RAF quagmire could prove lucrative for insurers
On 1 August 2008 the Road Accident Fund Amendment Act of 2008 introduced a number of changes to the system for compensating victims of motor vehicle accidents in South Africa. Most of these changes will reduce the total liability of the fund in the event of a serious motor vehicle accident. Although the changes were critically received by many participants in the industry something had to be done to save the fund.
In October this year, Sapa reported that the RAF had received R1.3bn in emergency funding from the National Treasury. The organisation receives approximately R700m a month from the fuel levy and processes claims in excess of R1bn. But things have been a great deal worse in recent years. Total claims expenditure for the 2008 financial year came to R15.5bn against 12-month income of R8.2bn. This left the RAF in the red to the tune of R30.3bn at 31 March 2008. In the remainder of this newsletter we look at some of the changes to the RAF Act – and how insurers could benefit from them.
What do the changes mean?
David Kapelus of Deneys Reitz Attorneys provided a useful summary of the changes in his firm’s recent newsletter. A number of changes have been made to definitions and requirements for the assessment of injuries. Any general damages claims will have to be assessed by a registered medical practitioner who will determine whether an injury is serious in relation to the circumstances of the claimant. “A ‘serious injury’ is one that results in 30% or more of total body impairment,” says Kapelus. Those injured in an accident cannot claim for pain and suffering, disablement, disfigurement or loss of amenities of life unless the injuries are classified as serious.
And here come the real ‘killer’ blow. Under the RAF Amendment Bill damagers for loss of income are capped at R160 000 per annum – to be adjusted for inflation on a quarterly basis. This cap also applies to support claims, irrespective of the number of people supported by the deceased breadwinner. In addition, the RAF will only play future medical expenses as and when incurred “subject to the proviso that such expenses are now based on the tariff for health services provided by public health establishments!”
There’s only limited recourse to the common law too. The “common law right to claim any damages that are not recoverable from the RAF, from the negligent owner or driver of the vehicle that caused the accident, or the employer of such negligent driver” has been severely restricted.
Opportunities for insurers
The RAF Amendment Bill creates a number of opportunities for insurers. According to Deneys Reitz both owners and drivers of motor vehicles will have to take out additional liability insurance to cover for personal injury. This “would be necessary only to cover the possibility of a claim for damages for emotional shock suffered by secondary victims…” They could also take the added step of insuring against RAF insolvency or a foreign claim.
They warn that the RAF Amendment Bill shifts the responsibility to the individual to “ensure that he or she has adequate personal accident insurance cover, disability insurance, life insurance and health insurance!” The help that used to come from the RAF is no longer in place. The R160 000 cap on income is particularly punitive – a measure put in place simply because it was felt the RAF had a ‘wealth’ bias.
The challenge for insurers is to develop insurance products that cover these gaps. Insurers should also review existing policy covers to ensure that changes to the damages claimable from the RAF don’t leave them exposed.
Editor’s thoughts:
The Road Accident Fund has been in the news for all the wrong reasons of late. Instead of speeding up the processing of outstanding claims the organisation has had to slow down as claims payments continue to outstrip income. We’d like to hear from you if you’ve claimed (or are in the process of claiming) from the RAF. What problems have you encountered in getting RAF claims settled? Send your comments to [email protected]
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