislation was amended six times in a short space of time, and many insurance companies had been liquidated as a result of insufficient funding to cover claims, before there was an amalgamation of MVA insurers into the MVA Fund. MVA had incurred a loss of R217 millions, premiums had increased by up to 300%, and in 1986 the government abolished the compulsory insurance scheme, and replaced it with a fuel levy, which made the collection of revenue easier. Between 1990 and 2000 several commissions of inquiry were established to look at the problem of compensation. After the Melamet Commission of Inquiry revealed irregularities and fraud, widespread inefficiencies, and negligence, the MVA Act was repealed, and a new Road Accident Fund (RAF) was set up under the RAF Act. This Act suspended common law delictual actions against the wrongdoer, but set up a fault-system of liability. RAF continued to have problems, and by 2004 its liabilities were standing at R19 billion. In 2005 the RAF Amendment Act was promulgated, and RAF developed a turn around strategy (see attached presentation for full details). In 2006 a commission was set up to design a new business and operating model and processes for the RAF. In 2007, there was approval of a corporate IT strategy, implementation of new accounting systems, and development of a revenue requirement model. In 2008 a new claims management system was set up, and the legislation was amended. 2010 and 2011 had seen the implementation of elements of the new operating model. Until 2014 there would be a focus would be on improving processing efficiency, enhancing value proposition to clients, developing a service oriented organisational culture, continuing to reduce fraud, and continuing with community involvement.

Mr Mvelase noted that in spite of the improvements made to date, the RAF was hindered by challenges that were intrinsically tied in with the delictual system, and that were common to al such systems. These included subjective assessments of expected future earnings of claimants, complexity of determinations of expected income, which required expert actuarial and medical skills, and inequities that resulted from using the circumstances of parents to indicate the potential future income of the child. Although RAF had an annual income of around R13 billion, the system was enormously expensive, and the medical and legal expert costs meant that less than half of this amount was actually available for payment of claimants. Lawyers also did not disclose their contingency fees to the RAF. In addition, the system was unpredictable and the time to settle a claim was not readily determinable, because of the appointment of limited experts and the need to obtain court trial dates. There were perverse legal incentives, because the longer a case took to settle, the higher the legal costs, and the higher the contingency fee. Delays occurred because the substantive compliance information was inadequate to determine merits, and to quantify and finalise a claim within the prescribed time period.

These challenges were further compounded by other macro and micro environmental issues, such as the lack of an accident database to estimate future liabilities. There were inappropriate allocations of resources. The system was inhibited by legislation and precedent. There were unreliable, inaccurate claims and head count reporting. Despite best efforts, the RAF was still unable to process all claims and reduce backlogs, and was hindered by lack of integration between role players, strong interest groups with conflicting interests, and the high potential for fraud.

RAF planned to focus on four key areas over the period 2013–2017. It was intending to amend the current legislation so that it was aligned to principles of social security. Secondly, it was hoped to establish a solvent and sustainable RAF by 2020. This would require additional funding, reduction of legal and operational costs and increased ability to pay claims. Thirdly, there would be a focus on creating a customer-centric and operationally effective RAF by 2017, which would require improvements in claims processing, reduction of fraud and implementation of the new operating model (NOM). Overall, it was intended to establish a transformed and capacitated system by 2017, through change management, leadership development, culture reengineering and talent management.

Mr Mvelase outlined the principles of the new operating model. This was intended to improve accident information collection and management, to improve accountability and performance management, and to reduce the backlog, which had been 500 000 in 2006, but were currently at 250 000. The new model would result in expansion of the geographic footprint, and improvement of reach.

Legislative changes would also be effected. At the moment, section 18 of the RAF Act was unconstitutional and needed to be amended. A non-emergency tariff would be inserted, and it was proposed that there be another tariff for the assessment of serious injuries. Payments of claims would be structured so that payments could be made in instalments. Direct payments of compensation would be implemented. Amendments were proposed to the court rules, so that no amendments could be made to claims within 30 days of the trial date. Finally, the Road Accident Benefit Scheme Act (RABS) would be set up.

The plans were that the RAF (in future to be named the RABS) would open provincial offices, community service centres for easy access to communities, hospital service centres, and mobile service centres. More energy would be expended on patient rehabilitation. RABS would provide care to road accident victims who had suffered permanent injuries and required medical attention for the rest of their lives. It was intended that home visits be used to assess the needs of victims and make necessary recommendations. It was proposed that caregivers should be employed for quadriplegic and paraplegic accident victims, and that provision be made for procurement of wheelchairs, prosthesis and other necessities. A number of legislative amendments were proposed for the current period (see attached presentation for full details). Most importantly, there would be a change to a no-faults based benefit system.

Mr Mvalase noted that RAF expected to accumulate a surplus, because of increased revenue growth and savings as a result of the 2008 Amendment Act. Net liabilities were expected to decline because of this surplus. He tabled graphs and tables on the budgeted revenue and expenditure (see attached presentation).

He summarised that the desired outcomes on service delivery would see greater accessibility for the customer, a quicker turnaround from accident to payment, expansion of the service delivery mandate to include rehabilitation, and more equitable benefits to claimants. RAF would be more sustainable, and able to continue its mandate to ensure that Government continued to provide suitable benefits and rehabilitation for accident victims. The changes also allowed for transition to a no-fault based benefit systems. RAF would focus on  eliminating the current claims backlog, while enhancing its capability through the new operating model.

RAF aimed also to increase road safety awareness, leading to a reduction of road fatalities, and therefore a reduction of the need for government accident compensation. RAF hoped to develop a more fruitful relationship with other road agencies. The intention to emphasise patient rehabilitation meant that claimants from RAF should be able to become economically active and self-sustainable, and reduce the longer term social security obligations of government.

The Chairperson stopped the presentation at this point, due to time constraints.

Ms N Ngele (ANC) commended the entity for its role in rural areas, and wanted to know how RAF was dealing with hit and run accidents in rural areas, and what was being done to breadwinners who were involved in accidents.

Mr Mvelase explained that in respect of hit and run accidents, RAF would be prepared to settle claims, on the basis of an affidavit, when it was difficult to trace the owner of the vehicle. However, there was an onus on the person injured to lodge a claim.  If the breadwinner of a family was injured, RAF had started to look at intermediary processes that would allow for the family to be supported while the case was being processed. RAF was also working with South African Social Security Agency (SASSA) to assist in these cases.

Ms N Mdaka (ANC) commented that she would like to see changes in the way claims were lodged, so as to minimise the potential for corruption and fraud. She commented that legal representatives “robbed” people of their money. She knew of at least one case in which an accident victim was told that he would be paid less if there he did not have legal representation.

Mr Mvelase agreed that there were touts in hospitals, who were paid by attorneys to find victims and persuade them to give instructions to that attorney. There was not much known about RAF members involved in such instances. The Act did not allow RAF to pay for the medical statutory report, which had to be obtained by lawyers, who then claimed from the RAF.

Mr L Suka (ANC)  commented that there was need for continuous public education, especially on local radio stations, and this should be increased to alert victims to those purporting to be lawyers, and offering to lodge claims on their behalf.

Mr Mvelase confirmed that RAF tried to make use of as many public gatherings as possible to educate, inform and help them. RAF was even attending church services to spread knowledge about its services.
Ms Nozipho Jafta, Marketing and Communications Director, RAF, added that the RAF announcements would be aired on 25 local radio stations in different languages. Community newspapers were approached to carry stories about the work that RAF was doing. Recently the entity launched the “RAF on the Road Campaign”. This has already taken place in Cape Town, and would be rolled out to rural areas. Other opportunities had been identified, using sporting matches.

Mr Suka asked if there was a standard fee charged by lawyers. He asked what RAF was doing to fight white-collar crime.

Mr Mvelase said the terms of the agreement between lawyer and client were confidential, and RAF could not intervene. However, an internal inspectorate was about to be established, to settle claims directly. Professional attorneys would be employed in RAF claim centres.

Mr Mvelase agreed that currently, fraud was a serious issue. No studies had been conducted to show the level of prevalence of fraud, but RAF had isolated and prosecuted in several instances where syndicates or medical or legal practitioners were defrauding the RAF. The entity was working closely with the National Prosecuting Authority, to assist in matters of white-collar crime.

Mr P Mbhele (COPE) enquired how RAF was planning to reduce the backlogs.

Mr Mvelase stated that there was a time when RAF did not have money to settle claims, and had to get a bail-out from National Treasury. The legal fraternity had been invited to indicate which of the outstanding claims needed to be settled particularly urgently, and efforts would be made to prioritise the settlement of these claims, although he confirmed that the claims would still be investigated thoroughly.

The Chairperson suggested that RAF should consider communicating with community co-operatives. This was likely to present a large target market and ideal opportunity for communication. She further commented there was inequality around expansion of services because Gauteng, although small in area, was receiving more services, some of which were provided by the municipalities, but the Eastern Cape and KwaZulu-Natal were vast and yet RAF had a limited presence in those areas. She suggested that this was indicative of unequal distribution of resources.

The meeting was adjourned.


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