Will proposed new road accident scheme be better for South Africans?
Replacement for the Road Accident Fund is designed to benefit lower-income people and speed up access to health care
The Actuarial Society of SA is committed to serving the public interest by using the voice of the actuarial profession to bring much-needed balance and perspective on issues that potentially have a long-term impact, financial and otherwise, on South Africans.
The proposed replacement of the Road Accident Fund (RAF) by the Road Accident Benefit Scheme (RABS) is one such public-interest matter. The society provided commentary on the RABS bill in 2014 and 2017 and also presented to the portfolio committee on transport in parliament in 2018.
The provisions of the bill are based on the recommendations of the Road Accident Fund commission, chaired by judge Kathleen Satchwell, and a policy framework published in 2009 by the department of transport. The work of the commission spanned three years and resulted in comprehensive research nationally and internationally.
The commission’s findings were presented in a comprehensive report, published in 2002, and include the following key recommendations:
- a shift from a legal to a medical and rehabilitative basis;
- a shift from a “fault” to a “no-fault” basis; and
- a shift from compensation to benefits.
It is important to understand that the commission’s mandate was to recommend a system that is reasonable, equitable, affordable and sustainable for compensation in the event of injury or death of persons in road accidents. The commission’s recommendations therefore require a philosophical shift from an insurance approach to a social security approach and, unless one fundamentally disagrees with these social security principles, the current debate should still be conducted with those principles in mind.
The question South Africans are confronted with is whether they will be better off under RABS or whether they are better off under the RAF. Actuarial models have been applied to this complex question since before the RABS policy was adopted by cabinet in 2011. Actuaries who have been modelling various solutions and their outcomes have not done so in a vacuum. The SA context, mainly informed by constitutional imperatives and socioeconomic realities, is an important consideration in actuarial modelling exercises and failure to consider it can diminish the actuarial voice in public-interest matters.
The RAF as it currently operates has put a significant strain on road users and this is not expected to improve unless consequential changes are made. During his budget speech, the finance minister announced yet another fuel-levy increase to fund the RAF. Tito Mboweni also acknowledged that “the Road Accident Fund levy increase is not enough to match the fund’s R215bn liability”. He therefore urged the transport department to quickly resubmit the RABS bill for parliament’s urgent consideration to help stabilise fuel prices.
Following the budget speech, several articles and opinion pieces have been published labelling the RABS bill as criminal, obscene, abhorrent, unconstitutional, monstrous and appalling.
In order to bring some balance to this discussion, it is important to consider some of the reasons behind certain of the RABS provisions in line with the above-mentioned social security principles.
- Since RABS is a social-security benefit system, it is a progressive system designed to benefit lower-income people more than higher-income people. While this is a fundamental departure from the common-law insurance-based system of the RAF, it is in line with the constitutional imperatives set out in section 7 of the constitution, which refers to the duty of the state to expand access to health-care services and social security through reasonable legislative and other measures, within available resources.
- Litigation has been increasingly taking a larger share of the RAF revenues — 25% of total claims settlement costs in the 2017/2018 financial year was spent on legal and other expert costs. A system that reduces the need for litigation and focuses more on medical treatment and rehabilitation can lead to better outcomes for the injured persons and is likely to be more affordable.
- RABS is more focused on medical and rehabilitative services and undertakes to contract with both public and private health providers. This restriction on providers is not inconsistent with medical schemes that also restrict their members’ ability to choose medical providers to enable cheaper options.
- Injured children currently receive various categories of benefits. In addition to the medical expenses, general damages and family support benefits in the case of losing a caregiver, an injured child is entitled to loss of future earnings. Under RABS, the injured child will still have access to medical care and family-support benefits. In addition to these, the child will receive loss of income benefits, but only at age 18 when he/she would have been more likely to start earning an income. The current system of establishing a loss of future earnings figure requires numerous assumptions and can result in significant variability in outcomes.
- RABS claims are expected to settle quicker due to the removal of the litigation process. Injured persons have immediate access to health care, and depending on how efficiently the administration process is managed, the rest of the benefits can reasonably be expected to be paid much sooner than RAF claims. RAF claims can take up to seven years to settle.
- The RAF liability has been increasing significantly (R98bn in 2014, R216bn in 2018, and is expected to reach R413.8bn by 2021/2022, exceeding Eskom’s liability). Even if RAF is stopped tomorrow, the backlog is significant. This does not mean, however, that a system that could potentially reduce costs should not be introduced while RAF is winding down. Doing something will cost more money but doing nothing will likely cost even more over time if these trends continue.
- No-fault systems are used across the world and are also the basis for other compensation-based social-security funds in SA. This simply entails that compensation can be done without having to prove any party is at fault. This is instrumental in reducing litigation costs.
Given the nature of the benefits proposed under RABS and the removal of the litigation process and associated costs, RABS could be more cost-effective, though this also depends on how materially the administration costs would increase. Of the RAF total claims settlement costs of R34.6bn in the 2017/2018 financial year, R8.8bn (25%) was spent on legal and other expert costs, R1.9bn (5.5%) on medical compensation, R15.3bn (44.2%) on loss of earnings claims paid to injured persons and support paid to dependants of deceased road users, R8.5bn (24.5%) on general damages and R140m (0.4%) on funeral costs.
The RAF currently spends more on transaction costs (legal and medical expert costs) than on funding immediate access to medical treatment when it is most needed. Delays in treatment and rehabilitation services often contribute to higher payouts in respect of claims for loss of income, because of the impact on the state of health of an injured person and the risk of long-term disability. The higher the disability (and greater the inability to earn), the higher the compensation claimed from and paid from scarce public resources.
The administration of RABS will be done by a public entity and the concerns around this cannot be ignored given the general inefficiencies in some key public entities. However, the principles behind RABS are not inconsistent with those underlying the Compensation for Occupational Injuries and Disease (COID) and Occupational Diseases in Mines and Works (ODIMWA).
RABS can be more affordable if managed well because the benefits on offer are significantly lower than the current RAF benefits, especially due to the income caps. Lower-income people are likely to be better off under RABS than RAF as they will wait for a shorter time, have relatively quicker access to health care and have a secure pension rather than a lump sum that may at times not be spent in the best interests of the injured person or of the dependants of the deceased. However, all depends on how it is implemented.
Rather than shooting down the bill with the aim of politicising the debate, stakeholders should engage proactively to address the shortcomings that cause concern. It is in the public interest that we all work together to improve aspects of the bill that may not yet be contributing towards the reasonable, equitable, affordable and sustainable ideal.
For example, more thought will have to go into finding viable financing options and risk-management practices to add value to the final benefit design and financing decisions. Also still required is extensive stress-testing to ensure RABS will be able to meet its obligations with a high degree of certainty.
• Lusani Mulaudzi is a public interest actuary at the Actuarial Society of South Africa