Road Accident Fund Commission Report: briefing by Judge Satchwell

Meeting report

TRANSPORT PORTFOLIO COMMITTEE
19 March 2003
ROAD ACCIDENT FUND COMMISSION REPORT: BRIEFING BY JUDGE SATCHWELL

Chairperson: Mr J Cronin (ANC)

Documents handed out:
Road Accident Fund Commission Report 2002 [link to Department of Transport website]
Powerpoint Presentation by Road Accident Fund Commission on the Report

SUMMARY
Judge Kathy Satchwell, Chairperson of the Road Accident Fund Commission, outlined the findings of the Commission Report, which has been handed to the President. She emphasised the importance of the research data obtained by the Commission (Volume 3 of the report), as it provided a logical base for the Commission's decisions and proposals, and would provide a platform for future decision-making. Volumes 1 and 2 of the report contain the detail and reflect the debates and seminars held. An Executive Summary and a list of Recommendations were included to assist those unable to read the full report.

The Commission briefed the Committee on the key policy shifts proposed for the new Road Accident Benefits Scheme (RABS) from the present Road Accident Fund (RAF). The present RAF is a liability insurance scheme for which "premiums" are paid. The proposed RABS would be a social security system covered by taxation. The RAF presently requires driver "fault" to be proven. The RABS would be a "no-fault" system paying for all road accident injuries or deaths. The common law remedy to sue should still remain for claimants above the RABS basic "safety net" amounts. The present compensation based system, which has unlimited lump sum payouts, would be changed to a defined benefit system paid, where possible, as monthly pension payouts.

Judge Satchwell noted that some of these proposals would increase costs, but on the other hand many other proposals would reduce costs. She emphasised that a systemic overall approach was essential, rather than piecemeal fiddling on done one item at a time, especially as the new proposals required more involvement from the Department of Social Development, rather than Transport as in the past. The RAF should be wound down with ring fencing of current obligations, while a totally new RABS should be formed to administer the new scheme. RABS should have private sector executive competence in the managerial and financial fields, and administrative competence in medical aid and pension administration. Lawyers should not be a major component in the RABS structure. She considered that the Commission's proposals would meet the mandate of being reasonable, equitable, affordable and sustainable.

MINUTES
Judge Kathy Satchwell was accompanied by Mr Zakhele Sithole (CA) of Sithole Incorporated, who was also a Commissioner. Judge Satchwell began by asking why we should be interested in road accidents and then pointed out the annual statistics:
-900 000 vehicles in road accidents with 130 000 injuries and 10 000 deaths. From these 150 000 claims would be made against the RAF.
-R2,7 billion is raised by the fuel levy. Of this a known R620 million are paid as non-productive "transaction costs", paid out to lawyers, the health system and the RAF.
Further costs are incurred in road accidents for pain and suffering, lost productivity, healthcare and duplication of pensions paid.

Judge Satchwell outlined the factors to be borne in mind when preparing the legislation required.
-The Commission considered that for the road accident fund system to meet the first mandate requirement of a 'reasonable' system, it should be part of the social security system and should be moderate - neither too generous, nor too mean.
-It should reflect the South African context and should be purposive in concept.
-To be equitable the benefits must be proportional with the funding, and should be congruent with other social benefits available in South Africa, for example, to crime victims and the unemployed.
-It must be impartial to those affected.
-The compensation provided should be affordable to road users and the society as a whole, and must provide value.
-It must be sustainable by being efficient, and linked to the broader social security system.
-It must be long lasting for those victims reliant on it, and must therefore be financially and morally viable in the eyes of all South African society.

The Commission asked itself the primary question - who are the stakeholders? The answer postulated that it was the road user (either the victim or a wrongful driver), the taxpayer who pays, and the government who decides. Judge Satchwell pointed out that others with a financial concern such as lawyers, health providers and administrators, are servants in the system and it does not exist for them and their jobs. She was concerned that because it had no expertise in the field, the Department of Transport had to listen to the Road Accident Fund (RAF) rather than the real stakeholders when it came to decisions on the RAF itself.

The Commission noted that the present Road Accident Fund works on the following basis:
-It is funded by a levy on fuel (18.5c/l). South Africa is ahead here, as many other countries saw a levy as a desirable system, which they themselves had not been able to implement.
-The present system requires a driver to be at fault before a claim can be instituted. The Commission was critical of this, as it means that a driver who swerves to avoid a child crossing the road, and collides with a tree, cannot claim from the RAF, as he was not to blame.
-The innocent victim is required to claim compensation. This is not considered a desirable system as many victims are ignorant regarding the RAF, or are not in a position to institute claims. The Fund does not advertise its services as it operates as an insurance scheme for the motorist. The claims process is slow (2.6 years on average), inconvenient and with high transaction costs.
-Compensation is paid for medical expenses, funeral expenses, loss of income or support, and for general damages. It is paid as one lump sum and no limits are attached, as the courts usually decide on the amount paid out. The Commission was critical of the system as it favoured the wealthier person with access to lawyers.

The Commission was also critical of the present RAF regarding its capacity to deliver a service to the public. It noted the following problem areas:
-The Minister of Transport was not the correct person to oversee a social security system, while the Financial Services Board would have been suitable for financial supervision of an insurance scheme, but not a social service. Similarly, the Auditor General only had the capacity to spot check 120 of 50 000 claims submitted.
-The RAF Board had an absence of managerial and financial expertise to supervise a R2.7 billion undertaking. It was open to political pressure and conflicts of interest occurred.
-There was no proper accounting system, and there was a lack of data available to the Board.
-The management of the RAF had many problems. In its context it was a monopoly, which carried out no evaluations of its service delivery, it had no bottom line and it was an organisation in transition.
-The personnel had many expertise problems. It was overstaffed with legal personnel who comprised 44% of the total employees, and 86% of the claims staff. There was an absence of management and financial experience, an absence of healthcare skills and an absence of administrative and clerical competencies.
-The employment costs were excessive, as it had no shareholders and set its own salaries. The CEO's package was worth R82 500 per month, managers were paid R44 672 pm and the tea ladies R4 150 pm. An employee earning R9 000 pm in the private sector had entered the RAF at R44 000 pm. Severance packages were excessively generous. For instance R2.2 million for 5 years employment. Salaries needed to be comparable with the private sector.
-The capacity of the RAF to carry out its function had been highlighted in the forensic audit report by Nkonki Sizwe Ntsaluba Inc., which showed that the RAF relied on consultants to do their own jobs. Consultants were employed with no contracts, controls, targets or tenders, and this resulted in no skills creation within the RAF itself.

The Commission proposed the establishment of a Road Accident Benefits Scheme (RABS). This would operate in the following manner:
-The RABS should be formed to administer the proposed scheme. It should not be part of the Department of Transport, but rather be under the aegis of the Department of Social Development and a RABS Board.
-It would require private sector executive competence to provide managerial and financial experience, while administrative competency should come from healthcare and pension administrators.
-The present RAF should be wound down with ring fencing of current obligations.
-Primary funding would continue to be provided by the fuel levy, but this would be supplemented by additional amounts based on risk.
-These would be surcharges on road use traffic fines, on the basis that those motorists being fined would be more likely to be involved in road accidents. Another surcharge would be added to the registration costs of certain higher risk vehicle categories, i.e. taxis and trucks. ---Financially the scheme need not be fully funded, but would be a pay-as-you-go scheme, as it was government backed.
-As a social security scheme it would need to be integrated within the system of comprehensive social protection. It should provide a safety net only, with limitations on the benefits provided. Victims would still retain the common law right to sue wrongdoers for greater amounts.
-The safety-net benefit limitations would consist firstly of thresholds, provided by waiting periods before benefits become payable, and severity assessments for life enhancement benefits. Secondly ceilings or caps on benefits would be applied, and thirdly benefits would be prescribed as with medical aid tariffs and schedules.
-Fault should play no part - benefits should be available to all road accident victims.
-The lump sum awards should be reduced, first by paying healthcare providers directly, and secondly by paying income and family support on a monthly pension basis. Apart from preventing abuse of large monetary sums, it would reduce costs should claimants later return to work, or pass away. However funeral and family adjustment should be paid as flat rate lump sum amounts, and life enhancement benefits should also be paid as lump sums according to a published schedule.
-Healthcare providers, whether provincial or private, should be paid immediately according to the tariff, and paid direct to the supplier.
-Income support would be paid to earners for temporary or permanent loss of earning capacity, and to non-earners (housewives, schoolchildren) only for permanent loss after a twelve to eighteen month waiting period.
-The World Health Organisation standard system of disablement assessment should be used (The International Classification of Functioning - ICF). A waiting period should apply and benefits should be capped at 80% of net pre-accident income, to a maximum of R8 000 pm. -Pre-accident income would be according to the claimant's previous declared taxable income. -Non-earners should receive 80% of the tax threshold (lowest amount where tax is due).
-Funeral benefits should be a flat rate lump sum of R 15 000, while family adjustment benefits should be a flat rate lump sum of R10 000 - R15 000.
-Family support benefits would be payable as pensions to children and to surviving spouses/partners, as one half of the income support benefits which would have been paid to a victim.
-Life enhancement benefits would be paid to a road accident victim for physical or mental impairment. This should be a lump sum paid as a percentage of a R500 000 maximum, according to the impairment percentage determined according to the American Medical Association Guide.

The Commission listed the various cost reduction proposals such as reviewable periodic payments, no foreign currency payments, managed healthcare, waiting periods, time limits, thresholds and declared income basis. They noted also the increases in costs envisaged such as no-fault basis, payments to public hospitals, flat rate funeral and family adjustment benefits, non-earner benefits and removal of ceilings on passengers.

The Commission commented that the 2002 RAF Amendment Bill was designed to save money, but was not placed in any context. It was "Neither fish nor fowl" and used no data to justify its proposals.

Judge Satchwell pointed out that to solve the RAF problem required a systemic approach rather than the ad hoc, piecemeal fiddling which had been proposed in the past. It had to be solved in the South African context, using South African data together with international experience. It required a strategic policy approach in line with the Constitution, and required coordination of policy, benefits and delivery between the Departments of Finance, Minerals & Energy, Transport, Health and Social Development as well as Parliament itself.

Discussion
There were many congratulatory remarks from Committee Members on an excellent report.

Ms P De Lille (PAC) asked if the RAF and other insurance did not provide double cover for the same event?

Judge Satchwell said that this was correct as a victim could receive public healthcare benefits at Groote Schuur hospital from the RAF, then move to a private ward with medical aid, and later be paid loss of income benefits from a private disability policy.

Prince Zulu (IFP) asked why there were only 150 000 claims when 900 000 accidents occurred.

Judge Satchwell replied this was due to ignorance about the RAF and the benefits available, together with the "fault required" rule.

Mr S Farrow (DP) asked about means tests and their applicability.

Judge Satchwell noted they were part of disability pensions. At present a victim could in theory claim from the RAF, spend the money and then claim a state disability pension, causing a double payout by the state.

Ms De Lille (PAC) noted that healthcare in the country was not good.

Judge Satchwell agreed, as they were often not geared to help. She hoped that the proposed immediate and direct healthcare payouts would encourage better healthcare in rural areas.

Mr C Freemann (NNP) asked how high medical costs would be covered if only pensions were being paid.

Judge Satchwell noted that healthcare costs would be paid directly to the doctor concerned.

Mr Farrow asked if the new system would not result in victims flocking in and blocking its working.

Judge Satchwell agreed that the "no fault" system would mean more claims, but they would be more limited.

Mr R Ainslie (ANC) asked if damages could still be sued for from a taxi driver involved in an accident.

The Judge replied that the proposed system was pure "no fault" and the common law right to sue remained. She noted that taxi drivers and owners seldom carried insurance cover and would not be worth suing. She anticipated that the middle class and rich will tend to sue each other and would therefore need to take out insurance.

Ms De Lille (PAC) asked if taxis should not be compelled to take out insurance.

Judge Satchwell replied that by buying fuel, taxis were entitled to safety net cover. If others required more they would need to sue or else take out insurance.

Mr Farrow asked if the RAF itself had been addressed by the Commission, and what was the effect of 800 lawyers losing their jobs?

Judge Satchwell replied the RAF was well aware of the report. As regards redundancies she did not anticipate a problem as there was a high turnover of personnel at the RAF, and the winding down of the RAF meant that job reductions would occur gradually.

The Chairperson spoke about the process forward. He emphasised the importance of speedy action from the Department of Transport, so that hopefully draft legislation could be available by August 2003.

Judge Satchwell noted that the Commission no longer existed after its report was presented to the President. However, the Department of Transport had asked for its services to continue from offices in their building in Pretoria. Judge Satchwell said that she herself was not available, as she was now back on the judicial circuit.

The meeting was adjourned.