Road Accident Fund deficit widens to R46bn

by Linda Ensor, 12 September 2012, 11:59 | 4 Comments

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Road Accident Fund CEO Eugene Watson. Picture: FINANCIAL MAIL

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THE financial situation of the "technically insolvent" Road Accident Fund (RAF) — the body that pays compensation to road accident victims — deteriorated further in the year to the end of March, with its estimated net deficit plunging to R46,4bn from the previous year’s R29,9bn.

The deficit includes the estimated amount required to settle outstanding claims.

The RAF annual report tabled in Parliament on Wednesday noted that the backlog of outstanding claims climbed to 253,111 from 244,652 and that the number of new claims lodged fell to 172,859 from 222,634.

The fund incurred a loss of R16,5bn during the year, a dramatic increase from the previous loss of R1,5bn because of the substantially higher provision for outstanding claims.

As is the case every year, the auditor-general has warned that "significant doubt" exists about the RAF’s ability to operate as a going concern.

The fund’s precarious financial position is largely due to what it calls the current "unfair, inequitable and unsustainable" fault-based model that requires that it determine the fault of an accident. Those who cause accidents are excluded from compensation.

The government has committed itself to move to a no-fault, compulsory social insurance scheme in future in order to put the RAF on a sound financial footing.

The annual report attributed the sharp rise in the net deficit of the fund — which received R17bn last year from money raised through the fuel levy — to the rise in the anticipated cost of meeting outstanding claims. Also, because it has been underfunded for a number of years, it has been unable to pay claims at the rate it receives them.

The report said the recalculation by the RAF of its estimated outstanding liability on the basis of its actual claims experience, the settlement of claims at sums higher than previously estimated, and liabilities arising prior to the introduction of legislative amendments in 2008 all contributed to the "signficant" increase in the estimates.

RAF CEO Eugene Watson explained that the number of personal claims lodged had fallen substantially after amendments to the law that excluded a range of claims for non-serious injuries.

The annual report also noted that the RAF’s legal costs totalled R1,2bn and claimants’ legalcosts R2,3bn. Expenditure on claims amounted to R12,5bn, with the average settlement per claim rising 17% to R54,808 (R46,995). More than R3,9bn was paid for general damages, more than R4,3bn for loss of earnings and support, and only R800m for medical costs.

Mr Watson criticised the large amounts that attorneys received for their work for accident fees.

"Success fees (contingency fees) paid to attorneys were estimated to be in the region of R4,5bn, exacerbating the plight of hardship victims of accidents suffer," he said. "In addition, the average time taken to settle a claim still ranged between 12 to 60 months for non-hospitalised claims, primarily because of the need to prove fault and the subjectivity in determining loss of earnings and support benefits."

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