SECOND DRAFT WHITE PAPER

ON THE ROAD ACCIDENT FUND

PREFACE

The Multilateral Motor Vehicle Accidents Fund (MMF) is the successor to the Motor Vehicle Accidents Fund and its counterparts in the erstwhile TBVC States, and came into effect on 1 May 1989 by virtue of the provisions of the Multilateral Motor Vehicle Accidents Fund Act 93 of 1989 and similar legislation in the TBVC States. The Road Accident Fund Act, 1996 recently served before Parliament and comes into operation on 1 May 1997. That Act recognises that the MMF is no longer founded on a multilateral agreement between five Member States and consequently changes the name of the MMF to the Road Accident Fund (RAF). The purpose of the RAF and its predecessors is to compensate victims of motor vehicle accidents (MVAs) on the terms and conditions as provided for in the various acts governing such compensation.

The RAF is the result of a long historical development spanning some fifty years, commencing with the introduction of compulsory MVA insurance in 1942 and culminating in the present system of victim compensation. Over the years the system of compensation of MVA victims has been subjected to numerous commissions of inquiry (an approximate average of one commission of inquiry every seven years), the latest of which was the Melamet Commission in 1992. There have been many amendments to the governing acts. Despite the implementation of the recommendations of the various commissions of inquiry and regular amendments of the governing acts, the financial condition of the system has progressively deteriorated.

This Second Draft White Paper ­ as did the First, published in May 1996 ­ seeks to identify and analyse the causes of such deterioration anew and to suggest effective and lasting solutions to the problems facing the compensation system, including measures to facilitate and simplify the system and to maximise the proportion of the available resources which reaches the victims by way of compensation. The First Draft was exposed extensively and elicited voluminous oral and written criticism and some counter-proposals. These have been taken into account in the drafting of this Second Draft, and the Minister of Transport will continue discussion of the revised proposals with the various interested parties.

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CONTENTS

INTRODUCTION

• 1 Overview of Contents
• 2 Legal History
• 3 Current Legal Framework
• 4 Financial History

FINANCIAL ANALYSIS

• 5 High Accident Rate
• 6 Fuel Levy Income
• 7 Investment Income
• 8 Expenditure
• 9 Claims Paid
• 10 Settlement Costs
• 11 Heads of Damages
• 12 Increase in Provision for Outstanding Claims
• 13 Inadequacy of current income

PROPOSALS

• 14 Main Objectives
• 15 Affordable and Stable System
• 16 More Efficient System
• 17 More Effective System
• 18 Phase I Benefits
• 19 Phase II Benefits
• 20 Adjustment for Inflation
• 21 Exclusions
• 22 Common Law Rights
• 23 Tax
• 24 Prescription
• 25 Tribunal
• 26 Claims Procedure
• 27 Other Considerations

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INTRODUCTION

1 OVERVIEW OF CONTENTS

1.1 By way of introduction to the subject, this Chapter gives brief legal and financial histories of motor vehicle accident (MVA) compensation.

1.2 Chapter II analyses in some detail the financial results in recent years, casting light on the causes and magnitude of many of the problems.

1.3 In Chapter III all these problems are discussed in greater detail, and solutions are advanced to make the delivery of MVA compensation more efficient, effective, and understandable for the general public, and to bring the RAF to a sound financial condition.

2 LEGAL HISTORY

2.1 The 1942 Act came into effect only in 1946 due to the Second World War. Its legal basis was the law of delict as modified in certain respects. Perhaps the most important dimension was the introduction of compulsory insurance in order to ensure that victims of MVAs would recover the damages the wrongdoers had caused them.

2.2 The most notable amendment of the 1942 Act came with the establishment in 1965 of the MVA Fund. Certain insurance companies undertaking the compulsory insurance business had insufficient income to cover claims, resulting in their liquidation; while other insurers had engaged in certain malpractices to the detriment of the public. The MVA Fund would henceforth underwrite this business by way of 100% reinsurance of a consortium of companies doing this business, i.e. the Fund was the effective risk carrier whilst the consortium played only an administrative role.

2.3 The 1972 Act essentially re-enacted the 1942 Act, with a few amendments.

2.4 The financial statements of the MVA Fund reflected operating losses of R82,6 million and R217 million for the years 1982/3 and 1983/4 respectively, and indicated that premiums would have had to be increased by 200% - 300%. This was considered politically unacceptable and Government changed the funding system from individual premiums to fuel levies collected at the point of sale. The consortium of insurance companies (agents) continued to handle the claims underwritten by the MVA Fund. This and other changes were brought about by the 1986 Act, but the legal basis of claims remained essentially unaltered.

2.5 The main purpose of the 1989 Act (and similar legislation in the then TBVC States) was to create a uniform compensation system for the entire area. In terms of an agreement the Multilateral Motor Vehicle Accidents Fund (MMF) was established, receiving fuel levies and paying claims on a standard basis throughout the jurisdiction of the five Member States.

2.6 The 1996 Act recognises the re-incorporation of the TBVC States into the RSA, and accordingly changes the name of the MMF to RAF.

3 CURRENT LEGAL FRAMEWORK

3.1 The present MVA compensation system indemnifies the driver of a motor vehicle against the liability incurred as a result of loss or damage caused to a "third party" (i.e. the victim). The common law principles of delictual liability are incorporated in the legislation, and the RAF is ­ generally speaking ­ liable only to the extent that such driver was negligent. Acts such as the Apportionment of Damages Act 34 of 1956, the Assessment of Damages Act 9 of 1969 and certain principles of insurance law form part of the systems legal base.

3.2 Although the provisions of the RAF Act 1996 are essentially still the same as those enacted in the 1942 Act, the legislation has been amended on some 20 occasions over this period. This has resulted in a complex framework of rules and exceptions ­ qualified by intricate definitions and interpretations ­ which makes the whole system extremely legalistic and quite incomprehensible to the person in the street.

3.3 With each claim the following need to be ascertained:

• the validity of the claim ­ i.e. that the loss suffered by the claimant was indeed caused by an MVA within the ambit of the RAFs liability, and not some other injury fraudulently presented;
• the merits of the claim ­ i.e. the respective degrees of fault or negligence on the parts of the victim and the wrongdoer; and
• the quantum of the loss suffered ­ i.e. the value or amount involved.

3.4 The burden of proof is onerous, requiring extensive documentation and investigation. This exacts a high price in terms of time, effort, and expense, and causes inconvenience and hardship in many cases.

The following are examples of the more striking effects:

1. Because of the uncertainty of the benefit (i.e. the extent to which fault will be apportioned to the victim), and the often long delay in establishing fault, private trauma units usually refer impecunious victims to State hospitals which may be ill-equipped to handle the casualty. In the process precious time is lost in administering emergency treatment.
2. In order to establish the validity, merits, and quantum of a claim, external experts often need to be employed. Opposing teams of experts take time and effort to settle differences, and this often causes costs to escalate.
3. The complexity of the legal framework and the lack of certainty regarding an appropriate benefit can give rise to differences of opinion and costly and time consuming litigation.
4. With certain exceptions, a claimant has 3 years from the date of accident to lodge a valid claim, and the claim prescribes after a further 2 years. These periods are long and do impact on producing a reliable reconstruction and analysis of the accident and its cause and adds to the delay and cost of arriving at a conclusion.

3.5 The RAF Act lays down procedural requirements with which a claimant has to comply in order to lodge a valid claim. These requirements are extensive and complicated, but nevertheless necessary in the context of current legislation: they combat fraud, and contain the levels of cost, time spent, and litigation below those which would otherwise be the case.

4 FINANCIAL HISTORY

4.1 The current financial aspects of the compensation system will be discussed in greater detail in Chapter II. In this section a brief overview is given of the financial results of the system in the recent past.

4.2 No statistics regarding the financial position of the compensation system are readily available for the period 1942 to 1965, since these statistics were kept by the individual insurance companies. The following statistics for the 5 years preceding the take-over by the MMF relate to the RSA as constituted at the time, excluding the TBVC countries which had their own individual compensation systems.

Period preceding the establishment of MMF : 1984 ­ 1989

*Assets less creditors and non-claim provisions

The financial history of the MMF/RAF

4.3 The following is a brief summary of the financial results of the MMF for the period 1.5.1989 to 30.4.96, starting with the deficit of R966 million which the MMF inherited from its five predecessors on 1 May 1989 (the RSA contributing a deficit of R906 million and the TBVC states a total deficit of R60 million):

*Assets less creditors and non-claim provisions

FINANCIAL ANALYSIS

5 HIGH ACCIDENT RATE

5.1 A major cause of the RAFs financial problems is the high road accident rate in the RSA, which is amongst the highest in the world. According to the Central Statistical Service the number of traffic collisions in RSA, and the resultant injuries and deaths, have progressed as follows over the past 7 years (up to late 1994 these figures exclude the erstwhile TBVC States):

Whilst there were some gratifying improvements in 1992 and 1993, there is clearly an urgent need to arrest and reverse these high statistics, generated as they are by a vehicle population of some 6½ million. A comparison with the statistics for 1942, when we had about 390 000 vehicles on the road, illustrates how road accidents have become part of everyday life since the first Act was passed. It also shows that collisions involving casualties have become more serious, the average number of casualties per such collision having increased from 1,2 to 1,6.

5.2 A comprehensive Road Traffic Management Strategy has been developed with the clear target of reducing road accident fatalities by 10% by the year 2000. A Road Traffic Safety Board, involving National and Provincial Ministers, the RAF, and other role players has been established to act as guardians of the Strategy. This Board will, amongst others, consider and approve high profile programmes and projects with a view to improving safety on our roads. This initiative will require special funding. At present the RAF Act does not permit of the application of RAF funds for that purpose, but it seems desirable and it is Governments intention that the Act be amended so to allow, provided that this "investment" be made like any other: with due care and diligence, and with a reasonable expectation of an appropriate "yield" in the shape of lower and fewer claims. It is envisaged that 2,5% of the RAFs levy income during its financial year 1997/8 - i.e. some R38 million - be made available for this purpose.

6 FUEL LEVY INCOME

6.1 Apart from investment income generated by assets held by the RAF from time to time, the RAFs sole source of income is the levy on fuel sold. It is part of the general fuel tax which is channelled specifically to the RAF. As a matter of computational convenience, it is expressed as a rate per litre of fuel sold. In recent years the rates have been pitched at the following levels:

These rates have yielded the following levy income during the financial years indicated:

6.2 There is much to be said for this method of financing the RAFs liabilities:

1. It is reasonably equitable, in that the levy paid by a motorist is more or less in proportion to the average risk (measured by time, distance, and speed on the road) of causing injury to, or the death of, another road-user.
2. The levies are collected in the most efficient manner, the RAF receiving bulk payments from the oil companies at the end of each month. This stands in contrast to the collection of individual premiums from motorists with its concomitant delays, expenses (which could easily exceed 20% of the premium), omissions, and losses.
3. The problems of uninsured and hit-and-run vehicles when dealing with individual policies and premiums do not arise under the levy system. Each motorist will have made a contribution to the Fund at the time of purchasing fuel.
4. It is more convenient for the motorist to have the cost of insurance spread over the year as fuel is purchased, rather than paying a large premium once a year.

6.3 The fuel levy system can, however, be criticised on the following grounds:

1. In certain instances fuel is sold (and the levy paid as part of the general tax on fuel) for purposes bearing little or no relation to road accidents. One thinks here especially of the bulk usage of diesel for such purposes as rail and sea transport, and machinery.
2. In paragraph 27.7 it is suggested that the victim have a direct claim against the RAF (i.e. injury/death insurance), rather than a claim against the wrongdoer in the first instance (i.e. legal liability insurance). If that should become so, it does mean that pedestrians - who constitute approximately one-half of all claimants - make no specific contribution for this cover in their capacity as pedestrians.
3. Judging by the progression of the levy income over the past 6 years, the volume of fuel sold increased by some 3% p.a. on average. In contrast, the RAFs claims paid over that period increased on average by nearly 20% p.a. It is clear that reliance cannot be placed on only the growth in the volume of fuel sold to meet the escalating cost of claims: the rate per litre itself also needs regular upward adjustment like the price of other goods and services.

7 INVESTMENT INCOME

7.1 The contribution of investment income to total income has been relatively minor since the RAF has never been able to build up a meaningful portfolio of assets. Investment income (dividends / interest and realised gains/losses) amounted to the following in recent years:

As at 30 April 1996 the RAFs investments also reflected unrealised gains of some R123 million.

7.2 The investment income exhibits an erratic progression partly because the nett cash flow (i.e. new investible funds) has fluctuated wildly from R145 million in 1992 to +R302 million in 1994, and partly because of the performance of the stock exchange in that market value fluctuations influence the realised gains/losses. Regard should also be had to the unrealised gains/losses. Apart from a liquid reserve of R100 million which the RAF itself invests in the money market, the balance of the portfolio investments is managed on behalf of the RAF by 5 leading professional investment managers. At the 1996 year-end they managed assets with a market value of R833 million.

8 EXPENDITURE

8.1 On the expenditure side matters progressed as follows during the financial years ended 30 April of the years indicated:

These items of expenditure are analysed in turn in the following paragraphs.

9 CLAIMS PAID

"Long-tail" insurance business

9.1 This item reflects the amount paid in claims during the relevant financial year, regardless of when the accident occurred or when the claim was lodged. Although the settlement pattern varies somewhat from year to year, the following analysis of claim amounts paid during 1994/5 according to the years in which the accidents occurred is typical.

This illustrates well the so-called "long tail" nature of this kind of insurance business: claims are settled on average 3,8 years after the accident (reckoned by amounts paid), and claims might still be outstanding 10 years or more after the accident took place.

Percentage of Claims Paid in 1994/5 relating to Years in which Accidents occurred

Skew distribution

9.2 The distribution by size of individual claim is extremely skew. The table and the four graphs hereunder typically illustrate the number of claims and the amounts paid in respect of various categories of size of individual claim. (For purposes of this exercise claim amounts include settlement costs, but the erstwhile bulk payments to Provincial Authorities in respect of medical treatment are ignored). It is noticeable that for example nearly 92% of the number of claims are smaller than R50 000, and that they account for only 39% of the total amount paid; or conversely, the highest 8% of claims occasion more than 60% of the total amount paid.

Distribution of Claim Size (per injured or deceased party) by Numbers and by Total Amounts, as finalised in financial year 1995/6

Claims Inflation

9.3 It is seen from the table in paragraph 8 that the amount of claims paid increased on average by 20% p.a. over the period. This high rate is due inter alia to the growing number of accidents and claims, the exceptionally high rate of inflation in medical costs, and associated higher awards by the courts.

10 SETTLEMENT COSTS

10.1 The amount of claims paid each year comprises both the compensation paid to victims and the settlement cost. These settlement costs are made up of the fees paid to external professions like attorneys, advocates, doctors, actuaries, etc., but do not include the internal administrative expenses of the RAF or its former Agents.

Over the past 7 years these amounts were made up as follows:

10.2 It is seen that over the years settlement costs increased from some 16% to more than 20% of the claims paid. A sample analysis over the calendar year 1996 shows that the settlement costs were paid to the various parties in the following proportions:

11 HEADS OF DAMAGES

11.1 The compensation paid to victims can be sub-divided into 5 main heads of damages as follows:

• Medical costs include the cost of hospitalisation, medicine, surgery, therapy etc., and also the related cost of home and car alterations, equipment, an attendant etc.;
• Loss of income reflects the income lost and that likely to be lost in future by the injured victim;
• Loss of support reflects the maintenance lost and that likely to be lost in future by the dependants of the deceased victim;
• Funeral costs reflect the necessary costs thereof; and
• General damages reflect the compensation paid in respect of pain and suffering, loss of amenities of life, disfigurement, and other non-financial loss or inconvenience. Thus compensation for general damages is a financial consolation for non-financial loss.

11.2 The compensation paid over the calendar year 1996 can be analysed as follows:

12 INCREASE IN PROVISION FOR OUTSTANDING CLAIMS

12.1 As can be seen from the graph in paragraph 9.1 only a minuscule proportion of claim payments made in a given financial year relate to accidents that occurred in that year. Nearly all claim payments relate to accidents that took place in previous years, but have only now "filtered through" and become due and payable. Between the date of accident and the date of settlement such a claim may be said to be "in the pipeline": the liability to pay the claim has already arisen, but payment thereof is still outstanding. If assets were available now to pay the claim when it becomes due and payable, such an outstanding claim could be said to be fully funded since upon settlement of the claim the nett assets would not be disturbed: both the assets and the provision would reduce by the settlement amount. In the absence of such a provision the settlement of the claim would cause an "unexpected" strain in the form of a reduction in the nett assets. This also means that the balance sheet would not have presented the financial condition fairly and fully.

12.2 It is generally accepted insurance accounting practice to create a provision for outstanding claims. In terms of the Insurance Act, 1943 insurers are also required to create such a provision and to cover it with assets.

More specifically:

1. The Melamet Commission criticised the fact that the MMFs provision for outstanding claims is not fully funded.
2. In each Annual Report of the MMF/RAF the Auditor-General qualifies his audit report since the liabilities of the MMF/RAF are not fully funded.
3. In paragraph 30.1 of his report of 12 October 1994 to the Minister of Finance the Chief Executive of the Financial Services Board and Registrar of Insurance urges that the MMF fully fund its liability in respect of outstanding claims. In terms of the Financial Supervision of the RAF Act 8 of 1993 the RAF is deemed to be an insurer and the provisions of the Insurance Act 27 of 1943 are applicable to the RAF, subject to the directions of the Registrar. Due to the technical insolvency of the RAF the Registrar has not yet been able to apply to it the solvency standards contemplated by the Insurance Act, and has indicated endorsement of Governments efforts to bring about the RAFs solvency.
4. In its findings on the Auditor-Generals report on the MMF as at 30 April 1993 Parliaments Joint Standing Committee on Public Accounts recommends likewise.

Government accepts these opinions, and intends making all endeavors to finance the RAFs deficit as quickly as circumstances permit. This is discussed further in paragraph 15.

13 INADEQUACY OF CURRENT INCOME

13.1 Comparing total income with total expenditure, one obtains the following results:

13.2 The following ratios are interesting:

Ratio (a) shows that the provision for outstanding claims amounts to some 5 times the most recent years cash expenditure, except for the latest year which shows a marked deterioration in the experience. This means that if the RAF should completely cease operations from a given date, it would nevertheless have to continue payments on the latest annual scale for another 6 years or so in respect of accidents which had occurred prior to that date. This again illustrates the "long tail" nature of "claims in the pipeline". Ratio (b) shows the extent to which the provision for outstanding claims is covered by existing assets, or the degree of solvency of the RAF.

13.3 It is clear from the above that the income allocated to the RAF is inadequate to meet its obligations. It is undesirable for the RAF to continue on its present course and to accumulate a growing deficit of this order of magnitude. Drastic measures have to be taken either to increase the income or to curtail the expenditure, or a meaningful combination of the two remedies should be employed in order to redress the gross imbalance between income and expenditure. Government intends employing such a combination as set out in paragraph 15.3.

PROPOSALS

14 MAIN OBJECTIVES

14.1 In reviewing the existing delivery system of MVA compensation and putting forward proposals to improve it, Government is guided by the following principles and objectives:

1. The present system is financially unsustainable, and firm measures need to be taken to achieve one which will be affordable and stable in the long term and yet able to offer a reasonable set of benefits.
2. The system needs to be made more efficient, reducing the present high cost in terms of time, effort, and expense incurred in the process of delivering the benefits.
3. The system should be more effective, avoiding the present shortcomings, anomalies, and inequities.

These considerations are discussed in turn below.

15 AFFORDABLE AND STABLE SYSTEM

15.1 Paragraph 13 dealt with the imbalance between the RAFs income and expenditure, resulting in the accumulated deficit of R6 347 million as at 30.4.96. Provisional projections indicate that the deficit will increase to some R8 000 million by 30.4.97.

15.2 The following table shows the expected claim payments during the next few financial years in respect of accidents occurring in the near future:

The accidents that (will have) occurred up to 30.4.97 give rise to a future stream of claim payments of nearly R9 billion, spread over a term of some 10 years at R1 569 million in 1997/8, R1 756 million in 1998/9, etc.. New accidents arising in 1997/8 generate further claim payments of R7 million in that year, R112 million in the next year, etc..

It is seen that

1. claim payments during the next 3 years in respect of accidents arising only up to 30.4.97 already exceed the RAFs levy income of some R1 500 million p.a.;
2. the longer the present system remains in force, the worse an already bad situation becomes.

Unless the levy rates are increased, it is expected that the RAF will have a negative cash flow during 1997/8 and that it will have to draw upon the reserve of some R1 billion. Carrying on in this vein will deplete the reserve in the year 2000. At that stage the RAF will be totally bankrupt and its cheques would be dishonoured. In order to avoid this, the levy rates would then have to increase by 20,5% p.a., reaching 38,8 c/l on petrol in the year 2007. On this pay-as-you-go basis - i.e. with nothing in reserve - the accumulated deficit would amount to some R35 billion at that stage. If the aim should be to accumulate and maintain a reserve of one years expenditure, the levy rates would immediately have to increase by 14,6% p.a., reaching 41,2 c/l on petrol in the year 2007, with a deficit of R26 billion at that stage. If the aim should be to prefund the liabilities fully by the year 2007, the levy rates would immediately have to increase by 20,0% p.a., reaching 65,0 c/l on petrol at that stage.

15.3 It is clear that drastic and urgent steps have to be taken to avoid financial disaster. Government proposes a two-pronged remedy:

1. The RAFs expenditure should be curtailed by introducing limits or caps on the benefits for which it becomes liable.
2. The RAFs income should be increased on a regular basis by annually raising the fuel levy rates by at least the rate of inflation.

15.4 Regarding caps, these can be applied selectively to the current heads of damages listed in paragraph 11.1, in order to provide - within the pressing financial constraints - a humane and caring set of benefits. This is best achieved by channeling as much as possible of the finite available resources to the more seriously injured and to the poorer section of the population. The benefits proposed in paragraphs 18 and 19 are designed to that end.

15.5 Regarding fuel levy rates, indications are that the enormous demands on the fiscus make it most unlikely that these could increase by more than the rates of general inflation. Bearing in mind that claim payments have been growing at 20% p.a. (and this reflects the composite effect of a growing number of accidents/claims and the superimposed inflation of higher than normal medical expense inflation and higher court awards), whilst the fuel levy income (a composite of growth in volume of fuel sold and increases in the fuel levy rates) would come nowhere near that 20%, it is clear that the requisite caps should yield modest benefits and should be introduced as soon as possible.

15.6 The main determinants of the RAFs financial condition over the next decade are:

• The accident rate;
• The growth in the fuel levy rates; and
• The level of savings brought about by the new system.

The two tables below show the projected accumulated surplus or deficit as at 30.4.2007, depending upon the annual increase in the fuel levy rates and upon the percentage level of savings brought about by a new benefit dispensation. The upper table illustrates the scenario on the assumption that claims will increase by 6% p.a., and the lower table if the number of claims should remain constant. This latter proposition is of course very optimistic, but hopefully the latest initiatives on road safety (see paragraph 5.2) will bring us somewhere between the two tables.

15.7 The other assumptions made for purposes of these projections are as follows:

• Inflation of individual claim amounts: 12,5% p.a.
• Expense inflation: 12,5% p.a.
• Growth in volume of fuel sold: 4,0% p.a.
• Investment return: 15,0% p.a.
• Settlement pattern:

Years after accident: 0 1 2 3 4 5 6 7 8 9 10 11
% Current benefits: 0 3 13 19 21 17 13 6 4 2 1 1
% New benefits: 25 50 25

Accumulated (Deficit) at 30.4.2007 (R billion):

Claims increasing by 6% p.a.

Accumulated Surplus (Deficit) at 30.4.2007 (R billion):

Claims increasing by 0% p.a.

15.8 It is of course most unlikely that all these assumptions will be borne out in practice over the next decade, but it does give orders of magnitude that can reasonably be expected. More importantly, it shows that - with optimistic expectations regarding the accident rate and the growth rate in fuel levy rates - a level of savings of some 60% of current claims expenditure should be wrought if we want to achieve anything near solvency in 10 years time.

16 MORE EFFICIENT SYSTEM

Delays

16.1 On average, claims are settled some 2,8 and 3,8 years after the accident, measured by number and by amounts respectively.

16.2 It is proposed to simplify and speed up the process in the following ways:

1. The benefits payable by the RAF can conveniently be grouped into two Phases:
   Phase I Until the victim recovers or attains a "medically stable" condition, his medical expenses and loss of earnings will be paid regardless of fault (see paragraphs 18.1 and 18.2). This can be viewed as a fast track procedure, finalising the vast majority of claims.
   Phase II In the event of death or permanent impairment, the benefits will be subject to apportionment of fault.
2. The benefits and the conditions attaching thereto will be simplified and standardised as much as practically possible (see paragraphs 18 and 19).
3. The Tribunal proposed in paragraph 25 should considerably facilitate and speed up the resolution of disputes.
4. The periods of prescription are to be shortened (see paragraph 24).

Settlement Costs

16.3 Paragraph 10 sets out the high settlement costs being incurred under the present system. Some of the reasons can be found in paragraphs 3.2 and 3.4(b) to (d).

16.4 The RAF Act requires the RAF to reimburse the claimant for his so-called "party and party costs". These costs include legal fees and disbursements, the fees being calculated in accordance with tariffs fixed and published in terms of the Rules of the Supreme Court and of the Magistrates Courts. They do not cover all the costs an attorney may charge the client. These other additional fees, called "attorney and own client costs" are recovered by the attorney directly from the client and are usually deducted by the attorney from the compensation paid by the RAF to the client. Whilst these additional costs to the claimant are not reflected in the RAFs accounts, they nevertheless constitute a further cost in the whole system.

16.5 Proposals are made to reduce this inefficiency of the system:

1. Phase I Benefits (see paragraphs 18.1 & 18.2) are paid without apportionment of fault. Hence the cost of establishing the merits of a claim is confined to claims arising in Phase II, i.e. from death and permanent impairment.
2. The benefits and the conditions attaching thereto are simplified and standardised as much as possible in order to reduce the areas of dispute (see paragraphs 18 and 19).
3. The Tribunal proposed in paragraph 25 should considerably reduce the need for litigation.

17 MORE EFFECTIVE SYSTEM

Acute Medical Care

17.1 As mentioned previously, the no-fault Phase I Medical Care Benefit proposed in paragraph 18.1 gives the victim of an MVA immediate access to emergency/acute medical treatment during the first few critical hours. This will improve the chances of the victims recovery to the best medical condition possible in the circumstances.

Earnings Cap

17.2 Paragraph 11.2 shows that nearly 41% of compensation under the present system is earnings related. Figures obtained from Inland Revenue indicate that in the tax year 1993/4 only 12½% of taxpayers earned in excess of the cap of R4 000 p.m. proposed for the Loss of Earnings Benefit (paragraph 18.2) and the Dependants Benefit (paragraph 19.2). At this level of income road-users should be aware of the need for private insurance to cover losses in excess of the said benefits and can afford to purchase it (if they do not already have it). Bearing in mind that some 8% of the claims at the upper end account for more than 60% of the claim payments, it is both effective and equitable to place a cap on earnings qualifying for compensation in order to conserve available resources for those who need it most.

General Damages

17.3 Paragraph 11.1 mentioned that this benefit is a financial consolation for a non-financial loss, and paragraph 11.2 indicates that this benefit currently constitutes nearly 28% of total claims paid by the RAF. In as much as the RAFs claims expenditure needs to be cut in order to achieve financial stability and a manageable deficit in 10 years time (see paragraph 15.8), and since it is more meaningful and equitable to apply the available resources in compensating real economic loss, it is proposed that explicit payment for general damages be discontinued.

Passenger Claims

17.4 Due to financial constraints the claim which a passenger can institute against the RAF as a result of the negligence of the passengers own driver is currently limited to R25 000. For any loss in excess of that amount, the passenger proceeds at common law against the owner or driver. It is very difficult for some sectors of the transport industry to secure private insurance against such claims: availability fluctuates, and it is very expensive. And a large claim could ruin an uninsured transport business. If a second vehicle is involved, the victim has an unlimited claim against the RAF. This is anomalous. It is also anomalous that a vehicle out of control should cause a passenger to have a limited claim, but the pedestrian victim an unlimited claim. It is proposed that this distinction be removed, and that passengers qualify for the same capped benefits as any other victim of an MVA - regardless of whether another vehicle was involved or not, and regardless of a fare having been paid or any other distinction.

18 PHASE I BENEFITS

Medical Care Benefit (MCB)

18.1(a) It is the intention that all victims of MVAs - regardless of fault - should have immediate access to emergency/acute medical treatment (including the requisite transport), and such further medical treatment (as contemplated in the definition of "service" in Section 1 of the Medical Schemes Act 72 of 1967) as may be necessary to achieve a "medically stable" condition. This condition might be defined as either complete recovery or as a condition that (in the words of the American Medical Association) "has become static or stabilised during a period of time sufficient to allow optimal tissue repair, and that is unlikely to change in spite of further medical or surgical therapy".

(b) Ongoing treatment beyond the medically stable condition is intended to be covered by the "Permanent Impairment Benefit" (see paragraph 19.1), as are artificial aids like wheelchairs and prostheses and other matters like attendants and home and car alterations. It is proposed that the duration of the MCB be thus limited to either attainment of a medically stable condition or a period of 18 months after the accident, whichever is the shorter.

(c) There is no monetary or time threshold, and the benefit commences immediately as mentioned above. There is also no aggregate monetary limit to the MCB, but all medical procedures will be subject to the protocols and tariffs as agreed between the RAF and the medical suppliers. The benefit covers only medical treatment received in RSA.

(d) The Exclusions (see paragraph 21) do not apply to this MCB.

Loss of Earnings Benefit (LOEB)

18.2(a) The purpose of this benefit is to provide some income to the victim ­ regard- less of fault ­ while receiving the medical treatment contemplated under the MCB. It is subject to the time thresholds noted below, and is payable to victims aged 16 ­ 65 years until they return to their customary work or are fit to do so.

(b) The limit of the benefit and the time threshold applicable before the benefit commences are determined by the availability of proof of income, tax documentation (where applicable), and by the victims employment status, as follows:

Note:

• SDG = State Disability Grant, currently R470 p.m.
• PDL = "Poverty Datum Line" , currently approximately R700 p.m.
• TT = Tax Threshold, currently approximately R1 400 p.m.
• "Limit" refers to after tax income, ignoring fringe benefits.

(c) The Exclusions (see paragraph 21) apply to this benefit.

19 PHASE II BENEFITS

Permanent Impairment Benefit (PIB)

19.1(a) In the event of the victims suffering a permanent impairment, this benefit provides a Capital Value (part lump sum and part pension) towards his capital expenditure (artificial aids, home and car alterations), future medical care and rehabilitation, disability income, and general damages.

(b) The benefit is subject to apportionment of fault, and since the intention is that this PIB should commence as soon as the MCB and LOEB cease, it is important that the victim prove the percentage fault of the wrongdoer in time for that to take place.

(c) The benefit is determined as follows:

Capital Value = (A/100) x (B/100) x C x S

where

A = % Fault of wrongdoer;

B = Composite Compensation Index
(this reflects the degree of impairment for the respective purposes of medical expenses, other expenses,
and loss of earnings/general damages);

C = 1 (age/100)
(where ages below 20 are taken as 20 and ages above 80 as 80).

S = R1,3 million? (to be discussed)

(d) Up to 20% of this Capital Value may be taken in a cash lump sum, whilst the balance is to be spread by way of published standard tables into two monthly pensions: one payable until death, the other payable up to age 65 or prior death. This latter pension may continue to be paid until the victim would have reached age 65 in the event of his prior death as a result of the accident.

(e) The degree of permanent impairment will be determined according to published standard tables of impairment.

(f) Although this PIB is subject to apportionment of fault, the Exclusions in paragraph 21 should nevertheless also apply.

Dependants Benefit (DB)

19.2(a) This benefit provides an income towards the support of the deceased victims dependants. For this purpose "dependants" are surviving spouse(s) (i.e. partners of a legal marriage and/or customary union), children (natural or legally adopted), and dependent parents of the deceased (natural or legally adoptive).

(b) The earnings of the deceased breadwinner will be allocated as to 2 parts to the deceased, 2 parts to the spouse(s) collectively, 1 part to each child, and 1 part to each dependent parent - any earnings of the surviving spouse being ignored for this purpose. For example, should the husband die and leave a wife and 2 children, the wife will qualify for a pension of 2/6 of the deceaseds former earnings, and each child for 1/6. If the wife should have died as well, the children would each qualify for 1/6 of each breadwinners former earnings.

(c) The earnings taken into account for this benefit are subject to the same amount limits set out under the Loss of Earnings Benefit in paragraph 18.2.

(d) The pensions are payable up to age 65 in the case of dependent parents, and up to age 21 in the case of children. The total amount of pension payable is subject to reduction and re-allocation as beneficiaries become disqualified as a result of age or death, and all pensions cease in any event at the time that the deceased would have reached age 65. The pensions are allocated and paid monthly according to the claimants known at the time, without retroactive adjustments when new claimants become known.

(e) The DB is subject to full apportionment of fault, i.e. if the claimant can prove e.g. only 60% fault on the part of the wrongdoer, then this benefit is likewise limited to 60% of what it otherwise would have been.

(f) The Exclusions in paragraph 21 also apply.

20 ADJUSTMENT FOR INFLATION

20.1 All the monetary amounts mentioned in the specification of the proposed new benefits have been pitched at levels considered suitable early in 1997. These may well be adjusted in the light of inflation and the finances of the RAF when the new benefits actually come into force and annually thereafter.

21 EXCLUSIONS

21.1 There are, however, certain instances where it is considered inappropriate to pay benefits from the public funds of the RAF, and where total or partial exclusions should apply:

1. Claims arising from organised motor sport are excluded entirely, since such accidents are not deemed to be MVAs.
2. In the following Circumstances the Penalised Party ­ if injured but not dead ­ will qualify for the MCB without penalty, but his LOEB will be reduced to the extent of the Penalty shown below. In the case of the PIB and the DB the Penalty also applies, subject further to apportionment of fault.

22 COMMON LAW LIGHTS

22.1 Currently a victim has a claim at common law against the wrongdoer ­ to the extent that the latter was at fault ­ for loss suffered in excess of what the RAF compensated him for. The current benefits of the RAF are unlimited ­ with one exception where a cap applies, namely the claim which a passenger can institute against his own driver. In this case the RAF is liable for a maximum of R25 000 (the cap) on behalf of the driver, and the passenger then has to proceed at common law against the driver for any balance of loss suffered. (If a second vehicle is involved, the passenger has an unlimited claim against the RAF.)

22.2 The introduction of caps on a wider field as in paragraphs 18.2, 19.1, and 19.2 therefore more pertinently raises the question of how the excess losses are to be handled. Generally speaking, these excess losses arise where the actual loss of earnings or support exceeds R4 000 p.m. (i.e. the cap under the Loss of Earnings Benefit and the Dependants Benefit), or where the Permanent Impairment Benefit does not cover the entire actual loss. Although this question has no relevance to the finances of the RAF, it is of considerable social importance.

22.3 Leaving this common law right intact has the following disadvantages:

1. This right is of dubious value: it avails nothing if the wrongdoer is uninsured or has no means. The prudent road-user should therefore in any event have in place personal accident insurance to cover his own loss.
2. The right to sue (as victim) carries with it the risk of being sued (as wrongdoer). The prudent road-user should therefore in addition procure legal liability insurance as well, in order to protect his estate against a possibly crippling claim from a high-income person.
3. Legal liability insurance is expensive and not readily available for meaningful amounts, especially in the case of public transport.
4. Legal liability insurance is not available for unlimited amounts. Cover as high as R5 million remains virtually meaningless in the face of a claim for R20 million or multiples thereof.

22.4 Government therefore believes that the population at large would be better served if the common law right in this respect be abrogated. A similar situation exists in respect of injuries and diseases contracted in the course of employment (Compensation for Occupational Injuries and Diseases Act 130 of 1993).

23 TAX

23.1 Currently the RAF has to deduct PAYE instalments from the pensions it pays. It is recommended that all benefits under the new dispensation be paid free of tax, and that likewise the actual earnings used for purposes of calculating the LOEB and the DB be the earnings nett after tax. This effectively raises the earnings cap for victims or their dependants. From the RAFs point of view the nett/nett approach spares it the cost of the tax, and the administrative procedures involved in collecting PAYE instalments. From the point of view of Inland Revenue the tax forgone concomitantly reduces the need to fund the operations of the RAF out of the general fuel tax.

23.2 For the same reasons it is recommended that the RAF be enabled to reclaim from Inland Revenue the VAT which it pays on medical and other accounts constituting part of benefits. It can also be noted that the RAF is not a registered vendor for VAT purposes, and receives its fuel levy income free of VAT. There is therefore no opportunity to claim "input credits".

24 PRESCRIPTION

24.1 At present a two-tier system of prescription applies:

1. A valid claim must be lodged within 3 years after the accident where the owner or driver of the offending vehicle has been identified (ID Claims), and within 2 years in the case of a hit-and-run claim (H&R Claims).
2. The claim prescribes after a further 2 years (ID Claims) or 3 years (H&R Claims), unless interrupted by issuing summons.

In the case of an ID Claim prescription does not run against minors, persons under curatorship, or patients detained in terms of mental health legislation. This means that a minors claim could remain unknown and be lodged as long as 24 years after the accident.

24.2 In paragraphs 19.1 and 19.2 it is suggested that those benefits payable by the RAF remain subject to apportionment of fault, and therefore investigation of contributory negligence is still required. It also remains necessary to establish in all instances that it was an MVA in respect of which the RAF is liable. There seems to be no reason ­ apart from the victims being in a coma or being unable for some other good and valid reason ­ why victims or claimants in general cannot submit (or arrange for the submission of) a "Notice of Claim" (NOC) form within 6 months of the accident in the case of injury, and 12 months in the case of death. This NOC form should be brief and easy to complete, giving personal details of the claimant and describing the accident. The purpose of such an early NOC is to establish the validity and (where applicable) the merits of the claim before the track becomes too cold, thus facilitating and speeding up the subsequent development of the claim.

24.3 It is proposed that the period of prescription be 3 years in all instances (5 years in the case of minors, persons under curatorship, and patients detained in terms of mental health legislation), but it should also be a condition precedent for the payment of benefits that the NOC form be completed in all respects and submitted within 6 or 12 months, as the case may be (24 months in the case of minors, etc.) of the accident. Prescription would thus run against minors etc. in all instances, and parents, guardians, and curators should be mindful of their responsibility to their children, wards, or charges. It is also thought that hospitals and other medical suppliers with unpaid bills are well placed to assist illiterate MVA patients with the completion of the NOC form.

25 TRIBUNAL

25.1 In order to provide claimants with speedy, easy, and inexpensive adjudication when they are dissatisfied with the administrative decisions of the RAF, it is proposed that a Tribunal ­ financed by the RAF but operating quite independently thereof ­ be established. It is suggested that the Minister of Justice, in consultation with the Minister of Finance (see paragraph 27.2), appoint a President to the Tribunal ­ he or she being of sufficient standing, knowledge, and experience to command the respect required in the circumstances. This independent and impartial Tribunal will resolve disputes as a Court of first instance. It should function so as to be able to adjudicate within three months of being approached.

25.2 The said President, in consultation with the said Ministers, can appoint presiding officers in other centres, and compile a panel of experts in the various fields of law, medicine, engineering etc. to act as assessors, as the need arises.

25.3 The procedure of the Tribunal should be inquisitorial rather than adversarial. The claimant is entitled to have legal representation. It is proposed that the rulings of the Tribunal have the force of a Judge of the High Court sitting alone, but subject to the normal appeal procedures of the High Court.

25.4 The judicial status of the Tribunal needs definition, which will be attended to in due course.

26 CLAIMS PROCEDURE

26.1 One of the important aims of the proposed new delivery system of MVA compensation is to make the procedure easier and more "victim-friendly". To that end, the benefits, conditions, forms, and procedures will be simplified and standardised as far as possible. However, in order to combat fraud, the onus remains on the claimant to prove his claim and to comply with certain minimum evidential requirements. These entail the timely completion and lodgement of the "Notice of Claim" form with the RAF, reporting the MVA to the Police, providing medical reports, and submitting proof of lost earnings, the wrongdoers fault, death, dependency, ages, etc. as prescribed by Regulation.

26.2 The RAF will pay the MCB to the medical supplier direct (who therefore has an interest in assisting and co-operating with the claimant in this respect), whilst the LOEB, PIB, and DB will be paid into the nominated bank or Post Office accounts of the beneficiaries.

27 OTHER CONSIDERATIONS

Government Guarantee

27.1 It is recognised that it is politically impossible for the Government to avoid providing for the payment of claims arising from past accidents, since the road-using public have been paying for the insurance cover through a levy on fuel purchased. And there appears to be no reason to believe that such payment could be done more efficiently than through the RAF. It seems, therefore, that the issuing by the Government of an explicit guarantee to the RAF in respect of claims arising from past accidents, would not increase the effective liability of the Government in respect of such claims. On the other hand a formal guarantee of the liabilities of the RAF would make the Governments balance sheet more meaningful and would remove the recurring criticism of the RAF (e.g. by the Auditor-General) that it is trading in a state of insolvency. It is therefore Governments intention that it should assume the responsibility to enable this statutory fund to discharge its liabilities, and new legislation emanating from the White Paper should recognize this explicitly.

Responsible Ministry

27.2 Since the RAF acts as an insurer and is financed out of tax revenue, it seems more appropriate that the Minister of Finance (rather than Transport) be the responsible minister.

Property Damage

27.3 In view of the RAFs financial predicament, it would be most inopportune to extend its liability to include compensation for damage to property (usually the other vehicle) at this stage. Moreover Government does not wish to involve itself in statutory insurance more than on a socially desirable minimum level.

Hit-and-Run Accidents

27.4 There are currently some legal, evidential, and procedural differences between ID Claims and H&R Claims which produce all manner of practical difficulties, and whilst there would naturally be a greater burden of proof of validity in the case of H&R Claims, the differences should be kept to an absolute minimum in order that ID Claims and H&R Claims may be processed as far as possible in identical ways.

Insured Event and Double Compensation

27.5 Statutory provisions require compulsory insurance in respect of

1. accidents arising as a result of the driving of a motor vehicle (RAF Act); and
2. accidents arising during the course of employment (Compensation for Occupational Injuries and Diseases Act 130 of 1993); but not
3. any other accidents.

There is an overlap between (a) and (b) if an employee is involved in a MVA while on duty. Good law requires that these three areas be delineated very clearly, with no gap, overlap, or right of recourse among the three areas: The present situation where the Compensation Commissioner has a right of recourse against the RAF is onerous to administer; and, having identified whether the accident falls under (a) or (b) above, the liable insurer should simply pay the benefits available in terms of the applicable legislation. This would also reduce the risk of duplicate claims. Harmonisation of the benefits under (a) and (b), and possible extension to (c), are considered long-term options that may be considered in the light of future economic conditions.

27.6 There are other instances where "double compensation" may arise:

1. In the event of injury or death, certain benefits may become payable from other public funds. There should be better communication between the administra- tors of such funds and the RAF, so that the former are aware of benefits paid by the RAF in any particular instance and so that payments from the two sources of social benefits dovetail properly.
2. Benefits may also become available in terms of the victims contract of service, private insurance, medical aid etc., or they may be paid gratuitously. It is proposed that all such benefits, including an accelerated inheritance or any other collateral benefit, be ignored when determining the amount of benefits payable by the RAF, but it is recommended that employers and medical aid funds improve communication with the RAF in order that undesired or unintended double compensation does not occur from their end.

Insured Party

27.7 The insured party under the current law (i.e. the negligent driver) has for all practical purposes become irrelevant ­ except in so far as his testimony assists in determining the degree of the victims contributory negligence. It is therefore proposed that the victim himself should be the insured party, having a claim against the RAF direct instead of against the (insured) negligent driver. This changes the nature of the insurance from legal liability cover (in favour of the other motorist) to injury or death cover (in favour of the victim or his dependants). This makes it clearer that RAF benefits are in fact social or welfare benefits, even though some are subject to apportionment of fault and to certain exclusions.

Insurer

27.8 The Agency system has ended. The RAF itself is now handling all the claims that have been and will be instituted against it. In addition to Pretoria, branches have been esta- blished in Cape Town and in Randburg, and a branch is being planned for Durban.