Broke Road Accident Fund needs R45bn
April 18 2011
The Road Accident Fund's chief operating officer Andre Gernandt and Markieting and Communications executive Mandla Mvelose speaks to the Pretoria News at their office in Eco Park Centurion.
If the Road Accident Fund (RAF) closed its doors today, it would need at least R45 billion to pay what it owes to cover its backlog of 220 000 cases and other operational debts. It has a deficit of R42bn and things are not looking up.
The fund is insolvent and has been insolvent for the past 30 years. It simply does not have enough cash to foot the bills.
“We are catching our tails,” admitted chief operations officer André Gernandt.
One of the reasons for this, he said, was that the present fault-based system did not work.
New legislation would have to be put in place to save the day.
The fund is pinning its hopes on the proposed new no-fault basis.
This means that if there has been an accident, a claim will be paid out, but subject to a formula to calculate how much.
As the fund has cash flow problems, victims are being paid on a first come, first paid basis.
The Road Accident Fund is hopelessly underfunded - the fuel levy is not enough and the Treasury has bailed out the fund several times in the past.
Gernandt said since the fund had run out of cash, the Treasury had bailed it out with a cash injection of R2.7bn in 2006 and another R2.5bn in 2008.
But this was not enough to save the fund from insolvency.
The fund’s ability to pay was limited to the net fuel levy income it received, which was not enough, said Gernandt.
Veli Mahlangu, chairman of the fund’s advisory committee, in this year’s annual report commented that “the worrying truth is that we are grossly under-capitalised and we have been in this position for many years”.
“Unless drastic changes are introduced in the way the RAF is funded, we will continue operating under difficult circumstances without adequate funding to settle new claims and the massive backlog.”
Meanwhile, the backlog is growing, judges are frustrated as Road Accident Fund cases congest the court roll and do not seem to get off the ground, and lawyers are upset because they do not get their money on time.
They often have to threaten to attach the fund’s assets before they are paid.
A Pretoria East law firm, like many others, does not want to be named for fear that it may be prejudiced in its cases by the Road Accident Fund, but says in almost every one of about 90 trials it has handled in the past year against the fund, it has had to get the sheriff to issue writs of execution against the fund for not paying claims.
“Conservatively, the fund wasted more than R81 000 in the past year on sheriff’s charges, only relating to our firm alone.
“In some instances we have to issue three writs per file and the wasted costs then escalate to R243 000.
“This is just because it doesn’t pay on time and taxpayers must foot this bill.”
Another lawyer, practising north of Pretoria, is equally fed up with the “wasting of public funds”.
He calculated that by not settling claims in time, the fund spent about R300m a month in Pretoria alone, on paying for the cost of the legal counsel appearing for the victims. This excluded the fund’s own counsel.
“This is unnecessary. If they prepared beforehand and settled matters in time, this money could have gone into the pockets of the accident victims,” he said.
According to Pretoria High Court Deputy Judge President Willem van der Merwe, often during the call of the roll in the mornings, counsel for the fund arrive at court unprepared and often ask for postponements.
About 80 percent of the civil roll consists of Road Accident Fund cases.
And about 99 percent of these cases are settled on the steps of the court.
This means that counsel must be paid their fees for the day, as opposed to settling the matters before the trial day and saving legal costs.
The legal fraternity lays all these problems at the door of the fund.
The fund in turn accuses the lawyers of milking the system and taking more than what is owed to them.
Half of the money paid out by the fund does not reach the pocket of the victim, but goes to the lawyers, says Gernandt.
The fault-base system is simply not working, with lawyers calling a string of experts to try to prove what the victim would have become in future if he was not in an accident, he says. Gernandt calls this “crystal ball gazing” which only inflates the legal bill. “This is money which could have gone to the victims.”
An example of this was a recent case in which the lawyer for the victim called 17 experts, from neurosurgeons to psychologists, to testify. The victim was paid R400 000 in the end and the experts’ bills ran to R580 000 - which the taxpayer once again had to pay. ‘It is all a money-making business,” said Gernandt.