RAF CEO: Crisis? What crisis?

The financially distressed Road Accident Fund (RAF) recorded a deficit of R8.43 billion for its 2022/23 financial year compared to a surplus of R428 million in the prior year.

However, RAF CEO Collins Letsoalo has spoken glowingly about the fund’s financial and operational performance and achievements in the financial year against the targets in its 2020-25 Strategic Plan, as audited by the Auditor-General (AG).

‘I’d love to be in a crisis every time’ – RAF CEO Letsoalo

Letsoalo said the RAF had achieved 91.3% of its predetermined targets for the 2022/23 year, representing a steady improvement from the 57% in the fund’s 2019/20 financial year.

He highlighted that the AG confirmed in the 2022/23 audit report that: “I did not identify any material findings on the reported performance information of outcome 1: A transformed and sustainable RAF.”

Letsoalo said it has become very important the RAF puts paid and settles the fact that people are saying the RAF is in a crisis.

“An organisation in a crisis that performs at 91.3%! I’d love to be in a crisis every time,” he said.

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“Compare us to the entities that got bailouts. Compare us with our predecessors and be fair in the comparison.”

Letsoalo added that the overall audit outcome of the RAF has improved compared to the prior year because an adverse audit opinion was expressed compared to the disclaimer of opinion received in the prior year.

He said the RAF engaged meaningfully with the AG throughout the audit process, and the audit report issued for the 2022/23 financial year is modified only as a result of the ongoing disagreement between the RAF and the AG regarding the accounting treatment of claims liabilities and expenditure.

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Fuel levy

Letsoalo attributed the RAF deficit in the 2022/23 financial year largely to the fact the fund has not received an increase in the fuel levy over the past two years, whereas inflation has shot up to an average of 6.9% during 2022/23.

The deficit has also been impacted by the increase in claims liability when compared to the previous year, he said.

Letsoalo said this increase in the claims liability was mainly driven by a net increase of 32% in claims for which offers were made and not yet requested compared to the 2021/22 financial year.

“Our drive to reduce the backlog and settle claims within 120 days would have the resulting impact of increasing the claims offers not yet accepted and therefore also increasing the claims expenditure,” he said

Letsoalo said the value of claims paid has increased by 15% to R45.6 billion in 2023 from R39 billion in 2019.

RAF ‘not out of the woods’

He admitted that “there is no doubt that the RAF is not out of the woods yet”.

“The fund still faces significant challenges. What is indisputable is that the 2020-25 strategy presents the best opportunity to finally see the RAF on a sustainable financial and operational path.

“The focus should, therefore, be on optimising what works and managing the inherent risks that come with implementing a turnaround strategy,” he said.

Letsoalo said the RAF 2020-2025 Strategic Plan was developed to effect a turnaround and to finally put the fund on a sustainable financial and operational path.

He said some of the challenges the plan intended to address included:

• The long turnaround time to settle claims by aiming to settle claims within 120 days;
• RAF’s high claims liability;
• RAF’s litigious operating model; and
• RAF’s legal costs.

Letsoalo said the AG commends the RAF in its 2022/23 audit report for not only achieving its strategic focus on settlement of claims within 120 days but also for achieving this target for the first time.

He said although the RAF is still a long way from settling all claims within 120 days, the overall turnaround time has shown good signs of improvement.

“The biggest impediment to this target remains the 90% of claims in the RAF backlog, which were lodged without the required minimum information to enable the fund to make a settlement offer.

“The introduction of the new RAF 1 form will go a long way in addressing this challenge,” he said.

Claims liability

Commenting on the RAF claims liability, Letsoalo said the fund’s Requested Not Yet Paid (RNYP) book was at about R17 billion in 2020 and was expected to increase to R51 billion by end-March 2023 if the RAF had continued with its highly litigious and ineffective operating model – and it would have exceeded the annual RAF Fuel levy income, which ended up at R48.4 billion in 2022/23.

“Through the implementation of the 2020-25 strategy, the projected increase to R51 billion was not only averted but was actually reduced by around R42 billion to R9.3 billion.

“This was an extraordinary achievement against the backdrop of the Covid-19 impact and not receiving any fuel levy inflationary adjustments in the last two financial years.

“It is important to note that the RAF never received any bailout from National Treasury, neither did it request any bailout,” he said.

Letsoalo said the AG summed this up in its RAF management report, where it said: “This reflects that the majority of the net fuel levy is directed towards payment of claimant compensation with a steady reduction in the claims requested not yet paid.”

“The actual legal costs paid was R3.7 billion against the baseline of R9.4 billion and planned target of R7 billion. This will ensure that available funds are directed towards payment of claimant compensation.”

Letsoala said the AG has also acknowledged improvements in controls to prevent duplicate payments.

Letsoalo said the RAF recovered R682 million in duplicate payments in its 2022/23 financial year.

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RAF Bill

Commenting on the RAF Bill, Letsoalo said the RAF has never been an insurance and has been a social security fund since at least 1999, and the proposed amendments to the RAF Act merely seek to clarify this and other issues.

Comment was requested from the Automobile Association (AA) on the audit outcomes of the RAF, but has not yet responded.

Organisation Undoing Tax Abuse (Outa) CEO Wayne Duvenage said the RAF Bill, if accepted, will leave the RAF even more vulnerable to looting.

“We believe that the proposed amendments blatantly discriminate against the poor and disempowered, with road accident victims suffering greater prejudice, and their rights to be compensated for harm due to the fault of another will be taken away.

“Instead of dealing with its grossly inefficient administrative systems, poor processes and a dearth of leadership and expertise, [the] RAF seeks to obfuscate its responsibilities and reduce its claims through legislative measures, which will not do much to address the many issues it has with claims backlogs, fraud and corruption,” he said.

This article is republished from Moneyweb under a Creative Commons licence. Read the original article here.