Road Accident Fund, Restructuring & Combatting of Corruption, Payments to Beneficiaries: briefing by Department of Transport &
NCOP Public Services
23 August 2006
Meeting Summary
A summary of this committee meeting is not yet available.
Meeting report
PUBLIC SERVICES SELECT COMMITTEE
23 August 2006
ROAD ACCIDENT FUND, RESTRUCTURING AND COMBATTING OF CORRUPTION, PAYMENTS TO
BENEFICIARIES: BRIEFING BY THE DEPARTMENT OF TRANSPORT AND THE ROAD ACCIDENT
FUND (RAF)
Acting Chairperson: Mr R J Tau (ANC)
Documents handed out:
Strategy for the Repositioning of the Road Accident Fund: Incorporating the
Current System into the Social Security system: Document from Department of
Transport: Part1
& Part2
Road Accident Fund
Presentation
SUMMARY
The Department of Transport gave a presentation on its strategy for
repositioning the Road Accident Fund. The Department had to ensure that the
current system used by the Road Accident Fund provided benefits for road
accident victims. Three phases had been identified to assist the Fund. The
first involved business intervention, by appointment of a new Board of
Directors and addressing the Fund’s solvency and deficit. The second required
legislative amendments. The third would shift the current liability insurance
system to a social security system. Both the Department and the Road Accident
Fund stressed that the current system was a fault based system which should be
redesigned.
The Road Accident Fund briefed the Committee on its financial status and
challenges. It was technically insolvent, and had a backlog due to insufficient
funds being available to finalize claims. There was no proper correlation
between its income from fuel levies and its outflow in paying claims. The fund
only had limited control over most external factors influencing claims and its
internal systems had several weaknesses impacting on its performance. There was
a preponderance of small but administratively expensive claims and some
extremely large claims involving foreigners. The litigation system was not only
extremely costly but hindered service delivery and early reintegration of
claimants back into society. The system of compensation without capping led to
huge claims, and legal costs were a major factor. Graphs and comparable
analyses were tabled to illustrate the impact of the proposed amendments. It
was noted that the Fund was currently able to control four challenges, which
would be dealt with by the restructuring plan and the Amendment Act. However,
it could not control the unsustainable economic model, which needed to be
redesigned through government funding and legislative amendment, and the Fund’s
poor financial health. Both issues would have to be pursued with key
stakeholders.
The committee commented that a different, and perhaps misleading view, had
previously been given as to why legal costs (which amounted to around 1.3
billion rand) should not be capped. The committee had relied on this
information in supporting the non-capping of legal fees. It was agreed that the
members would revert back to the previous minutes.
Questions were asked on the shift the system to a no- fault system, the
timetable for various initiatives by the Department, how the public would be
informed, public relations by the RAF, and the length of time for the
amendments. Queries were also raised on use of legal practitioners.
MINUTES
Repositioning of the Road Accident Fund: Incorporating the Current System into
the Social Security system : Presentation by Department of Transport
Mr Marius Luyt (Chief Director: Department of Transport (DOT) reported that
purpose of the presentation was to give feedback on DOT’s progress in
addressing inefficiencies in the management and administration of the Road
Accident Fund (RAF) and to outline the phases identified to address shifting
policy so that RAF was positioned within the policy environment.
RHF was perceived as having poor administration and poor customer services.
There were four problems with the current system of compensation in that it was
unsustainable, inequitable, unreasonable and unaffordable. New policy decisions
would have to be made on RAF and the Government’s role to ensure the viability
of the system of benefits for road accident victims. The RAF policy was
currently based on a fault system, but should move to a no-fault system, where
limited benefits were provided to all victims irrespective of the cause of the
injury. This no-fault system should be aligned to the comprehensive security
social system
Other strategic directions by DOT would involve restructuring and repositioning
the RAF, and addressing corporate governance issues.
DOT planned that the intervention would encompass three phases. The first phase
was business intervention, where a new board of directors would be appointed
and financial strategies would be identified to address RAF’s solvency and its
accumulated deficit. The second phase involved legislative intervention by the
RAF Amendment Act, and Draft Regulations, which were published in May 2006. The
third phase involved shifting the current liability insurance system to a
social security system.
Road Accident Fund Presentation
Mr Jacob Modise (Chief Executive Officer: RAF) informed the Committee that
RAF was formed in 1996, replacing the previous systems of insurance for
personal injury claims. Seven commissions of inquiry had been held into the
problems with compensation, but it still suffered enormous difficulty. RAF was
governed by the Road Accident Fund Act 56 of 1996, which prescribed that RAF
was to pay compensation to victims of road accidents involving a motor vehicle.
Because of the fault based compensation system, RAF had to defend all claims
lodged on an adversarial approach.
The fault based system this system required that clients go through a lengthy
and costly litigation process to prove fault before claims could be admitted.
This litigation process hindered service delivery, although RAF should be able
to restore its clients to health and reintegrate them back into society
timeously
and cost effectively. Furthermore, a claimant could lodge his claim up to three
years after the accident and records were often impossible or very difficult to
obtain, giving rise to delays in processing. Some claims dated back to the
1990’s and there was a huge backlog. Thirdly, the current system compensation
was unlimited, which meant that the rich could obviously submit much higher
claims than poor or unemployed people. In addition foreigners were paid in
foreign currency and the average claim for foreigners was R15 million as
opposed to R8 million for South African citizens. This system was unaffordable
and problematic in a developing economy. In addition, the RAF had been
technically insolvent for a number of years.
Both external and internal factors contributed towards the situation. External
factors included the high accident rate, with the number of fatalities out of
proportion to other countries. There had been a 9% increase in accidents from
1999 to 2003. RAF was funded by levies on fuel. In that same period, however,
fuel sales had only increased by 2%. Other external factors included the high
proportion of foreigners’ claims, and the increase in legal costs. RAF spent R1.3 billion in
legal fees despite having a number of legally qualified staff. Lawyers
regrettably often did not advise claimants that RAF would pay their legal
costs, and RAF was often unable to communicate directly with the claimants to
tell them what they should receive.
Internal factors included excessive spending on staff costs, administrative
costs and RAF’s own legal costs. The claims systems were neither integrated nor
computerized, and therefore required manual input. The forms were very complex.
RAF had not concentrated on developing systems that allowed for early
settlement and payment because of the adversarial policy. Investment in IT had
been below industry norms despite the fact that the preponderance of claims,
specifically small claims required systems that allowed for early and
productive processing. Although most of RAF’s employees were attorneys its
legal costs had tripled in the last 3 years, and costs increased dramatically
with each phase in the legal process, with no incentives being available to
claimants’ attorneys for early settlement. Finally, RAF’s inability to process
claims was constrained by cash shortages that cause greater inefficiency.
Mr Modise then detailed the RAF Amendment Act, tabling graphs and comparable
analyses to illustrate the impact of the RAF Amendment Act and the
restructuring plan. RAF was currently able to control four key challenges. The
inability to effectively process claims would be dealt with in the
restructuring plan, and RAF planned to turn around to deliver mandate in an
operationally effective and efficient manner. The high costs of administration
and service providers would be addressed by minimizing these costs. Two types of
fraud were experienced at present; systemic fraud, which was encouraged by the
current system of compensation opportunistic fraud arising from weak systems
and controls. The fraud challenge will be addressed by promoting good
governance and effectively managing risk within RAF. Lastly, the challenge of
dissatisfied and disillusioned stakeholders would be addressed in the
restructuring plan, through proactive engagement.
Two challenges that RAF could not control but could only influence were the
unsustainable economic model and its poor financial health. The model would require government funding and
legislative amendment and key stakeholders would have to be involved.
Discussion
Mr M Mzizi (IFP) expressed his concern on the statement that if no
investment was made to sustain the RAF it would have to close. He wondered how
this tied in with the funding of the scheme that was tabled. He asked what
would happen to the petrol levies and how other investments apart from petrol
levies were used to sustain the fund.
Mr Modise explained that RAF and DOT had to prioritize issues with other
Departmental strategies, such as the Gautrain. Benefits obtained by South
Africa through something like the 2010 Soccer could be absorbed by RAF and ease
its current situation.
Mr L Van Rooyen (ANC) also had concerns about a move to a no-fault system. He
had trouble understanding the view and was concerned with how this would be
communicated to society. He asked whether the insurance industry were involved
in the discussions. Finally he asked whether this move would be sustainable,
and how this would affect claims that were in progress before such a shift?
Dr Danisa Baloyi (Chairperson: RAF) replied that the legal framework and
attitudes would have to change. The general public should be educated so that
people understood what their rights were. The general public, rather than their
attorneys, would then be able to benefit from the monies paid by the RAF. She mentioned that because RAF did not have
a presence in outlying areas, the offices would have to be national, but
properly managed.
Dr Baloyi commented further that RAF needed to run as a business and not as an
extension of a law firm. Lawyers would be extremely unhappy with the shift in
direction because they currently received more than half of the money that RAF
paid to claimants. Although there was no
incentive for lawyers to make the system more efficient, Dr Baloyi commented
that RAF still needed to have lawyers in the system. They would not be excluded
from work, but the current bias towards their interests would change.
The Chairperson asked how long RAF‘s regulations would take to promulgate
before the Act itself. He explained that the committee had accepted the
previous proposition not to cap legal fees because it had heard a rather
different explanation, and had based its decision on a treaty to which South
Africa was a signatory. He remarked that the Committee would have to revisit
previous minutes to check this aspect.
Rev P Moatshe (ANC) commented that if the committee had supported something
contrary to societal interests it would have to apologise, unless Parliament
was misled in the way that the facts were put before it. He thanked Mr Modise
for his presentation and expressed that there was no way that any potential
lobby against what he had presented would be a wasted lobby. He commented that
problems needed to be reversed as soon as possible.
Mr Van Rooyen agreed with Rev Moatshe that there was something wrong, and that
the committee had probably failed at one stage in supporting something that was
not in the best interests of South African society. He confirmed that the
Committee had acted in good faith, believing the reasons given not to cap legal
costs, which amounted to around R1.3 billion. He suggested that RAF address the
problem through legislation.
Mr van Rooyen raised a concern on the position of legal associations such as
the Bar Council and asked what position they held. He also asked what would be
done to address foreign claimants.
Mr Modise explained that the legal fraternity’s stance had been quite
defensive. He remarked that they had been given a platform in public, and that
their views had not necessarily been correct. The new Board at RAF was recently
appointed and had been spending some time getting to understand the problems.
The Chairperson thanked RAF and the DOT for making the presentations. He
expressed that the committee saw the problems at hand and that they had
previously been given a different, misleading view. He reiterated that members
should go back and read the minutes of the meeting where they were possibly
misled and apply their minds again to the issues raised.
An ANC member asked what the committee could do to prevent the situation where
the claimant’s attorney failed to act for a number of years.
Mr Modise replied that this problem really concerns the issue of a Power of
Attorney. RAF would like to be able to cancel a Power of Attorney in such cases
so that the claimant could deal with the matter himself.
Ms H Matlanyane (ANC) commented that if RAF had been in such a poor state for a
number of years, the previous CEO had not justified his salary. She agreed that
educating the public on this matter was vital, and whether any enlightenment
could be obtained from Australia, who had gone through a similar situation.
Finally Ms Matlanyane expressed her extreme concern on foreign claimants.
Mr Modise explained that many of South Africa’s neighboring counties had
inherited South Africa‘s legislation, but had now incorporated a no-fault based
system, reciprocity and other elements that South Africa did not possess.
Botswana, for example, had put a lot of thought into its laws and provisions.
South Africa should also create policy that adequately dealt with the issues that
RAF faced.
Mr A Watson (DA) agreed that new legislation was needed and asked how it would
be funded.
The Chairperson asked Mr Luyt how long it would take before any concrete
legislation was put before Parliament.
Dr Baloyi explained that the RAF needed to work together with DOT as the RAF
faced these issues on a daily basis and was the implementing agency for
Departmental policy. The key issue was a change so that the claimant could be
paid directly. RAF would be happy to come and run a committee workshop to
address any of the issues posed, and amendments to the legislation.
Mr Van Rooyen commented that the Committee, in exercising oversight over DOT,
would need a fixed timetable on when it plans to complete certain undertakings.
Ms Matlanyane advised the presenters that there were many radio stations that
would be interested in what RAF had to say about its current situation and
predicaments and members of Parliament would be willing to spread their message
to their constituents.
The Chairperson also commented that communication was crucial and suggested
that the presenters create booklets and pamphlets which Members could give to
people in their constituencies.
The meeting was adjourned
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