The Road Accident Fund (RAF) has been a contentious subject for a number of reasons. Firstly, it has been marred with inefficiencies and inconsistencies and is insolvent. Also, it is a very expensive way to provide insurance cover for a majority of uninsured road users.
It all started in 1942 when the RAF’s first predecessor was founded. Until 1997, insurance companies acted as agents for the motor vehicle compensation scheme and all motorists had to take out compulsory third-party insurance. The establishment of the RAF, in 1997, meant that a parastatal took over the functions involved in processing claims on behalf of motorists and pedestrians who are injured in motor vehicle accidents.
The fund has been under scrutiny for years and recently the Department of Transport has announced that it will be rebranding the RAF as the Road Accident Benefit Scheme (RABS).
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What is the RABS?
The RAF is currently fault-based but under the new scheme, it will protect all parties involved in an accident – even the wrongdoer – from civil litigation.
The RABS will aim to provide finances to those affected quickly. Payments will be made directly to the claimant or medical aid involved. The caveat is that the new fund will still be funded from the fuel levy.
Inefficient form of collection
According to research, only about 30% of South African motorists are insured. A culture of non-enforcement has bred the idea that the RAF not only says that it’s okay to be uninsured but also incentivises reckless road behaviour. The fallacy also exists that poor motorists cannot afford insurance. In reality, all motorists are already paying this indirect tax in the form of the RAF levy on fuel. Even poor motorists would be able to afford third-party insurance. In effect, motorists are paying a lot for very expensive insurance. The RAF levy on fuel is currently around R2 per litre.
For example, a motorist who travels 1000 kilometres per month in a vehicle that has a consumption of 20 km per litre will contribute R100 pm to the fuel levy. This is a staggering R1200 per year. This is not taking into account the rest of the R5.63 that goes into the fiscus un-ringfenced.
Third-Party Insurance alternative
Lobby groups like The South African Insurance Association (SAIA) have been pushing this idea for years. SAIA, who represents major short-term insurance companies, have been in discussion with government stakeholders to make this a reality since at least 2010.
Third-Party insurance would be substantially cheaper since companies compete to deliver the best service at the lowest price. A central body like the RAF cannot be trusted to administer the funds on behalf of victims since they have no financial incentive to manage the fund well. It is a lucrative stream of income for the government coffers.
How are other countries doing it?
Third-party insurance is already used in many other countries overseas and in Africa. Zambian law requires all car owners to take out compulsory third-party car insurance. In the US, uninsured vehicles are impounded until proof of insurance is provided and a fine paid. There, third-party insurance is payable in advance for the year.
For this to work, we would need strict enforcement by traffic authorities. All motorists would be required to display a disc or tag on their motor vehicles.
Third-party insurance is much more affordable than a fuel levy. A ballpark figure for this insurance starts from R38 per month with Naked Insurance for at least R5 million in cover. Traditional insurers charge around R200 per month according to TimesLive.