RAF draft policy opens up new insurance opportunity

The restructured Road Accident Fund (RAF) intends to conserve financial resources, yet will do little to reduce corruption and mismanagement, says Rob Handfield-Jones, MD of Driving.co.za. The draft policy of the Road Accident Benefit System (RABS) was submitted to the Government Gazette for public comment recently, and looks to change the RAF system to a no-fault basis.

“The significance is that there will be no grounds for common law action for the difference between what the RAF pays out [to road accident victims] and whatever claim there is against the party at fault,” says Handfield-Jones. Whatever the scheme grants as compensation is as much as drivers can claim for.

“This means that if you want extra insurance beyond the limit threshold, you will have to buy it yourself, and this is likely to be expensive.” Insurance companies may be the only ones to benefit from the changes.

“The proposed RAF will not make cash payments,” adds Guy Eagle, spokesman for Carandhomeinsurance.co.za. “Rather it will pay for medical care but this will be limited to a certain amount to conserve finances.”

Healthcare providers, though, don't benefit either, as they are not free to charge whatever rates they feel like and must accept the amount paid by the RABS. Moreover, certain benefits currently included in the RAF will be removed, such as compensation for self-inflicted injuries or emotional shock of second parties.

No lump sums will be made out and certain benefits will only be paid after a waiting period to encourage accident victims to go back to work. “Income support, though, will still be given should someone lose their capacity to earn an income or should a family breadwinner be killed in an accident,” continues Eagle of Carandhomeinsurance.co.za. By eliminating cash payments and action for recourse against third parties, the current RAF is moving from its current insurance form to that of social security.

As a result, the new system can make deductions from other state-funded social security schemes such as the Unemployment Insurance Fund, disability grants and workmen's compensation to prevent double payouts. The problem though, according to Handfield-Jones, is not that too much is being paid out or that there are insufficient funds in the RAF to cover the claims, but that there are too many claims to begin with.

Road safety needs to be addressed to reduce the number of accidents and fatalities on the road to reduce the number of claims to the point where the current resources are adequate, says Handfield-Jones. Compensating people for injuries caused by accidents that could be prevented with better roads seems futile.

If administration costs of the RABS are kept down, the new system will require about R13.6 billion a year (1). This is to be funded by a fuel levy of about 59c/l - less than what motorists are currently paying. To contribute to this annual amount, the RABS will impose a surcharge onto the registration fees of lightweight vehicles, such as buses and taxis who pose more of risk.

According to Transport Minister Sibusiso Ndebele, the new draft policy will enable government to provide immediate access to RAF benefits for all road accident victims. Currently the scheme has R41 billion in outstanding claims. The new draft intends to promote the efficient, economical and effective use of resources. The RAF scheme, said the Minister, wastes scarce resources, which benefits intermediaries instead of the intended beneficiaries.

Members of the public have been given 60 days (ending 12 April 2010) to comment on the new draft policy before it goes to Parliament next year. To view the policy, visit http://www.raf.co.za.