- South Africa’s Road Accident Fund (RAF) recently obtained an extraordinary court order to protect its essential assets.
- The state insurer’s deficit has grown to R322 billion, with claims older than five years nearing R50 billion.
- The RAF collects about R43 billion a year through the fuel levy which accounts for R2.07 per litre of petrol and diesel sold in South Africa.
- But claimants get “only 45 cents in every rand collected” according to its CEO, who blames exorbitant legal expenses for the RAF’s predicament.
The Road Accident Fund (RAF), which compensates injured motorists, passengers, and pedestrians, is in deep financial trouble. The state insurer blames its predicament on exorbitant administrative costs – particularly legal fees – and says that for every rand collected through the fuel levy, claimants only receive 45 cents.
That comes to 93 cents out of the R2.07 consumers pay on every litre of petrol and diesel in a ring-fenced RAF tax.
Detail of the fund's position came in response to an extraordinary order granted by the high court earlier this month, which suspends – until the end of April – all writs of execution and attachments against the RAF’s essential assets.
The court also ordered the RAF to clear it’s backlog of unpaid claims – older than 180 days – before 30 April. Recent claims not older than 180 days have been suspended from 1 May 2021 until 12 September 2021, to allow the RAF time to improve its operational standing.
The court action comes just one year into the RAF’s five-year turnaround strategy, which included the appointment of Collins Letsoalo as the fund’s CEO in 2020.
The RAF received more than 100,000 new claims in the 2019/2020 financial year. Approximately 46,000 claims remain unsettled after five years, with outstanding payments nearing R50 billion. By March 2020, the RAF’s deficit had ballooned to R322 billion.
The situation has been described as unsustainable by both transport minister Fikile Mbalula and Letsoalo.
High Court Judge Pieter Meyer said the RAF’s processes were “antiquated and plagued with corruption” and that its deep financial disaster posed a “constitutional crisis”.
The RAF is funded by a fuel levy which is paid by every motorist in South Africa. The Road Accident Fund levy currently accounts for R2.07 for every litre of both petrol and diesel sold. This provides the RAF with an average annual income of around R43 billion, according to Letsoalo.
Of this, only R26 billion – or 60% of the RAF’s collected funds – end up being dispersed to claimants.
The RAF spends R17 billion on administrative costs, with R10.6 billion dedicated to legal expenses.
“It means that for every rand collected in revenue we spend 40 cents to disperse 60 cents,” noted Letsoalo.
“In most cases the 25% of this 60 cents is paid to the lawyers as ‘success fees’ for represented claims. The claimant, therefore, gets only 45 cents in every rand collected.”
The RAF cites exorbitant legal fees as its biggest immediate challenge. Research conducted by the embattled insurer showed that while R10.6 billion was spent on legal fees, more than 95% of these cases were settled out of court “without any trial being run”.
“In our analysis we also discovered that we have paid plaintiff attorneys in duplicates to the amount of R1.2 billion,” said Letsoalo with reference to the ongoing battle to minimise legal expenses.
“We have now collected R600 million of these duplicate payments. We have reported 102 law firms to the Legal Practice Council (LPC) for mismanagement of their trust accounts.”
The RAF said it would also revise its medical assessment costs to save money. Letsoalo referenced the R32,000 paid per neurosurgeon assessment and R29,000 per orthopaedic surgeon assessment as examples of these exorbitant expenses.
