Cash-strapped RAF needs urgent overhaul - acting CEO | Fin24

Cash-strapped RAF needs urgent overhaul - acting CEO

Oct 13 2017 11:31
Yolandi Groenewald

Johannesburg - The attachment of the Road Accident Fund’s (RAF's) bank accounts and assets, the fund’s continued cash constraints and its huge unfounded liability are continued evidence that the RAF dispensation is "expensive, unaffordable and unsustainable".

This is according to the RAF’s acting chief executive officer, Lindelwa Jabavu.

She told Fin24 that the cash management plan put in place two years ago, when the value of finalised claims exceeded available cash, aimed to maintain regular payments to creditors.

“However, the attachment of the RAF’s bank accounts and assets disrupts this plan,” Jabavu said. “Change is therefore an urgent necessity.”

New scheme

She believes the Department of Transport's proposed Road Accident Benefit Scheme (RABS), currently before Parliament, will overhaul the ineffective compensation system. The bill proposes to replace the current fault-based system.

“The current system is characterised by extensive and costly litigation, prolonged claims finalisation and high administrative costs,” she said. “These problems will be addressed by removing intermediaries and providing benefits to all accident victims and their dependents, irrespective of who was at fault.”

Benefits will also be defined and paid in a three-point structured manner by the RABS administrator, she added, making the scheme more financially sustainable.

But concerns have been raised that the new scheme could penalise innocent accident victims, who could receive significantly reduced benefits. Drunk drivers could potentially then also claim for accidents they have been involved in.

Commentators in Parliament have pointed out that the new scheme would require intricate and cumbersome administrative procedures, possibly excluding the poor.

'Harsh' financial year

Jabavu was adamant that the current state of the fund is not sustainable.

The RAF said in February it was unable to make payouts to its claimants after the sheriff of the court attached its bank accounts, after an R11m demand by law firms for unpaid claims. At the time the fund said it had a backlog of R8.2bn for 5 200 claims.

In its financial statements and annual report, released this week, it admitted “the financial year was harsh”.

The fund’s claims liabilities increased by 22% to R188bn, from R154bn in the previous financial year. It had severe cash flow constraints during the year, impacting its ability to make payments.

The number of open claims, however, was reduced to 173 740 from 184 899 in 2015/16 on the back of increased registrations of new claims, the RAF said in its financial statements.

Treasury granted the fund an additional 50 cents levy in 2015‚ which led to a 46% revenue rise to R33.21bn for 2015/16. But the last year remained stable at R33.34bn, mainly due to a zero increase in the RAF fuel levy this year.

Looming strike

Jabavu’s comments come as the National Union of Metal Workers of South Africa (Numsa), one of the fund’s harshest critics, prepares to embark on a strike at the fund for what it calls poor management and "atrocious" working conditions.

The union also went on strike earlier this year. In March, shortly after the strike, it asked the Public Protector to launch a probe into the RAF.

This week Phakamile Hlubi, acting national spokesperson for Numsa, said employees were distressed after they had to share workstations for nearly a month at the RAF’s Menlyn branch, because computers in the litigation and determination department had been seized by the sheriff of the court.

A hundred laptops were attached, and as a result the litigation department is unable to process the paperwork to instruct attorneys when cases go to court.

Jabavu said the attachment of the laptops only disrupted the business temporarily, adding that contingency plans had been put into place. 

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