The Road Accident Fund (RAF) says that a part of its recent financial problems can be laid at the feet of unscrupulous lawyers who are making millions of rands from accidents in the country.
The fund is currently implementing a turnaround strategy with a core focus on its core expenses and operations.
“We had to look at the core structure of the RAF and what we found is that we pay much more than the market for most of the services that we procured from the market. In some instances, we paid 5 times what the market pays for these services,” it said in a statement this week.
“We also discovered that there is wastage and inefficiencies as some of these services were not even necessary for the effective and efficient running of the RAF.”
The fund found that while it collects R43 billion a year, it only dispersed R26 billion to the claimants whilst spending R17 billion in administrative cost. R10.6 billion of this amount was legal costs, the fund said.
“It means that for every rand collected in revenue we spend 40 cents to disperse 60 cents. In most cases the 25% of this 60 cents is paid to the lawyers as “success fees” for represented claims.
“The claimant, therefore, gets only 45 cents in every rand collected. It became obvious that this situation is unsustainable.”
A further breakdown of the fund’s spending shows that although it spent R10.6 billion on legal fees, more than 95% of these matters were settled without any trial being run.
Core to the RAF’s funding is the RAF levy which is paid on top of every litre of fuel bought in South Africa.
Data from civil society group Outa shows that the Road Accident Fund (RAF) levy made up 5% of the price of petrol in 2009, and generated around R9 billion per annum for vehicle-related injury compensation.
As of 2021 it now makes up for 14% of the fuel price and pumps around R45 billion into the RAF.
“This specific ‘tax’ has undergone a number of substantive increases (from R0.45c per litre in 2009 to R2.18 in April 2021), to keep pace with the growing demand on these lucrative revenues which are largely wasted due to inefficient administration, corruption and unscrupulous legal claims which the RAF administrators are too weak to challenge,” Outa said.
RAF not without fault
While the impact of lawyers fees has long been understood as damaging tot he RAF, critics say that the fund is not without fault in this regard.
“The fund’s financial woes have mostly been of its own making as its approach since 2008 has not been to settle as required by the RAF Act, with the Fund trying to entice people into lodging their own claims rather than seeking representation from a legal professional,” said the DA’ Trasnport head Chris Hunsinger.
“This is due to the RAF’s erroneous belief that their high legal cost is based on fair representation rather than the Fund’s own overlitigation.
“Instead of litigating almost every claim that comes to the RAF, it should mandate its claim settlers to settle minor claims. At the moment, research shows that 90% of litigated claims are settled on the day of judgement.”
Hunsinger said that unless the RAF changes the way in which it operates, the current backlog of cases will continue to increase, and it will edge ever closer to insolvency.
The DA’s comments come after an April High Court ruling ordered the RAF to suspends all payments for settled claims not older than 180 days until 12 September 2021. The order also states that claims older than 180 days in which settlement have already been reached, must be paid.
This should allow the RAF some breathing room to get its ducks in a row and finalise historic payments, while putting the necessary measure in place to be able to pay out newer claims.