The methods used to delay compensation and dubious accounting paint a rosier picture than is the case.
By: Hennie Klopper
I read Business Day’s editorial on the Road Accident Fund (RAF) with interest. The “improvement” by R300bn of the financial position of the RAF needs to be properly understood. This “saving” is the result of the manner in which the RAF’s contingent liability was calculated.
In the past and because the road traffic crash (RTC) compensation system was prior to 1986 insurance premium driven, the contingent liability was, after the system changed to fuel levy funding instead of by insurance premiums, calculated as if the RAF was a short-term insurance company, which it was not. This gave a skewed picture of the RAF’s contingent liability as the fuel levy was designed and meant to cover RTC personal injury liability on a pay as you go basis.
Ironically it is this selfsame skewed method of calculation of RAF contingent liability which was used to justify increases in the fuel levy and the introduction of the now-jettisoned Road Accident Benefit Scheme. The problem with the RAF is that its administration in the past two decades relied on delaying the settlement of claims as far as possible by litigating virtually every claim lodged and on an attempt to minimise legal representation by promoting direct claims. This has resulted in its legal bill rising to R10.6bn (25% of income) and its administration costs burgeoning to 40% of income. It also meant that claims lodged were not properly attended to and delayed so that the completion period stretched to an average of about 55 months.
The RAF, according to its latest available annual report, received 113,000 claims but only finalised 28% of those in the year in question. The RAF’s actual (not accounting) arrear-contingent claims now stand at about 305,000 at an average of R114,000 per claim. This represents contingent liability of about R126bn. What makes the RAF’s situation even more problematic is that the annual new claims count (because of more RTCs) is ever increasing and (based on current claims completion numbers) about 90,000 claims (valued at about R10bn) will be carried over each year, creating a snowball effect and drastically affecting the RAF’s capability to eventually meet all claims within a reasonable time.
Lawyers are singled out as one of the main beneficiaries of the RTC compensation system — in my opinion, unfairly. It is said that they receive up to 25% of compensation as success fees. This is being economical with the truth. First, lawyers and other experts finance the specialist reports needed to prove damages where RTC victims have been seriously injured. Second, contingency fees are not calculated at a flat 25% rate. The 25% is the maximum. A lawyer is, in terms of the Contingency Fees Act 1977, entitled to 25% of the actual amount recovered (excluding disbursements) or double the taxed fee. In most cases the fee will not be 25% but double the taxed fee.
Furthermore, the RAF is liable for the claimant’s taxed and party fees. A lawyer is not entitled to recover a “success fee” and retain the party fees recovered from the RAF. Ultimately this considerably reduced the amount paid by the claimant as success fees by a considerable margin. An aspect which has been consistently ignored is that the RAF’s previous policing of forced litigation as a cash flow tool deprived a claimant of his full claim because the claimant was then made liable for those fees (attorney and client) which cannot be legally recovered from the RAF. This amount is about 33% of the fees recoverable from the RAF.
It is glaringly obvious that until RTCs are reduced, the RAF financial problem will persist. RTCs affect 1.7-million SA citizens and cost the economy R168bn a year, of which the RAF liability is about R43bn. RTC personal injuries cost the average motorist more than R400 a month in fuel levies. About 13,000 die annually on our roads and 266,000 are injured, 66,000 seriously. RTCs cost the public health system about R13bn a year.
Despite these figures the government does not find its effective compliance with its constitutional duty of ensuring road safety appealing and uses the facile option of merely tweaking legislation — the Administrative Adjudication of Road Traffic Offences Act (Aarto) and 0% blood alcohol content — in the hope that this will somehow improve a dire situation. Internationally SA’s road safety record is the 38th worst as 32 per 1,000 annually die on our roads when the international norm is 18 per 1,000.
Effective and consistent road safety action — not confined only to festive seasons and supported by consistent zero tolerance law enforcement — is called for. Only then will the RAF problem effectively and finally be solved.