Documents handed out:
Western Cape Government: Department of Transport submission [awaited]
Association for Protection of Road Accident Victims (APRAV) submission [awaited]
Risk House Africa Actuaries submission [awaited]
Indwe Risk Services submission [awaited]
The Actuarial Society of South Africa (ASSA) gave an overview of the RAF and RABS dispensations. It would be risky introducing many so many new features concurrently. Its main concern was the cost impact. The wholesale movement from one system to the other and the running of a dual system for some time was costly and had many uncertainties. Its suggestion was one can introduce some features of the proposed Road Accident Benefit Scheme into the current Road Accident Fund system.
Members asked ASSA if the Department of Transport had taken its concerns into considerations. on the Road Accident Benefit Scheme Bill; whether ASSA was pro RABs or not; if the RABS Bill should contain transitional provisions that could be phased in over a period of time; if the Satchwell Commission recommendations were considered in the RABs Bill; if the poor would be worse off under the proposed RABS system; about double taxation under RABS; and if there was anything unconstitutional about the Bill. ASSA was requested to flag the items it believed can be infused into the RAF from the RABS Bill.
Risk House Africa Actuaries submitted that periodic payments would result in challenges as complex systems are required to manage and make these payments; to maintain victim addresses; to monitor changes in claimant medical conditions. Such systems should not be underestimated and its expense will be far greater if paid through periodic payment compared to lump sum payments. It recommended hybrid of the RAF system and the proposed RABS in order to provide a balance between the potential increase in claims and administration costs. It advised that the no-fault cover be introduced at low levels, perhaps similar to disability benefits.
Members asked Risk House Africa to unpack the cost of ‘fault’ in relation to the ‘no-fault’ system; why people were worried that the number of claims would increase; about the Satchwell recommendations that it be linked to the social security system so it is sustainable and affordable; how higher unemployment would lead to increased claims; clarity on the maximum claim period of 15 years for widows, why it recommended extension into retirement; and clarity on the internal panel of experts. Risk House Africa was requested to draft recommendations on the retirement funding model and benefits.
The Association for Protection of Road Accident Victims (APRAV), an industry association, was very opposed to the RABS Bill. It noted that information was missing on the tariffs and the structure of the agreement that the RABS Administrator would have with doctors and hospitals to provide health and rehabilitation services. The wording in the Bill implies capitation payment agreements. Currently doctors and hospitals in medical schemes work on a fee for service basis. A capitation payment agreement system is prone to under-servicing which could lead to medical negligence. For example, a capitation agreement gone wrong was the Life Esidimeni tragedy. APRAV recommendations included introducing a single panel of experts; a fee framework for all service providers within the RAF mechanism; enable the claim handlers with a mandate structure as it used to be pre 2008 to have the authority to apply their minds and make offers to claimants as this is why 80% of the cases are sitting on the High Court roll; the administration process must be fixed as well as the medical process; there are six very specific actionable decisions that would have a substantial reduction in RAF costs.
Members asked about the tariffs; unnecessarily high compensation payouts for the wealthy rather than transformation; the length of time it should take for the payment of a claim; how to reduce the high road accident rate; changes that could be made to the RAF right now to improve it; if claim handlers should be professionals such as lawyers, doctors and actuaries; why it complained about Committee public hearings; possibility of mediation to reduce litigation; whether there would be a standardised tariff for mediation. APRAV was requested to detail how the Scheme is not feasible so that the Committee can consider that while deliberating.
Western Cape Department of Transport did not support the Bill in its current form. It has a noble objective but there are certain aspects that may actually have a negative impact on some of the beneficiaries – those consequences may be unintended. It had concerns about general damages, pain and suffering and doing away with suing the common law wrongdoer. It is problematic that the claimants have to pay for the initial administration costs before the RABS Administrator may even assess a claim. The Bill places an onerous administrative burden on the claimant, and the claims process seems to be exceptionally long. The injured persons are not entitled to a health care service provider of their choice and this speaks to constitutional rights. The injured person must continually return for reassessments. People are denied access to court. Even though mediation may be a saving, lawyers will still be needed during mediation and it has time impacts. The funding model was also a concern. The short time frame for comments on the RABS Bill was problematic. It seems there will be further engagement so that people can have sufficient opportunity to deal with some of the challenges.
Members asked about if established laws and jurisprudence would be repealed by this legislation; whether there should be a provision in the Bill that is explicit in terms of the right to sue third parties; whether there should be an additional tax to take care of the third party; whether the Western Cape Government agreed that the current RAF Act was unsustainable; if the Satchwell recommendations on RAF funding and the role of social security within it was considered by Western Cape.
Indwe Risk Services posed questions about certain interpretations in the Bill in order to have certainty when designing third party insurance products. One of the concerns was categorising people in terms of the benefits that they could receive in the Bill. The right to limit benefits to different categories of people is supported but they questioned where you give different people different benefits, can you limit their rights to recover from a third party equally.
Members asked about its concerns about the definition of ‘vehicle’; how it suggested the optimal way to deal with manufacturing defects in vehicles such as the Ford Kuga; and whether there was inconsistency in the right to recover from a third party in the Bill.
The Chairperson indicated that the inputs from the actuaries will assist the Committee in ensuring that the Bill can stand the test of time. She welcomed the Actuarial Society of South Africa to begin its presentation.
Actuarial Society of South Africa (ASSA) submission
ASSA gave an analytical overview of the Road Accident Fund (RAF) and the Road Accident Benefit Scheme (RABS) dispensations alongside each other – see document.
Mr L Ramatlakane (ANC) thanked ASSA for the comprehensive submission. During the Department of Transport (DOT) engagement with stakeholders during its drafting of the Bill; did ASSA engage with DOT? If so, is the Actuarial Society not happy with the Bill going forward and is the best approach to maintain the status quo?
Mr Wim Loots, Actuary and ASSA Damages and Compensation Committee Chairman, responded that around 2014, the Department of Transport called for comments and ASSA submitted its comments which have been broadly presented today. However, when the DOT revised the draft Bill, there was no invitation for comments by DOT. Those comments have now been made to this Committee; for instance, the Actuarial Society had questions about the 75% and whether it was intended that the beneficiaries will be affected in this way. The ASSA submission wanted to highlight some of these concerns again.
Mr Ramatlakane said ASSA would appreciate that Members lacked actuarial skills and the essence of the Bill was supported by actuarial calculations. He wanted to understand the essence of the submission as it appears that ASSA is suggesting piloting RABS to see if it will work or not. It seems that ASSA did not agree with moving towards RABS.
Mr Loots asserted that there would be a lot of unpredictability and uncertainty involved in moving over to RABS from the Road Accident Fund. There were a few features that were unique and others not so much and those features could be brought into the current dispensation. It would be risky introducing many new features concurrently; however, there might be a better way to manage the risks.
Mr Ramatlakane asked if he thinks the best way would be to have RABS structured so it has transitional provisions that could be brought in as one cannot run two Acts at the same time.
Mr Loots replied that at the moment it seemed that the two systems would be running concurrently for up to eight years, but one can introduce some features of the proposed system into the current system such as the ‘no-fault’ and double fuel levy. He supposed there would be legal challenges on the capping. Some people might argue that it is unconstitutional because 20% of people may no longer get the benefit and others might argue that ‘general damages’ should not be excluded. All of these matters would have to be dealt with at some point – you might find yourself delayed in litigation, add to that the needed establishment of the rehabilitation centres. This may impact on the number of years the system may take to be implemented. General damages will be challenged in the Constitutional Court in isolation. Therefore, if general damages can be removed under RABS, it can be done under RAF as well with an immediate saving of about 25%. This can be done for many other proposals under RABS.
Mr Ramatlakane asked if the ASSA submission appreciated the Satchwell Commission recommendations, particularly that RABS should be linked to the social security system of the country. In your calculation, do you not think that you are not considering those eight recommendations?
Mr Nilen Kambaran, Actuary & ASSA Damages & Compensation Committee Member, replied that it was key to point out potential unintended consequences, so if a recommendation was made from a legal or social security standpoint, if there were no consequences from a financial point of view, ASSA would not point out these issues. There are inherent risks that may come to fruition due to those recommendations, and it is calling for a reconsideration of the unintended inherent risks based on those recommendations.
Mr M De Freitas (DA) said that it was mentioned that the poor would be worse off under the proposed system. Would that be the case? Secondly, he asked for more details on the double taxation that was mentioned. He asked if the ASSA comments were ignored by the Department when the Bill was being drafted and if any of its comments were included in the Bill. He also asked for more details on the phasing-in of the Bill.
Mr Kambaran replied about the impact on the poor, saying it is a mixed bag and that it needs to be explored to see the extent to which poorer communities would suffer and who would benefit – it is not clear cut. On the double taxation, ASSA was not sure what the intention was in applying the 75% to the pre-accident income. If it is an allowance for taxation then it would be a double taxation because it is applied to the net income, and the net income already accounts for taxation. This was just pointed out by ASSA as there is uncertainty about it.
Mr Loots replied on whether their comments were incorporated in the tabled Bill, saying they would have to check but some of the minor definitions might have changed as a result of their comments. On the phased-in approach, this must come with proper monitoring and adjustments over the period.
The Chairperson asked ASSA to report back to the Committee within 48 hours to confirm whether its commentary had been incorporated by the Department or not.
Mr M Sibande (ANC) said that the intention of the Bill was to deal with transformation as some laws were made a long time ago. And besides transformation there was compliance. He asked ASSA to point out all the items that were unconstitutional in the Bill, because some of the items raised fell under the ambit of Labour, and Social Services was also implicated. In terms of the efficiency, there were a lot of claim backlogs.
Mr Loots replied that unfortunately he could not comment on the constitutionality of the Bill because he is not a constitutional expert; however, that could be tested in court by legal experts. It could potentially be a stumbling block. For example with general damages, some would argue that it is a constitutional right, as well as compensation for pain and suffering, which everybody is entitled to.
On the capping referred to earlier, the way the capping would be applied, an individual may receive zero benefit under RABS, but could still get some benefit under RAF. It remains to be seen exactly how many people that would be, perhaps it may be only 10% of cases that would be affected. Now if you consider that the right of the person to claim and to be compensated is taken away by RABS, one could argue that is unconstitutional. It gets complex when one looks at the formula outlined in the schedules of the Bill. What stood out for him was the family support benefit, where the deceased has more than one wife – how it works currently is that there is compensation.
Mr Sibande said he was talking about transformation and that the intention of the Bill was to deal with that. He asked what ASSA’s take on that was considering that some of the laws date way back to the 1940s, 50s and 60s. In terms of accountability, the intention of the Bill is to introduce a compliance framework rather than rely on the Road Accident Fund alone. What is their take on that?
Mr Sibande said there had long been silence about the enforcement of accountability. We now have discovered a lot of lawyers, doctors and firms were involved in a lot of “atrocities”. The ASSA submission spoke about the RAF represented the poor and provide benefits for the poorer section of the population. However, most people think of enriching themselves through the RAF where some people get paid in dollars and lawyers do not want people to get paid out directly into their bank accounts, instead they want the money paid into the lawyer’s trust fund and in the end the victims do not get paid. He asked for comment.
Mr Loots fully agreed with the strategic objective of transformation. ASSA spoke about RAF benefiting the poor and agreed with that as a broad statement but we need to point out that within the group there are various sub-groups that do not benefit through the current system. Our stance was to point out unintended consequences and impacts of RABS to assist policy makers to make better decisions. The general statement that the poor will be better off is true – but children will not be better off. Many of the transformation aspects can be incorporated into the system.
Mr Kambaran replied the main concern was the cost impact, the costing was the big concern for ASSA in terms of the immediate wholesale movement from one system to the other due to a lot of uncertainties; but also due to the running of a dual system which will have to be done as RAF claims will take many years to run off so that system cannot be shut down for a long time. Introducing a system that will run with it concurrently for that period, the costs are the main concern; hence, we are suggesting what can be done to cut the costs. We are not sure if the costs have been considered as much as they should.
The Chairperson asked if ASSA could flag the items it believed can be infused into the RAF from the RABS Bill.
Mr Kambaran confirmed that this could be done.
Mr D Sithole (ANC) asked ASSA to define criminally negligent drivers because it said those drivers would also benefit under RABS due to the ‘no-fault’ aspect of the Bill. He asked ASSA to unpack the comparison between RAF and RABS in terms of family support benefits, medical costs, general damages, funeral benefits, and other costs.
On criminal drivers, Mr Loots replied that people who drive criminally would be able to claim under the proposed system. Perhaps, such situations could be excluded and it is not clear what will be done with those claims.
In comparing the types of benefits, RAF compensation was provided to put one in the same position one was before the accident occurred. For a young person there would be the consideration of career progression that person would have made and compensation would be based on that. If it were a spouse, and the husband passed away, she had an expectation of income for at least 30 years. This is how the current system works. The calculations of the loss would be based on that. It is a common principle to put persons in the position they were before the accident occurred, with the exception that there is a cap. Under RABS, there is a set of formula that defines what the individual will receive which is not related to the exact loss that a person may suffer. There are various formulas for the temporary benefit and long term benefit – it gets complicated to look at those formulas. However, as a general principle of compensation, there is lifetime expectation under the RAF system and a formula must be applied in the RABS system which may not tie up with the expected total loss.
Ms S Xego (ANC) said that one of the responsibilities of lawmakers is to revisit laws that have been approved and come up with better law which can be done through these engagements. Generally, what the team of actuaries is concerned about is the general damages and ‘no-fault’ cover is proposed. Did they think that was the best system? The point she took from the submission was that when they want the Committee to revisit dependents with regards to disabled children. That would be ideal because in the Bill we are saying dependents no more than 18 years old but sometimes a disabled child can be a dependent for a lifetime. About foster children, if the child is dependent on you, then you can claim if you can prove you are taking care of that child. Is this something that society wants to spell out clearly in the Bill? General damages have been raised numerous times, but was the loss of life factored in? She asked if the proposed death benefit amount was adequate based on the actuarial calculations.
Mr Loots emphatically replied that it was not whether ASSA wanted general damages removed or not; the point they attempted to emphasise was that to compare the cost of the one system with the other system, it must be done on a neutral basis. Both systems must have the same benefits for those benefits to be compared in relation to the costs. ASSA fully supported the points about children, and perhaps disabled children should be a separate category. Mr Loots said that when children turn 18, it must be the end of the calendar year that the 18th birthday is achieved so they are able to finish their Grade 12 – this is something that needs to be factored in. As for the adequacy of the death benefit, ASSA did not have a view on that aspect, but under the RABS system this was something that can be looked at and underlined.
Mr M Shelembe (ANC) asked about overtime payments. He asked how an accident victim’s inability to work overtime would impact the factory in which they worked, especially if that individual was a key driver behind the factory receiving big orders.
Mr Loots replied that having looked at thousands of pay slips, the overtime varies from one company to the next and there are instances where overtime is a significant contributor to an employee’s income but there are also times where it is scarce. In contrast, the Compensation for Occupational Injuries and Diseases Act (COIDA) specifically addresses seasonality of overtime, if the overtime is regular it is automatically included in their income and where it is not, it is not included. ASSA is arguing that in the current definition, it is not clear whether overtime is included or not. It is logical that if a big portion of overtime is included in your income and it is not regular, it must be included. It is something that needs to be looked into.
If a person worked overtime regularly and on return to work is no longer able to discharge duties as they did previously, the employer could accommodate the individual in another department. However, if in that department the employee can no longer receive overtime but just the basic salary, we deem that as a loss.
Mr Shelembe said it was unwise that the overtime was determined by the Portfolio Committee on Transport as it should be discussed with the Portfolio Committee on Labour. Should that Committee not be involved?
Mr Loots replied that the Bill has certain formulas and definitions. ASSA is calling for the expansion of those definitions. Whether the discussions is held under this Portfolio Committee or the Portfolio Committee on Labour, as long as there is discussion on whether those definitions are incomplete, this will translate into how it affects the compensation of the accident victim.
The Chairperson asked ASSA what items should be looked into in the design of the benefits structure. If the Committee revisited it, which items does ASSA believe do not need to be factored into the RABS Bill. He asked them to comment on the double taxation as well.
Mr Olatha Tuswa, Student Actuary and ASSA Damages Specialist, replied that ASSA is arguing that it is not clear what the 75% is intended to suggest. If we are reducing the previous income by 75% to allow for the fact that the benefits are tax free, the formula uses the net income (after-tax) to apply the 75% reduction. That would amount to double taxation. Now to eliminate that, the gross income amount should be used. These are options that one could look into.
The Chairperson asked for an example.
Mr Tuswa said if the gross income is R300 000, this figure should be subject to the 75% tax.
Mr Kambaran replied that the benefit design needs to be looked at. We must ask what it is we are trying to achieve, and for which stakeholders. It is difficult to limit the benefits; they must be looked at as a whole. Some of the benefits could be introduced into the current system instead of running a dual system which would cost more. Some of these benefits will affect the higher income earners compared to the lower income earners. If we can have more information about the changes in these benefits, we could advise on the best possible solutions.
Mr Ramatlakane said that Mr Loots could be of assistance to the Committee. He was interested to see how moral hazard could take care of the higher income earners and ask him to write on this for consideration.
Risk House Africa Actuaries submission
Risk House Africa said the RABS Bill seeks to provide a social security scheme to provide a set of defined benefits to victims of road accidents. On lump sum payments versus periodic payments, the concerns were:
- the new system could reveal some potential challenges;
- there are extensive and complex systems required to make and manage these payments;
- underlying systems are required to maintain and manage victims’ addresses;
- systems are required to monitor any changes in the claimant medical conditions.
The systems required for these areas should not be underestimated. The result of this is that the expenses will be far greater when paid through periodic payments compared to lump sum payments. RABS will result in a projected saving of reduced litigation costs but the high cost of administration must be borne in mind.
Risk House Africa recommended a hybrid view of the RAF system and the proposed RABS Bill, to provide a balance between the potential increase in claims and cost of administration. It is advisable that the no-fault cover be introduced at low levels, perhaps similar to disability benefits. However, if fault can be proved the claim can be increased through the RAF Bill or directly from the counter-party. This may introduce a national need for third party cover for the individuals themselves; thereby, reducing the burden on the State. Compensation, if deemed to be appropriate, could be recommended based on the specific claims underwriting, which could be formally assessed on a claim by claim basis by a single panel of experts. Part of the reason of the high cost of the RAF legislation is because there are two sides of the story, the plaintiff (lawyers) and the Fund itself. This is incredibly expensive. So certain aspects should be made singular instead of having the dual aspect.
Where you have a single panel, the industrial psychologists could make an objective assessment of the impact of the accident on the individual based on the history, family history and potential career projection. This is subjective and you will always require a dual panel. On the other hand you could have a single panel of actuaries, actuaries work on instruction, directly based on the recommendations of the psychologists and their progressions could take into account in estimating the cost of the claim.
If you do not require fault to be proved, this may lead to an increase in the number of claims. This is a huge problem as we have an unemployment challenge in the country. Therefore, the propensity to claim will be high, and there might be a rise in fraudulent claims as well. Compared to the COIDA system, claimants have to be employed to be entitled to the benefit structure; this works because the individuals are already within the system.
Risk House Africa recommended retirement funding. There is not a requirement to set aside part of the claim for retirement purposes. All matters assessed for compensation only look up to the point of retirement, but they do not consider that beyond retirement no compensation will be paid out. Although there is a state benefit for retirement, that is not enough.
Mr Ramatlakane referred to costs on slide 7. Risk House spoke about moral hazard, can you unpack the cost of ‘fault’ and whether that has been determined. What is the cost in relation to the ‘no-fault’ system?
Risk House Africa replied that the first thing to clarify was the extent to which fault would be proved in the current system. There are many loopholes on how fault is established in the system, there is no value added. The alternative to ‘no-fault’ is not necessarily costly. There are certain things where we can establish fault and the nature of accident through direct claiming which will immediately remove litigation. This is something that should be looked at. There should be an encouragement of more direct claims to the Fund, which will eliminate litigation and the ‘no fault’ system may not necessarily be required.
On the increased number of claims, the fact that you have a litigated process acts to an extent as a preventer for people to claim. This is untested so it would be difficult to say that the number of claims will increase under RABS logically. However, this does not mean the current system would not work.
Mr Ramatlakane said for anybody to claim against the RAF, there must have been a collision of vehicles. What he did not understand was why people were worried that the number of claims would increase. For anybody to pass the test, there is a police report which is also a requirement for any insurance claim. There is this scare that we should not go into the RABS system. He asked about the link of the Satchwell Commission recommendations to the social security system and what happens on the roads – it should be linked, sustainable, affordable.
Risk House Africa replied that it generally agrees on the no-fault versus fault system. Its point was the need for a hybrid system. The basis of having a fault system is to propose an alternative income for the individual versus what the Fund is willing to provide – this is where the potential challenge lies. If you do not give the victim an opportunity to propose an alternative compensation, if they feel that they have been disadvantaged, that is where the key challenge stems from. On the recommendations of the Satchwell Commission, Risk House Africa supported the links to the social security system but there are certain nuances on compensation that should be accounted for in the RABS Bill.
Mr Sithole said there is testimony that high unemployment may lead to a significant increase in claims, can this be unpacked? Secondly, that the age for children should be increased from 18 to 21 years of age – what does this mean? Thirdly, the submission states that there is a maximum claim period of 15 years for widows, and it is recommended to extend that to include retirement. Can you unpack this?
The presenter replied that he did not think that Risk House Africa is saying there will be a higher number of claims but it trying to highlight the impact of the new system. The cost of vetting and litigation is now going to be moved to the Scheme, and so who will bear the cost of the claims. In terms of children under 21, not all children will benefit from the higher education benefit, this is something that still needs to be discussed and interrogated further. As for widows, the normal method for calculating compensation for widows is done up to a point where they would normally receive that compensation. For a young widow who was unemployed, she would receive the benefit until retirement. This should be replicated in the Bill.
Ms Xego said she was interested in the suggestion of a panel of experts. Where would they place this panel – is it within the establishment or an outside independent institution? Secondly, are there any gaps in the current system that can be addressed and thereafter proceed to the proposed system? This is to ensure that people were happy.
Risk House Africa replied about the panel saying this comes from the understanding of how the claims process works. In a claim you have a panel of experts outside the system, and that is a very expensive structure because you are always required to have two experts to look at a matter, which is not really needed. There are certain experts that can be housed internally that can assess each claim. Those experts can together deduce an alternative income progression. The challenge we are trying to highlight is that you are potentially disadvantaging individuals who earn above the national average income but below the cap because they do not have a right in the RABS Bill to prove that their loss of income is higher than the national average income.
Ms Xego asked for more details on the post retirement funding proposed, because the Bill is suggesting that after 60 years of age the SASSA benefits must kick in.
Risk House Africa replied it was highlighting the need for retirement funding for it to be provided for in the beginning of compensation being received. The issue in the society at large is that all of us are not provided for adequately for our retirement income. If you look at the vehicle accident, it has an impact of reducing their income earning capacity, but prior the accident they would have been required to provide for their retirement funding. The current Bill is not allowing for the transfer of that requirement, so once the compensation has been received it could be used for any purpose – there isn’t enough on the Bill to set aside a portion of that compensation for retirement. There should be a requirement in the Bill, that part of that compensation should be allocated for retirement and it may be held within the RABS administrator. In this way you are compensating the individual, at the same time you are also providing the benefit for retirement.
The Chairperson asked Risk House Africa to draft recommendations on the retirement funding model and benefits.
Association for Protection of Road Accident Victims (APRAV) submission
Mr Ngoako Mohlaloga, APRAV Board Member, indicated that in 2014 the industry came together and discussed the impending legislation that the Department was shoving down our throat. We discussed the draft Bill as it was then and our response was that there is no way that government would want to go through with the Bill. APRAV decided to bring the industry together and speak about the challenges that would be brought about by the Bill and help the Department to find solutions to the challenges facing the RAF. We agreed that there are problems and change is needed. Listening to the public submissions over the past three weeks provided APRAV with an insight into what the Committee might be looking for. Government has been saying that the current system is too costly and we agree with that. It takes a long time for the Fund to adjudicate and award compensation and something needs to be done about that. When the current system was designed we did not have the number of cars on the road now and the system cannot cater for the significant increase over the years.
In 2014/15 the Department and the RAF came before Parliament guns blazing to change the system, and the industry is grateful that the Committee came up with the decision to engage the industry. There is a need for change, and part of the reason is the current state of the RAF administration is very poor. The basics of the RABS Bill are very flawed. There is a lack of rehabilitation facilities in the country. Someone pointed to Groote Schuur Hospital and the Western Cape facilities. We have a problem in the country that people draft laws at the V&A Waterfront enjoying nice views here and fail to understand where the rest of South Africans are living. One of the impracticalities of RABS is that poor people who get involved in accidents having to spend money to have their claims assessed and have to travel long distances. There is no accessibility to RAF for poor people. The accidents in the country affect mostly poor, black, unskilled, illiterate young men and women.
Mr Johan Sauer; Actuary and APRAV Board Member, spoke about the tariffs which are not yet available as well as the structure of the agreement that the RABS Administrator will have with doctors and hospitals to provide rehabilitation services. The wording in the Bill implies capitation payment agreements. Currently doctors and hospitals in medical schemes work on a fee-for-service basis. Capitation payment agreement is where there is an average payment per road accident patient for whatever medical treatment is needed, and then what is left calculating the number of patients that doctors served will be the fees or profit for the doctor or hospital. That can be zero if the provider uses up the average amount assigned for each patient. In a fee-for-service environment, the more services provided, the more profit they make. There is a disjuncture between the doctor and the patient and the patient does not really know if they even need the operation, so the system tends to over-service and it is expensive. In a capitation payment agreement, the incentive is not to use up all the money allocated for the patient, so the fewer services provided by the doctor and hospital, the more profit they make. Therefore, that system is then prone to under-servicing – this may amount to medical negligence. The capitation system seems negative for everyone, if the government sets the price for the capitation agreement low to save the taxpayer money, they might be opening themselves to medical negligence claims. So the government would have to negotiate against itself to put a higher price for the capitation agreement to ensure there is good treatment. In addition, it is not good for service providers to work for free. For example, a capitation agreement gone wrong in this country was the Life Esidimeni tragedy – which was a R112 a day capitation agreement. He emphasised that he was not blaming the Gauteng Department of Health and the NGOs, but they would have done fine if they were paid according to a service fee agreement. Minister Motsoaledi had a good policy approved in Cabinet recently to negotiate down the price of medical schemes.
Mr Sibande was concerned about using the example used in the APRAV submission that South African road deaths are worse than those in the Syrian war zone and asked where they got that information from. Secondly, the case study scenarios about Namibia were not adequate, because that case study does not translate to South Africa with a population of 64 million. Some of our laws date back to the 1950s and we want transformation. Therefore, using that case study is wrong; it should be scrapped as an example. People are worried about drunk driving which is a criminal act; such people cannot be compensated. Insurance companies do not pay for accidents that occur criminally yet people are expecting government to compensate such activities. There are also people who are concerned about tariffs. This is becoming a tariff competition. He asked APRAV to unpack that. There is a disjuncture between the doctors and lawyers, even in the Satchwell Commission. There are lawyers that were signed up before we were born and they do not want to terminate that contract with RAF. They want to continue squeezing money from RAF. Something must be done to change that.
He asked for APRAV to give an example of a black person who was ever paid R500 million. Yet there was a person who claimed R4.5 billion from government and was paid R500 million after the court proceedings. We are saying that we need a system that will reach the people on the ground.
Mr Mohlaloga replied that ‘no-fault’ means that if there is an accident there is no need to prove who was at fault when the accident occurred. He raised the issue of drunk driving.
Mr Gert Nel, APRAV Board Member, pointed out that the foreign currency matter had been settled and no foreigner can claim in their own foreign currency anymore. That claim settlement was much less than R500 million, it was settled at R20 million. There was never an amount of R500 million that was paid to any claimant.
There are foreigners that still claim under the current system, but there will not be any such claims again. Third party insurance is not an option for the precise reason of incentives for profit. Insurance companies will pass on the risk by putting in large profit mark-ups with a lot of exclusions. He agreed that there should be consultation with the Department of Health on the tariffs. For instance, Minister Motsoaledi’s policy proposal will have a huge impact in reducing private medical costs. Doctors will now negotiate as a group with the medical scheme and they will not be able to opt out of that negotiation because they will not be able to charge co-payments any longer and thus private medical costs may decrease significantly.
Prof Hennie Klopper replied that he used the Syrian War comparison as a scenario but he was not implying that road accidents are as serious as a war. However, 1 200 are dying every month on the roads which calls for serious intervention. As far as the laws are concerned, they have remained the same since the 1940s, this is based on common law. He took exception to the idea that people are becoming “instant millionaires”. Some of them are in wheelchairs and in institutions and that is why they received a large compensation. People must also remember that these amounts are determined by a court of law. The fuel levy is a decreasing resource because cars are travelling further with less fuel, in addition; there is the biggest threat of electronic cars. We must keep in mind that funding in future will be a serious headache unless road accidents are reduced.
Mr Sibande said that it is dangerous to use the Syrian war zone example; he had been there and that is a serious matter. The proposed system is going to help. During 2016/17 a total of R901 million claims were identified as fraudulent; the embarrassing matter is that lawyers and doctors are involved. We want a system that will help the victims.
Mr Mohlaloga replied that in terms of statistics, 0.25% of lawyers have been found to be claiming fraudulently. There are two law societies that APRAV has been working with on this. Only 0.25% of lawyers have been found to be acting fraudulently. This does not warrant a change in the system because the percentage is miniscule.
Mr Sithole said the country is in a crisis of transformation and the Bill is trying to address that. The lawyer associations need to be transformed. What is meant when APRAV says RABS is not sound? Secondly, APRAV said that the service is expensive - this needs to be clarified, which service are exactly? Thirdly, the medical profession is negligent in terms of the claims it makes. He asked for suggestions for the minimum number of years it should take for the payment of claims. He asked APRAV to provide the Committee with a proposal on what should be done about the high rate of road accidents.
Prof Klopper replied that whatever system you have, if the administration is not effective, it will fail, and that is the situation we have now. In the proposal, it is assumed that the administration is running at optimum level which is not the case in reality. Members need to bear in mind that when claimants lodge claims and lose in court, they are required to pay the legal fees including those of the RAF – this is an issue. Secondly, each claimant is forced to submit a medical examination and records to the RAF as well as an affidavit detailing their claim and on what grounds. The delay in payment of claims is costing the country R1.1 billion every year and the only way to rectify this is through proper and sound administration. He stated that he has some ideas about how this can be done.
Mr Nel pointed out that the various actuaries who had proposals indicated that as “best case scenario”, in reality the proposed system may be 20% cheaper or may be as much as 60% more expensive. The current RAF system cannot continue as it is, but the answer is not RABS. APRAV has a set of recommendations where we propose the Committee considers two options to rectify the current system. Amongst others, a short term focus to stop the bleeding is to constitute a national task team to focus on the more fundamental challenges and how we can fuse the best of both worlds from the current RAF and the RABS system whilst maintaining constitutionality. We also need to look at how road accident victim are treated, rehabilitated and put back to work. APRAV will provide the information pack with all its recommendations.
Mr Sauer replied that he assumed that when Mr Sithole said the medical profession is negligent about the claims they make, he was talking about doctors writing false medical reports. We know this is a shame to the profession; we do have systems in place in the country that are not being utilised to ensure that such things do not occur. There are well published and clear HPCSA rules and the other avenue is being sued civilly as well as criminal legal action.
Mr Nel replied that if the country can bring its accident rate down by 30%, that could save R9 billion a year and with that money about 36 000 traffic officers could be employed to enforce the law on the roads. It is comparatively cheap to spend that money on traffic officers, and to ensure that the roads are efficient and that vehicles are roadworthy – this type of expenditure can bring down the accident rate.
Mr Sauer spoke about accessibility in terms of the RABS Bill. The victim will have to approach the RABS Administrator at his own cost to gain access to the benefit. If it is unintentional mistake that the Department made then it must rectify it, because in the text of the Bill the benefits require medical reports, but that kicks in only after you have been deemed to qualify to claim. Before that you do not have any access in terms of financial assistance or to approach the administrator to claim – the accessibility is difficult for the poor as it is now.
Mr Mohlaloga noted that the current RAF system says that when you get injured you get general damages but RABS says that instead of general damages, victims will placed under rehabilitation in order to be in a position they were before the accident, and resume work. There are not enough rehabilitation centres in the country and the Minister of Health indicated that the National Health Insurance (NHI) is 15 years in the future, so it is not going to be in place any time soon. In the country we have a problem with lack of jobs, so if I get injured, I may not be able to go back to my job.
Mr Sibande insisted that the money that was paid to that foreign claimant was R500 million and the R20 million referred to earlier was in addition to the R500 million the victim was paid.
Mr De Freitas said that drunk drivers should be excluded from eligibility of benefiting from the scheme. At the moment the Bill states otherwise, and this is something that needs to be corrected. He asked what changes can be made to the RAF right now, if there was no RABS.
Prof Klopper replied that he would fire the RAF altogether. We cannot have an organisation where the Chief Executive Officer of the organisation that is in dire financial straits is earning R6 million per annum, which is more than what the President of the country earns. The organisation would need to be re-designed to ensure that victims have access to compensation. The majority of people injured on the roads cannot be rehabilitated, and only 5% of the valid claims exceed R500 000. It occurred only once in the past where a person received more than R50 million and that person proved why they were entitled to that amount. We also need to eliminate all the hands that are already involved in the system. Secondly, we need to pay attention to the fraudulent claims and those people must be penalised with serious penalties such as doubling the amount of the fines. As far as professionals are concerned, he would constitute it as unprofessional conduct and outline what would happen if a professional defrauds the system. Harsh measures should be implemented.
From an equity point of view, it cannot be bettered, and this system has been around for 70 years and no one has complained. He did not understand why the Satchwell recommendations are being implemented in parts. One of the recommendations clearly outlined that the RAF must be dismantled as it stands. The Satchwell report criticised the RAF; this is something that needs to be looked into. RABS is basically putting a plaster on a wound, and that wound is the accidents taking place on the roads – which is where the starting point for rectifying the challenge should be.
The liability of the RAF needs to be ring-fenced and the administration must be reformed. One of the things that bothered him is that the RAF and the Department are the promoters of the Act but why is the appropriate department not dealing with this – the Social Security cluster. RABS is a cost-saving exercise but it will not quite work. The average road accident victim is a person who suffers from orthopedic injuries and the majority of them are poor people, but now they will not be able to claim general damages. All road accident victims are to be treated equally, and the R8 billion on legal fees must be reduced to R1 billion.
The Chairperson asked Prof Klopper to write to the Committee detailing how the Scheme is not feasible so that it can consider that as they deal with amending the Act.
Ms Xego said Mr De Freitas made a good point by asking what can be done to RAF in the absence of RABS, She also indicated that what is under consideration is the RAF not the CEO’s salary. She was impressed by the introductory remarks by Mr Mohlaloga but she felt that there were contradictions. If the Bill is for the poor, we need to ensure that people do not use money to get money because that speaks directly to accessibility for the poor. She was also concerned that it said RABS would be 70% more expensive compared to RAF. She was uncertain where those facts came from. Perhaps, we should have a scenario of where the RABS Bill may be an advantage to others. We should also have a scenario of the present fault system where if one driver passes away, the surviving driver may blame the deceased even though the surviving driver may have been in the wrong. Under the no-fault system, such things are mitigated. The bigger issue is around the lump sum that was paid and the medical tariffs that have not yet been determined.
Mr Sauer replied that on the 70% more expensive assumption, this has been reviewed by two other actuaries and he can put the information together and present it to the Committee at a later stage. As for the NHI, this is a possibility but the actuaries are focusing on the numbers and at the moment the tariffs cannot be estimated. In the meanwhile whilst accidents are occurring, patients need to be treated.
Mr Peter de Bruyn, APRAV Board Chairman, indicated that the current system has flaws that need to be addressed, and there are fundamental details and homework in RABS that has not been done. He proposed that the RAF and the Department need to look at immediate short term challenges versus the long term ones. He outlined the following recommendations:
- There will be saving by introducing a single panel of experts
- You need to look at the fee framework for all service providers within the RAF mechanism
- You need to enable the claim handlers with a mandate structure as it used to be pre 2008 to have the authority to apply their minds and make offers to claimants, this is why 80% of the cases are sitting on the High Court roll
- The administration process must be fixed as well as the medical process
- There are six very specific actionable decisions that if the Committee sits with the APRAV Board and discuss them there will be a substantial reduction of RAF costs more than the likely saving of 20% which is the best case scenario given for RABS. Hopefully this can be explored in great detail.
The Chairperson asked if the claim handlers would be professionals such as lawyers or doctors and actuaries.
Mr Nel replied that claim handlers are all admitted attorneys and are well equipped to assess claims and make offers.
Mr Ramatlakane said that when he read the submission, he was attracted to ask what would be a cheap alternative if RABS would not be cheaper. In the submission, a statement is made about a “transparent consultation process”. He asked if the statement suggests something more than the process being followed by the Committee right now. The Committee has been very transparent about the consultation process. We are compelled by the Constitution to engage in public participation with various stakeholders. So why was this paragraph included suggesting that there is not a thorough or transparent process?
The Chairperson noted that the status quo is not sustainable, and the issue is what should be changed and that is what is at the heart of the Committee. There are a lot of knowledgeable and interested parties in the industry to assist the Committee to make changes in the system. The Committee must be pragmatic and focus on immediate short term solutions. What has been clear from the actuaries is that the Committee should be very careful about the variables to be applied – whether they are cheaper or more expensive – but the system must change.
Mr Mohlaloga wondered, between the lawyers and the medical experts, which of the two the Committee despises the most because it seems as if it is overlooking the legal fraternity. RABS seems to be pro rehabilitation which will need to be done by medical experts – it will require serious medical attention which is not there in the current public health system.
The Chairperson thanked APRAV for its input as it is in the interest of everybody that the Committee ensures that the law is implementable; otherwise it will impact negatively on the victims and everyone else. The Committee is not trying to favor who over whom, but to ensure that the current system is rectified.
Judge Johan Klaassen spoke about mediation and suggested mediation to solve road accident cases as an alternative to litigation. In his career path, he has heard many RAF cases during his tenure as a judge on the bench. He had himself trained and qualified at the University of Cape Town as a mediator, and it occurred to him that road accident cases can also be mediated and it is far less expensive and time consuming. The process is simple – the parties both appoint the mediator to guide them to reach a consensual agreement that speaks to their needs not their rights. Mediation addresses the needs of the parties, not their rights. This will reduce the number of court cases substantially, we have experienced in the past four years that it is best to have the parties’ legal representative present during the process. It is an informal process, private and confidential without prejudice. If it fails, it cannot later be used in a court case, which allows both parties to express themselves freely.
Mr De Freitas said he was excited to hear about this, and there are many Committee members that have been concerned about how legal representatives have been ripping off some of the victims. Therefore, what the Judge is suggesting might be added to the list of short term solutions that have been proposed. This will also assist in cutting costs. He asked the legal drafters to consider this and make responses to this. This may address some of the concerns of the Committee. He proposed that the Committee looked at this further.
Judge Klaassen replied that there had been an original objection to mediation as unconstitutional and in contravention of section 34 of the Constitution to submit a case to a court of law or alternative forum. The alternative forum would include forums such as mediation and it does not preclude the person’s constitutional right in terms of section 34. If the mediation fails, the person can carry on with litigation if they so wish. It may cause a delay but it does not take away the right. Worldwide statistics report that about 80% of matters taken to mediation were resolved and only 20% ended up in court. In this forum you are not dependent on waiting times for a trial date. An advocate confirmed that the waiting time for a trial date after all the preliminaries have been done, is between nine to 14 months. Sometimes people have to wait up to 15 to 18 months until judges are available, whereas with mediation there is no waiting period. All the mediation that he had been involved in with the Department of Health has been three days. The Minister of Health declared that mediation must be the first line of resolving disputes before going to court, and there are many other statutes where mediation is required before going to litigation. Therefore, it is constitutional.
Mr Ramatlakane said that the issue for him was how it can be dealt with in the Act. He agreed with Mr De Freitas that it would cut costs significantly. In the functioning of mediation should there be standardised tariffs or do you think that mediation should look at its own tariffs? Is that something that has been covered by you? So do you think that is a workable proposition?
Judge Klaassen replied that the Department of Justice has implemented a pilot scheme in 15 different magisterial districts where magistrates have been given the authority (or prerogative) to decide whether a particular case should be referred for mediation instead of being dealt with in court. Often there are needs outside the rights because the courts consider the rights but the needs may be greater. In those pilot projects, when magistrates refer matters to mediators their fees are on two scales, level one charges R4000 per day and a senior or level two charges R6000 per day. If you compare that to fees charged by attorneys it is minimal.
The Chairperson thanked APRAV for its input.
Western Cape Department of Transport submission
The Western Cape representative indicated that to a large extent whether the Bill is passed or not, it will not have an impact on public transport in the province. The Department seeks to ensure safety on the roads and minimise road accidents. That is why traffic services in the province fall under Public Works and Roads.
The Bill in its current form is not supported by the Department of Transport in the Western Cape. It has a noble objective but there are certain aspects in it that may actually have a negative impact on some of the beneficiaries – those consequences may be unintended. For example, it had concerns about general damages, pain and suffering and doing away with suing the common law wrongdoer. It is problematic that the claimants have to pay for the initial administration costs before the RABS Administrator may even assess a claim. The Bill places an onerous administrative burden on the claimant, and the claims process seems to be exceptionally long. The injured persons are not entitled to a health care service provider of their choice and this speaks to constitutional rights. The injured person must continually return for reassessments. People are denied access to court. Even though mediation may be a saving, lawyers will still be needed during mediation. People do not pay to go to court but they would have to pay for mediation. It does directly impact on time which is an issue.
The funding model was also a concern. The short time frame for comments on the RABS Bill was problematic. It seems there will be further engagement so that people can have sufficient opportunity to deal with some of the challenges.
Mr Ramatlakane said the submission dealt with the prohibition in the Bill of pursuing one’s common law right to go to court. Is it your opinion that this piece of legislation is an attempt to prohibit that right? The limitation on suing the third party was mentioned. Should there be a provision in the Bill that is explicit about the right to sue the third party. Is it your view that there should be additional tax to take care of the third party because somehow something must give? In the fault system, legal fees cost about R8.3 billion last year and that is a problem in the Committee’s view. The benefit for the victims is in slow motion – something must be fixed.
The Western Cape representative replied that they have dealt with the aspect of the common law in their submission. It highlighted the change that has come about through the RAF amendments since 2005 where people were allowed to claim from the third party.
One needs to bear careful thought about the fault and no-fault system, and it requires a much more in-depth conversation. When it comes to the third party aspect and how you can protect the third party in terms of the common law claim, he could not come up with an answer about an additional tax. On the face of it, we cannot add to what is currently being added with the VAT and the fuel levy increases but this is something that must be explored. If we want this, we need to deduce what can be done to protect the third party.
Mr Ramatlakane said the intention is to fix the current law. Is the Western Cape government in agreement with that because this current law is unsustainable? He asked the team to consider the Satchwell Commission recommendations on RAF funding and the role of social security within it.
The Western Cape representative replied that he agreed that there is a challenge with the RAF Act. The question is whether we are trying to change the administration of the system or the Act itself by introducing a new piece of legislation to deal with particular aspects. The desirability of the Bill speaks to fixing the administration; we do not draft law for exception but to govern.
Mr Sibande said that the Western Cape needed to provide some confidence because when the whole saga of the e-toll loomed, the Western Cape government was totally against it when the idea actually came from it. He asked about the comment about people from other countries and whether they are eligible for foreign currency compensation. With the RAF there were a lot of loopholes and those need to be tightened up. Some people from other countries have been paid in their currency. Secondly, the submission said that an injured person will receive fewer benefits compared to the current RAF system. Mr Sibande’s assertion was that people must be paid directly, because lawyers create trust funds and withhold the money in those trust funds which earn interest over time but the victims never receive any proceeds from that interest.
The Western Cape representative replied that with foreign currency payments, for example if the person is living in South Africa but he supports his family in another country, then the basis on which the person has a claim in South Africa is the fact that they support someone in another country. So that dependent has the right to claim against the administrator because they have lost that support – this was the basis for which he was arguing for the claim being made for the dependent, not the currency that the person must be paid in.
At the moment, we could try fixing some of the challenges either by introducing new legislation or amending the current legislation. The fact is that a lawyer takes a certain percentage or pays it into a different trust account than what the Fidelity Fund requires him to pay it into. There is legislation that deals with this that if the money is received it must go into the trust account of the attorney and that attorney must report to the law society. Based on the fact that the law societies are not doing their jobs, why should the RABS Bill fix that? He asserted that he was not against transformation, but we need to be careful not to tread on ground that should not be dealt with in this legislation. We can simply ask those parties that are providing oversight to amend their legislation or strengthen enforcement against unscrupulous transgressors.
Indwe Intermediaries Support Services submission
Mr Peter Elliot, CEO at Indwe, said that the company is in favour of the RABS Bill. Indwe would be providing an insurance product that will serve people in the country. He came before the Committee to pose questions on certain interpretations in order to have product certainty when designing the insurance products. One of the areas of concerns included categorising people in terms of the benefits they could receive in the Bill, and that category is not really addressed in terms of Chapter 2 on the Bill of Rights in the Constitution. He is not questioning the right to limit benefits to different categories of people, Indwe supports it. However, Indwe questioned if you give different people different benefits, can you restrict their right to recover from a third party equally?
On the definition of a vehicle, there is a self-driving vehicle or semi self-driving vehicles. If a computer system malfunctions and causes an accident, who does one sue? This is something that needs to be looked at as well as vehicle manufacturing defects, with the Ford Kuga being the most recent example.
In terms of the right to sue the errant party, they do not believe that the Bill is explicit that one may sue the manufacturer of the vehicle if there are manufacturing defects. There is no objection to the limitations – it is only restricting claims against the driver, owner and the employer. However, it leaves out others that may be the cause of the accident.
The definition of road accident needs to be expanded to be more holistic.
Mr Ramatlakane wanted to understand the angle of the presenter on the definition of ‘vehicle’ on the Bill. He asked for further explanation and how the presenter would define an object with four wheels. Indwe agreed to the limitation clause, but a question was raised that there must be other provisions if the option for suing the wrongdoer is taken away.
Mr Elliot replied about the definition of vehicle, saying this was raised due to the rise of the self-driving vehicle. That needs to be taken into account particularly because the right to claim is limited to the owner of the vehicle and the employer of the driver but it is not explicit in restricting those rights against anyone else. There is nothing in the Bill that prevents you from suing the manufacturer if for instance the self-driving functions have failed. Section 36 of the Bill of Rights limits a right if it is in the public interest. However, the concern is that if you give different categories of people different rights, surely they should retain the right to recover those benefits that are not included in the Act. If their rights are going to be restricted, they should be done so for everyone. This may be a constitutional debate, but it becomes a concern for the insurance product they want to design for their customers.
Mr Ramatlakane asked Indwe to suggest the optimal way to deal with manufacturing defects as with Ford Kuga. Secondly, is it your view that there should be consistency in terms of the right to recover from the third party? He did not think there was permission yet for self-driving vehicles in the country and if that happened it may be an illegal act. If introduced, it would require re-evaluation of the legislation.
Mr Elliot agreed that there should be consistency in terms of the right to recover from a third party, not in terms of the limitations. We think from a South African point of view the financial load on the public health services is too much. Semi self-driving vehicles are already operating in the country; perhaps the legislation on this will need to be effected accordingly.
Mr Ramatlakane said Indwe earlier appeared to be suggesting that there was some inconsistency in the drafting of the Bill. Is it really your view that there is some inconsistency?
Mr Elliot replied that there could be inconsistency in terms of the right to recover from a third party but not in terms of the drafting of the legislation.
Mr Sibande asked for clarity on the comment on the Bill of Rights made by Mr Elliot.
Mr Elliot replied that the reference was made to Chapter 2 of the Constitution where section 36 allows for the limitation of rights when it is in the public interest. So when we look at those rights we are looking at everyone in the country. The reference was the limitation of rights built into the RABS Bill. The question is if you provide different people with different benefits, can you then apply limitation of rights to everyone?
Mr Sibande stated that before the country can compare itself with international standards and norms, it needs to create its own policies and laws, and this Bill is exactly putting that into practice.
The Chairperson said that categorisation of people was mentioned with respect to claims. If one is unemployed, how would that person be categorised? What is the proposal for the categorisation of people and their claims?
Mr Elliot replied that they try to interpret the legislation as it reads and develop the product accordingly. For example, if one is 58 years old and is involved in an accident and is disabled, one gets a government pension. If one is a medical student just about to graduate, one will be entitled to the average benchmark for benefits without consideration of one’s life circumstances or minimum wage. This is understandable because the Bill seeks to serve a social security purpose, but for some people this is viewed as unfair. We are all brought down to the lowest common denominator, and we cannot use the highest level as a benchmark. Therefore we must be mindful of people coming from other countries and come up with affordable insurance products for them. If the Committee needs some examples, these could be furnished because Indwe has done some profiling on different people. Different risks exist for different people.
The Chairperson said that Indwe was critical of the definitions. What would it propose besides just highlighting gaps that should be furnished.
Mr Elliot replied that consumer legislation seeks to protect consumers and that the Committee should look at the Consumer Protection Act.
The Chairperson indicated that the Department would not be able to respond to the public submissions by the next day. She had agreed to give the Department until the following week.
The meeting was adjourned.
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