REPORT OF THE INTER-DEPARTMENTAL COMMITTEE ON THE ROAD ACCIDENT FUND COMMISSION REPORT National Department of Transport September 2003

The RAFC Report The Road Accident Fund Commission of Inquiry (RAFC) was established to inquire into and to make recommendations regarding a reasonable, equitable, affordable and sustainable system for the payment of compensation or benefits in the event of the injury or death of persons in road accidents. The RAFC handed its report to the State President in December The RAFC report comprises a detailed assessment of the RAF and its activities, and makes a total of 179 recommendations for the reform of the current road accident compensation system.

The RAF Board Response The Board of the RAF considered the RAFC recommendations, and submitted its detailed response to each.

The Inter-Departmental Committee Cabinet instructed the NDoT to convene an inter- departmental committee comprising the Departments represented on the JCPS cluster to consider the contents of the RAFC report and formulate a position, for consideration by the IMSC Committee, and subsequent submission to Cabinet. The IDC-RAFC Committee was established and met several times to deliberate on the RAFC report and its recommendations. The work of the IDC-RAFC was completed in March 2003 with the development of a report entitled “Position on the Road Accident Fund Commission Report”.

Key Themes Emerging from the RAFC Report 1. The purpose and role of the RAF; 2. The administration of the RAF; 3. The basis for compensation; 4. The equity and sustainability of the RAF; and 5. The current system of a road accident compensation fund versus a social security road benefit scheme.

Major Recommendations Shift from Legal to Medical Basis: Since the RAF has a legal basis for processing claims and awarding compensation, huge funds go to professional fees (23% of RAF costs are transaction costs, which IDC-RAFC does not consider justified). The IDC-RAFC supports the proposed shift from a legal to a medical basis for compensation. Such a shift would require a restructuring of the current RAF or the creation of a Road Accident Benefit Scheme (RABS).

Major Recommendations contd. Shift from “fault” to “no-fault” basis: The current RAF system is based on the apportionment of blame. The IDC-RAFC supports the RAFC proposal for a shift from the “fault” system to a “no fault” system, which would be more equitable. Such a shift will however increase the number of victims eligible for claims and thus increase total claims against the fund.

Major Recommendations contd Compensation Approach: The RAFC found that the current RAF approach involving payment of a lump sum compensation to the victim, is not sustainable in the long term. It proposed a pension payment approach instead, and this is supported by the IDC-RAFC.

Major Recommendations contd Compensation fund vs social security benefit scheme: The IDC-RAFC supports the RAFC proposal that the RAF change from an autonomous dedicated fund for compensating road accident victims and be integrated into the social security system of the country. The IDC-RAFC however recommends that comments be invited from a wide range of stakeholders before such a decision is taken.

Institutional Implications There are two options for reforming the road compensation system. Option 1 is recommended by the RAFC report and calls for the phasing out of the current RAF and its replacement by the RABS. Option 2 is a restructuring of the current RAF in accordance with the recommendations of the RAFC report. In both cases IDC-RAFC recommends further analysis to quantify the implications.

Financial Implications A shift to a “no fault” basis of compensation will increase the total amount of claims against the road accident compensation system since the number of victims eligible for claims will increase. Replacing the RAF with the RABS will require an additional amount of R2 billion per annum for the phasing in period of at least 3 years from the national fiscus

Legal Implications Changes to legislation will be required, depending on which option is selected: Option 1: Formulation of a new Road Accident Benefit Scheme Bill and Act Option 2: An amendment of the existing Road Accident Fund Act

Profile of Road Accident Victims The exclusion, as a basis for claiming road accident compensation, of nervous shock resulting from observing or learning of the death or injury of another person in a road accident, without being in the accident oneself. Currently a person may claim compensation from the RAF in such circumstances.

Social Security and Road Accident Benefits The limitation of road accident compensation claims by non-residents of the Republic, to a reasonable amount to be determined. Currently non-residents involved in road accidents within the country enjoy the same unlimited cover from the RAF that South African residents have.

The “Safety Net” – Threshold and Ceilings The setting-off of benefits payable under any other social security scheme as a result of a road accident, against road accident compensation payable by the RAF. Currently not all such benefits are deductible from compensation recoverable from the RAF.

Lump Sum Compensation Payments The payment of road accident compensation i.r.o. future economic losses, in periodic instalments rather than by way of lump-sums. Currently such compensation is payable by the RAF by way of predetermined, capitalised lump-sums in advance.

Alternatives to Lump Sum Awards The amendment of the Income Tax Act, 1962, to exempt road accident compensation paid in periodic instalments, from income tax. Currently such compensation-by-instalment would not be regarded as being of a capital nature and would be subject to income tax.

Road Accident Litigation The introduction of a procedure for the resolution of disputes about road accident compensation claims, through mediation and arbitration. Currently such disputes require to be litigated upon in the courts of the country.

Health Care and Road Accident Compensation The application of the UPFS tariff to medical expenses recoverable from the RAF by road accident compensation claimants. Currently the RAF has no control over the rate at which a road accident compensation claimant is charged, at the RAF’s cost, by the relevant medical service provider.

Death and Funeral Benefits The payment of funeral benefits to road accident compensation claimants at a flat rate (R in 2003 values; adjusted annually as per CPI). Currently the RAF must inquire into the actual costs incurred in connection with a funeral and must compensate the claimant for whatever can be proved.

Oversight of the RAF The repeal of the 1993 Act providing for the financial supervision of the RAF by the Financial Services Board. The Financial Supervision of the Road Accident Fund Act, 1993 (Act No. 8 of 1993), has little practical meaning.

Decisions by the IMSC Schedule 1 Contains the Commission recommendations which the IDC regards as reasonably capable of implementation in the short to medium term (not exceeding 18 months) and which are unlikely to require legislation.

Schedule 2 Contains the Commission recommendations which the IDC regards as reasonably capable of implementation in the short to medium term (not exceeding 18 months) and which are likely to require legislation.

Schedule 3 Contains the Commission recommendations which the IDC regards as reasonably capable of implementation in the medium to long term (18 to 36 months) and which are unlikely to require legislation.

Schedule 4 Contains the Commission recommendations which the IDC regards as reasonably capable of implementation in the short to medium term (18 to 36 months) and which are likely to require legislation. Schedule 5 Contains the Commission recommendations which are not supported by the IDC.

Recommendations to Cabinet It is recommended that Cabinet approves: 1.1The approach proposed by the Inter-Departmental Committee (IDC) 1.2Accept the recommendations as contained in schedules The Department proceeds with legislation amendments in areas identified in the IDC Report. 1.4Accept the recommendation to shift to RABS after addressing the problems, identified by the IDC. In the meantime the RAF should continue, and measures be taken to identify weaknesses and deal with them in the short to medium term.

Recommendations to Cabinet (contd) 1.5The IDC continues to explore further the institutional and financial implications for the shift from the Road Accident Fund to a Road Accident Benefit Scheme (RABS), including cost associated with the phase in and phase out process. 1.6Take an incremental approach : -improve the RAF in the short to medium term -deal with other recommendations.

Recommendations to Cabinet (contd) 1.7That a more technical group be put together (NDoT, Treasury & Social Development) to conduct a technical analysis to quantify the implications of the proposed reform process. 1.8That the IDC-RAFC report be submitted to the Transport and Welfare and Population Development Portfolio Committees; as well as the Select Committee on Public Accounts for in- depth consideration of the recommendations and to make recommendations to Cabinet on the acceptance thereof.