Road Accident Fund on its Strategic and Annual Performance Plan 2014/15

Meeting report

Chairperson’s opening remarks

The Chairperson said the purpose of the meeting was to hear a briefing from Road Accident Fund (RAF) about its annual performance plan (APP) and strategic plan for 2014/15. The presentation sought to ascertain whether the RAF continued to fulfil its legislative mandates.  It was concerning that 14 000 people were killed annually due to road accidents and this had a major impact on the South African economy. She hoped the presentation would take cognisance of the extreme levels of human suffering experienced by the loved ones who were affected by road carnages.

Presentation by the Road Accident Fund (RAF) 

Dr Eugene Watson, Chief Executive Officer (CEO), RAF, said that the RAF was established in May 1997, under the Road Accident Fund Act, 1996 (Act No.56 of 1996 and RAF Amendment Act, 2005 (Act No.19 of 2005), assuming at the time all the rights, obligations, assets and liabilities of the Multilateral Motor Vehicle Accident Fund, to provide compulsory social insurance cover to all users of South African roads.  The RAF was also mandated to rehabilitate and compensate in a timely and caring manner, persons injured as a result of negligent driving ofa  motor vehicle and to actively promote the safe use of all South African roads.  The RAF was a national public entity, and Constitutional Court rulings and legal precedents had shaped its mandate, especially in relation to passengers and life partners.

Dr Watson said the business model of the RAF was not complicated, as 98% of the income was generated from the amount of fuel sold.  It also received a grant from the National Treasury (NT). The cost side was centred on road activity, because of higher road use, and the accidents varied in number and severity.   This was likely to influence the volume of claims.  RAF had 83 hospital-based offices and the plan was to increase them to 90. There were four customer-service based centres and five regional offices. The bulk of the work was on determination – the process of assessing, adjudicating and quantifying so as to determine the merits and the extent to which there was wrong-doing or negligence.  Litigation was a step where the claimants made use of legal representatives to argue the extent to which there was wrong-doing, negligence or damages suffered.   Finalisation was a financial step -- basically a payment process -- and was immediately followed by post-finalisation, which was where post-crash care was provided to accident victims.  There were about 120 000 people who were dependent on the RAF for post-crash care.

Dr Watson said South Africa had the top five largest road networks in the world, with ten million vehicles and 25 million people travelling on the roads daily. It was estimated that about 1 000 people died on our roads on a monthly basis and no fewer than 40 lost their lives daily.  More than 14 000 people were killed annually. This placed a heavy burden on the entity, as it needed more funds to ensure that those who suffered from accidents were compensated.  He indicated that it was a 70 year old regime that was driven by an accessible revenue stream.  The RAF had moved from protecting a wrongdoer from being sued, to supporting victims.   Compensation was fault-based and fault had to be proven or excluded.  There were people who were seriously injured, but could not meet the requirements. The court rulings and orders were not always consistent, as there was a great deal of subjectivity. A micro-economy had been created and was sustained by the RAF, and there were lawyers, advocates, assessors and experts.  There were also contingency fees in excess of 25%. More than 50% of the matters were settled in court.  This had an impact on the justice system’s ability to perform effectively.  It was still a concern that claimants were often not the primary beneficiary of RAF benefits. This was, unfortunately, a legacy of the past.

A summary of RAF highlights for 2013/14 included:

§  Revenue increased by 13% to R20,6 billion;

§  Claims processing improved by 47% to a record high of R22,2 billion;

§  Cash expenditure on claims exceeded the net fuel levy by R1,9 billion;

§  The RAF had proactively made business operations more accessible and efficient;

§  More than 220,000 calls were responded to by the call centre;

§  Over 25,000 people followed the RAF’s social media presence;

§  Engagement with road accident victims was conducted through the “RAF on the Road”;

§  It had interacted with more than 20,000 claimants and settled R161 million in claims;

§  A new organisational structure and business processes had been fully rolled out;

§  Productivity had improved

§  Quality assurance managers tested operational performance and compliance;

§  The vacancy rate had now been reduced to below 10%;

§  A policy business unit had been formally established;

§  It had received clean audits from the Auditor-General for 2012/13 and 2013/14

§  The draft Road Accident Benefit Scheme (RABS) Bill was published for a second round of public comments.

Dr Watson said the Minster had approved the new 2013-2017 strategic plan and the 2013/14 APP. The mission was to provide the highest standard of care to road accident victims, to restore balance in the societal system. The vision was to provide appropriate cover to all road users within the borders of South Africa, to rehabilitate persons injured, compensate for injuries or death and indemnify wrongdoers as a result of motor vehicle accidents in a timely and caring manner. The values of the RAF were based on Ubuntu, excellence and efficiency. There were currently four strategic objectives. Objective One focused on the legislative dispensation that was aligned to principles of social security. Objective Two was to manage the Fund’s finances effectively and pursue sustainability. Objective Three put priority on a customer-centric, operationally effective and efficient RAF, and Objective Four was to transform and capacitate the institution.  This was where the focus was on transforming people’s lives.

Dr Watson then took the Committee through the APP Strategic Goal One with the emphasis on the outcome indicators.  These included:

§  Amending the Road Accident Fund Act, 1996 (Act No.56 of 1996);

§  Publishing a maximum fee for serious injury assessments, to allow standardisation of payments;

§  Publishing a single medical tariff;

§  Conducting annual reviews of emergency medical tariffs;   

§  Reviewing serious injury assessments and amending the Road Accident Fund Act, 1996, if more speedy and less costly assessment methods are established;

§  To support the Department of Transport to enact legislation and bring into being a no-fault fixed benefit dispensation (RABS).

The APP Strategic Goal Two focused on the outcome indicators.  These included a reduced deficit and improved sustainability, provision for claims incurred assessed quarterly and an annual assessment conducted by an independent actuary, RAF claims data and records reviewed annually, a reduction in legal costs by 2% annually, an increased percentage of direct claims originated, a reduced percentage of direct personal claims becoming represented, managing and monitoring operational costs to improve the sustainability of the Fund, a reduction in the number of writs of execution, and accurate forecasting of the prevalence of accidents, essential for the budgeting of the funds

The APP Strategic Goal Three focused on the following outcome indicators:

§  A reduced number of open claims, especially claims where payment and compensation must still be made;

§  Reduced turnaround times for the processing of claims for loss of income and general damages;

§  All hospitals’ service centres optimised and the national footprint expanded;

§  Information collection agents operational;

§  Reduced prevalence of litigated cases;

§  Improved fraud conviction rate from the set baseline;

§  Implement an enhanced claims system;

§  Improves system availability and up-time;

§  Increased percentage of direct personal claims settled.

The APP Strategic Goal Four focused on a reduction in the vacancy rate, performance assessments to measure operational efficiency, recognition of employees who exhibited RAF’s values through performance, and the RAF contributing towards the government’s social and economic transformation agenda.

Dr Watson said at the revenue level, net fuel sales were estimated to increase at a constant rate of 2%.   It was a concern that fuel consumption had gone down, as this was likely to have an impact on the RAF because of the effect on revenue. The fuel levy rate had increased by 8 cents per annum and this amount on a bigger base was becoming smaller percentage.  96% of the fuel levy was used to pay claims, and claims-related expenditure.  It was also a concern that productivity exceeded the cash available, as the claims expenditure was limited to the cash available.  From 2014/15 available cash would be a material constraint.

At the administration level, personnel costs were estimated to amount to a rate of 8%.  This was related to the consumer price index (CPI), plus 7, 5% for improved productivity. The provision for claims incurred reduces slightly, due to an increase in claims payments, and then increases due to inflation, as sufficient claims would not be paid to cover the inflation increase.

Dr Watson said that the RAF was faced with a backlog, and five years ago there were 450 000 open claims.  This had been reduced to 198 000 by of the end of March 2014, but there were still a lot of people who needed to be paid claims. The measures in place comprised of targeting older claims as part of backlog initiatives, supplemented by outsourced claims administration and backed by strict performance management with frequent monitoring.  

There was also a challenge in paying direct claims, and the RAF wanted to ensure that claimants could access direct claims.   The strategic response to this was to establish a dedicated division that would process direct claims. The business process had also been implemented for direct claim processes and mobile RAF officers appointed to assist in gathering information for direct claims.  There were already signs of improvements in these initiatives. The panel of attorneys had been a challenge for many years.   The initial attorney panel tender had been challenged, and then the supplementary tender had been cancelled.  The penultimate tender had already been issued and was being adjudicated, but there was resistance from outgoing panellists.

Other most pressing challenges still faced RAF included:

§  Revenue from the fuel levy had grown below the CPI, despite good levy increases;

§  Statutory actuary projected unpaid claims to be worth approximately R97 billion as at 31March 2014;

§  Operational productivity had improved, resulting in claim payments rising from R15 billion in 2013, to R22 billion in 2014

§  Increased settlements had seen cash holdings reduce from R6,1 billion to R2,5 billion for the period ending 31 March 2014, and from R2,5 billion to R1,3 billion for the period ending 30 June 2014.

Suggested solutions to ensure that the Fund had sufficient funds to settle claims included proactive engagement with Minister, the Department of Transport and National Treasury, continuous monitoring of cash flow, the implementation of cash flow management strategies, and managing negativity and subsequent increase in costs.  The definitive solution, looking at the long term, was to appreciate that for 33 years, the current financial arrangement, financially and socially, was not sustainable.  There was a need to implement the RABS.

Dr Watson said in 2011/12 the strategic pan had not been aligned to the APP, as there had been errors, and in 2012/13 the plan had been aligned to SMART targets. The fuel levy had grown from R16 billion in 2011/12, to R20.2 billion. The number of open claims had declined slightly, from 264 579 in 2011/12, to 232 285 in 2013/14.  The RAF was pleased that settled claims had grown from 170 043 in 2011/12, to 240 783 in 2013/14.   This improvement was linked to the response measures implemented by the RAF.   Since South Africa had higher road fatalities and injuries, it was expected that claims payments would increase from R12.5 billion to R22 billion.

RAF was also pleased to have reduced the number of writs (summonses) from 11 656 in 2011/12, to 5 598 in 2013/14.  The number of abandoned calls had declined drastically from 33,3% in 2011/12 to 3,9% in 2013/14.   The audit opinions had moved from unqualified in 2011/12, to clean audits in both 2012/13 and 2013/14.  Internal audit findings had increased from 147 in 2012/13, to 338 in 2013/14.

Dr Watson said the 2014/15 APP and strategic plan were a continuation of the current strategy.  The future focus would be on reducing the backlog, promoting and paying direct claims, improving operational efficiency and effecting legislative changes (RAF and RABS).  Attention would also be directed to maintaining capacity -- people, processes and infrastructure – and contributing to national priorities such as black economic empowerment, road safety, employment and gender representivity. Great effort would be placed on fulfilling the APP and strategic plan deliverables, addressing the challenges and risks, and preventing the catastrophic socio-economic effects of accidents in our society.

The Chairperson thanked RAF for a detailed presentation that covered a lot of issues, especially the massive social and economic impact of road fatalities on the lives of road users in South Africa. She handed over to the Members to seek clarity and suggestions on the areas that required emphasis.

Discussion

Ms D Carter (COPE) said she was disappointed that the presentation did not cover the media reports about the RAF.  How many hospitals were used by the RAF? She wanted more clarity on the 120 000 post-crash care victims that were dependent on the RAF. Was there a possibility of aligning the Road Accident Fund Act, 1996 (Act No.56 of 1996) with a Contingency Fees Act?  She wanted more information on the possibility of using an automated system. Who were the people involved in the panel for assessing claims? Was the RAF receiving the fuel levy on on-going basis?

Dr Watson responded that there were 83 public hospitals, with one employee per hospital, and the space was secured with the Department of Health. The intention was to increase the number of hospitals from 83 to 90. Post-crash care was basically what happened literally after the crash and this was to assist with rehabilitation. The RAF was currently doing 20 000 home visits to road accident victims, and 4 000 active patients relied on the RAF.  He said that automation was to be applied at different levels, and in most cases it would be at the stage of applying for a claim.  The second aspect would be the automation of medical invoices, as the RAF needed to move away from paper.

There was no need align the Road Accident Fund Act, 1996 (Act No.56 of 1996) with a Contingency Fees Act.  What needed to change was the enforcement of the Contingency Fees Act, as this was linked to cases where attorneys were found to have exceeded the 25% maximum. He said that there were 1 500 panels assessing claims, and they reported to Mr Lindelwa Jabavu, Chief Operating Officer (COO).

The fuel levy was received on an on-going basis and the COO was aware of the exact day to receive it. 

The Chairperson asked whether the Members wanted to discuss the RABS Bill now, or wait for it to be tabled in Parliament.

Ms Maria du Toit: Deputy-Director-General for Department of Transport, indicated that the Members would be given enough time to discuss and review the RABS Bill once it had been tabled in Parliament. 

Mr M de Freitas (DA) asked for the clarity on the post-finalisation process for accident victims. What was the average number of claims on a day?  How was it possible that RAF had obtained a clean audit in 2012/13 and 2013/14, but in the internal audit findings there had been 338 cases?

Dr Watson responded that the post-finalisation process was the rehabilitation process.  This was really to restore those who had been disabled by road accidents.  There were between 70 and 150 claims a day. The overall average payment for the direct and represented claims was R104 000, and the average personal claim had gone up from R138 000 to R194 000.   It was concerning that the average taxpayer in the country earned R200 000 per annum, the average national income in the country was R43 000 annually, and the RAF’s average payment for the loss of income was R650 000. He said that RAF was audited daily, weekly and on a monthly basis.  The findings would have constituted those numbers in the internal audit, and those cases were swiftly resolved.  

Mr C Hunsinger (DA) welcomed the opening of new customer service centres, and hoped that it would improve efficiency.  He wanted elaboration on the scheduled new offices.  He also wanted to know whether the figure of R376 million was adequate compensation. How would the fuel levy fund RABS Bill?  He noted that expenditure was far greater than revenue. 

Dr Watson responded that the RAF was present in all the provinces, and there was a plan to expand to other areas. There was a need to balance between access and affordability.  Expenditure was indeed far greater than the revenue.  He said that the law required that road accident victims must be compensated.

Mr L Ramatlakane (ANC) wanted to know how far back the backlog of R97 billion went.  He asked whether the payment of the fund was informed by the years or the magnitude.  Would the appointment of short-term attorneys come from a new set of attorneys?  He remarked that the backlog of R97 billion, combined with the increase in road fatalities and accidents and the appointment of short-term attorneys, was likely to make it difficult for the strategy to be manageable. He expressed his concern over the 21% level of legal costs, and also wanted clarity on the 225 days target for the payment of the fund.

Dr Watson responded that 40% of the claims were more than three years old, and 33% were less than one year. He also explained that the R70 billion was the value of the claims, and the R27 billion was for the possible claims that might come in.  The criteria for payment were difficult, and were decided upon by various panels, and mostly depended on the severity of the accident. He said there was a need to look at the issue of the affordability of the RABS Bill and other alternative sources of funding. The target from the date of getting a claim to the day of payment, was 225 days.

Mr M Sibande (ANC) welcomed the presentation and said that he was worried about the R1 billion that was paid to the lawyers and doctors, as the money was going to the wrong people, instead of  to those who had been injured. He suggested that the RAF needed to expose those corrupt lawyers, doctors and companies so that the general public was aware of them. There was a need to amend some of the out-dated laws that enabled lawyers to make huge claims unfairly from the RAF.  The RAF needed to look for an alternative source of revenue, as the fuel levy was unsustainable and was likely to affect the poor.  The RAF needed to look at the issue of international claimants who came to South Africa only to orchestrate an accident that would require payment in a foreign currency. He was pleased with the audit outcomes for the past two financial years, and requested the entity to take note of the comments and remarks made by the auditors.

Dr Watson responded that attorneys and intermediaries played a crucial role, as they needed to prove the common law fault, and stripping away such important people would result in the RAF having to function like a social security operation.  He admitted that there were fraudulent attorneys and doctors, but any system where there was a collection of money was likely to have cases of fraud, and there was a need to apprehend those found guilty.  The RAF was aware that there were international claims that were implicated in syndicated bogus accidents, and this was prevalent in Lesotho and other neighbouring countries. He admitted that RAF needed to look for an alternative source of funding, as the fuel levy was likely to be unsustainable. He said that the total legal expenditure was R4.6 billion and the average claimant was R104 000.  The amount of money spent on legal fees was equivalent to funding 46 000 claimants, and this required a policy response.  

Ms S Xego-Sovita (ANC) congratulated the RAF on the clean audit.  She said it was concerning that there were some road accident victims who were not compensated because they did not meet the necessary requirements, and asked whether there was a strategy in place to deal with this problem. She asked whether the RAF had customer service centres in rural areas, as this would ensure that poor people were able to get help. She supported the “RAF on the Road” campaign, but suggested that there was a need to have monitoring and evaluation of the campaign.  She suggested the use of  the South African Local Government Association (SALGA) and traditional leaders in order to spread the message across. What was the time-frame for the finalisation of a direct claim?  She supported any initiatives that would remove the middle man and promote the direct claim. 

Dr Watson responded that it was said that in some cases the RAF was unable to assist road accident victims, and suggested that the RABS Bill intended to remove the barrier of fault, so as to benefit anyone who suffered from road accidents.  The RAF had expanded its offices in the Eastern Cape region and other areas located in the periphery, and there were plans in place to share offices with other entities like the Road Traffic Management Corporation (RTMC). “RAF on the Road” was a success and the RAF was using SALGA and traditional leaders in order to spread the message across. The average turnaround of a represented claim with the lawyer was about 1 500 days for a big claim, and 900 days for a direct claim. Dr Watson agreed that there was a need to remove the middle man to avoid the intermediary process.

Mr T Mulaudzi (EFF) appreciated the fact that the RAF had managed to improve the negative perception of the public and become efficient. He expressed the concern over the backlog of R97 billion, and maintained that there was a need for a strategic response to this challenge. He also wanted more clarity on the RABS Bill. He questioned the effectiveness of a settlement of R18 000 to road accident victims and suggested that this needed to be looked at in conjunction with the mandate on social responsibility. What was the reason for the resistance from outgoing panellists?  What strategy was in place to manage the short-term attorneys?  What proposal was in place to ensure that there was adequate funding to settle claims? He urged RAF to deal with bogus accidents orchestrated by international tourists, and warned that the situation was likely to be worse if the RABS Bill was implemented. He pleaded with the RAF to be slow in implementing the RABS Bill, as it still needed to be reviewed to ensure that it was not abused by the general public.

Dr Watson reiterated that the entity needed an alternative source of revenue, as it was clear that the fuel levy had wider implications for the poor. The RAF was sometimes forced to offer some of the claimants a small amount of money, depending on the adjudication, and this was where the standardisation of payment was extremely important. The resistance from outgoing panellists was a big problem, as the old lawyers were refusing to hand over files that belonged to RAF.  He warned the Members that the process of enforcing the handover of files was likely to have cost implications. He said there was a need to achieve a balance between getting more funds and maintaining productivity. Removal of the barrier of fault was likely to discourage fraud cases and save a huge amount of money spent on legal fees.  If the RAF was not able to deal with fault dispensation, the liability was likely to grow, as in 2000-2014 the liability had grown by R60 billion.

Ms S Boshielo (ANC) said the fuel levy was unsustainable and suggested that the RAF needed to find an alternative source of revenue.  What action was being taken by RAF to deal with the corrupt lawyers and doctors? She asked whether the RAF needed to be assisted by the Portfolio Committee in removing the middle man, as this was a worrying factor. What other strategies could be used to inform the broader public about the RAF? She suggested the Committee to wait for the tabling of RABS Bill before discussing it in the Committee.

Dr Watson responded that the increase in the cost of fuel was indeed likely to affect the poor and economic development in South Africa. There was a singular zero-tolerance approach to fraud, and there were lawyers and doctors implicated in orchestrated fraud.  The RAF was using radio programmes, social media to reach out to the public.  

Ms Du Toit said that the RABS scheme had been in the public and legislative domain for more than a decade.  Since there was a new dispensation, there was a need to familiarise new Members of Parliament on the policy. She believed the RABS Bill would transform the lives of ordinary citizens, as they were all road users.   The Department had public consultations and workshops that would allow the public to express different views on the implementation of the RABS Bill.

The Chairperson said the RAF needed to look further into the issue of disabled patients in the hospitals, as they needed to be assisted financially to access medical care. She asked the reason why the lawyers were refusing to part with the files that belonged to the RAF and wondered whether there was something the Committee could do on the matter. 

Mr Mulaudzi remarked that the proposal to move away from paper to automation was likely to affect those who were unskilled, as it had already been indicated that 50% of the victims of road accidents were unskilled, with no access to the internet. He suggested that the RAF needed to accommodate those people who were likely to struggle with the automation process.  He reiterated that there was a need for more public consultation and workshops on the RABS Bill before it was promulgated.

Dr Watson responded that the RAF was still using paper from step one, but the files in the RAF office needed to be digitised.

Dr Ntuthuko Bhengu, Chairperson of the Board of Directors, RAF, assured the Members that the issue of resistance from outgoing panellists was being taken care of.  He indicated that the RAF needed to improve its relationship with attorneys, as they played an important role in the adjudication of the claims.  The RAF was looking into the matter of lawyers who did not show up at hearings.  Tthere was a need to impose penalties, considering the amount of money that the RAF paid the legal team.     

Mr Ramatlakane suggested that the Committee needed to invite the DoT to brief Members on the RABS Bill in order to avoid the delays that were likely to occur in the tabling of this particular piece of legislation.

Ms Carter asked the RAF to provide sn age analysis and the number of claims, and said she was aware of cases that had been outstanding for more than 12 years.  She reiterated that the increase in fuel price was likely to affect the poor.  She suggested that both the DoT and RAF needed to be open in terms of the pressing challenges that faced the entity, as the withholding of information forced Members to rely on the media. 

Dr Watson responded that the age analysis and the number of claims were available in the annual report.  He admitted that there were claims that had dragged on, but this was sometimes the fault of the litigation process or crucial information from the claimant being missing. 

The Chairperson thanked the RAF for the response to the questions posed by the Members. She said it was clear that South Africa needed to deal with the scourge of road fatalities, as it was affecting the economy of the country. The issue of the RABS Bill needed further clarity for the Members, as it had attracted a lot of interest from the general public.

Adoption of minutes

The Chairperson requested Members to adopt the minutes of the 26 August and 2 September 2014.

Mr Ramatlakane moved the adoption of the minutes of 26 August, and Ms Carter seconded.

The minutes were adopted.

Ms Boshiolo indicated that in the minutes of the 2 September, “’train service” needed to be replaced by “public transport service.”  She also suggested that on same page, “the projected number of trains” needed to be replaced by “the projected number of rolling stocks.”

Ms Xego-Sovito moved for the adoption of the minutes, and Mr De Freitas seconded.

The minutes were adopted, with amendments.

The meeting was adjourned.