A devastating report on the state of South Africa’s Road Accident Fund (RAF), which shows that there is no indication that the deteriorating trend of the accumulated deficit will subside, has been tabled in Parliament.
The executive officer and registrar of short-term insurance of the Financial Services Board, Jeff van Rooyen, reported in his 10th report for the financial year 2002/03 that the accumulated deficit on March 31 2003 was R23,026-billion, compared with R16,6-billion on March 31 2002 — an increase of 38%.
He said in the report, entitled Report of the Executive Officer of the Financial Services Board on the Road Accident Fund, that that RAF’s reserves will be totally depleted “if the current expense rate continues in the following financial year”.
Van Rooyen noted that the RAF has reflected negative cash flows from 2001. A negative net cash flow of R628-million was experienced for the financial year ended March 31 2003. Although the net fuel levy income increased by R419-million, the negative cash-flow position of the 2002 financial year continued and will probably not be eliminated in the future “as the claims submitted continue to increase out of proportion with the income”.
He noted that the provision for outstanding claims remained between five and six times the fuel-levy income during the financial years 1997 to 2000 and this ratio increased to about 6,9 for 2001, 7,4 for 2002 and 8,3 for the year under review.
In harsh words he reported that “the reality is that the RAF is clearly on the verge of total bankruptcy and financial recovery seems impossible”. He said he was of the view “that recommendations made in the Road Accident Fund Commission Report of 2002 must be discussed at ministerial level and bold decisions taken to implement the Road Accident Benefits Scheme as soon as possible”.
Investment income had dropped during the period 2000 to 2003 from R234-million to R106-million.
At the same time, the increase in the claims experience was mainly attributable to the “ever-increasing number of people exposed to road accidents due to an expanding vehicle population especially in the public transport sector”.
Claims paid increased by 23% to R3,1-billion by the end of March 2003 (2002: R2,5-billion) and the provision for outstanding claims increased by 32% to R23,8-billion (2002: R18-billion).
Van Rooyen said in previous reports he had explained that the Short-Term Insurance Act of 1998 cannot be made to apply to the RAF as fundamental insurance principles are not embodied in the legal requirements under which the RAF conducts its business.
These are that that an insured person must have a direct relationship with the insurer, that premiums should be sufficient to cover expected claims and expenses and that a person who is a high risk or has a poor claims record should pay a higher premium.
“The Short-Term Insurance Act further requires that an insurer shall at all times have sufficient assets to meet its liabilities and at the same time maintain a prescribed solvency margin. The RAF does not meet this requirement.”
Parliament was told recently that the financial plight of the fund has deteriorated to the point that it will have exhausted all its reserves by the end of the 2003/04 financial year. Fraud and corruption amount to about R500-million a year. The RAF posted a R6,4-billion operating loss in the financial year ending March 2003.
New Minister of Transport Minister Jeff Radebe said recently that about 670 claims are lodged against the RAF every day with about 650 claims settled daily.
Steps taken to turn the fund around include a payment queuing system for all claims that will make payments on a weekly basis rather than on every working day.
In addition, from this month a new centralised verification system has been implemented to authenticate claims and the RAF is also considering a claims differentiation system “to separate out the bulk of claims which clutter the magistrate’s court system”, said Radebe.
He reported that an evaluation of service providers and consultants is under way to reduce the costs and to enhance “internal capacity”. — I-Net Bridge