overview of the performance of the road accident fund as captured in the 2011/12 annual report...

Overview of the Performance of the Road Accident Fund as captured in

the 2011/12 Annual Report

Financial Year 2011 - 2012

10 October 2012

Purpose

• The purpose of this presentation is to provide the Portfolio Committee with an

overview of the performance of the Road Accident Fund in 2011/12

• The presentation addresses the following elements:

Background

2011/12 Indicators and Outputs

Audit findings

Priority focus areas

Background

•Principal activities of the Fund− Provide compulsory cover to all users of South African roads against injuries

sustained or death arising from accidents involving motor vehicles within the borders of South Africa.

•Road Accident Fund Act, 1996 (Act No. 56 of 1996) & RAF Amendment Act, 2005 (Act No. 19 of 2005)− “The object of the Fund shall be the payment of compensation in accordance with

this Act for loss or damage wrongfully caused by the driving of a motor vehicle”

•Constitutional Court Rulings and legal precedents have shaped the mandate

•Fund is a national public entity (Schedule 3A of the PFMA)

•Board of Directors appointed by the Minister of Transport− Committee structure well established

Corporate and Statutory Form

BackgroundMission, Vision and Values

Vision To provide the highest standard of care to road accident

victims to restore balance in the social system.

Mission

To provide appropriate cover to road users within the borders of SA; to rehabilitate persons injured, compensate for injuries or death and indemnify wrongdoers as a result of motor vehicle accidents in a timely, caring and sustainable manner; and to support safe use of our roads

Values Ubuntu Solution focused Pride in what we do

Background

Strategic Objectives

•Change management•Leadership development•Talent management•Culture reengineering

•Improve customer service•Fully implement NOM•Improve claims

processing•Reduce fraud

•Additional funding•Manage/ Reduce legal

costs•Manage/ reduce

operational costs•Ability to pay claims

•Amend current legislation•RABS•Towards a

comprehensive social security system

A legislative dispensation

that is aligned to principles of social security

A solvent, liquid and sustainable

RAF by 2020

A transformed and capacitated

RAF by 2017

A customer-centric,

operationally effective and

efficient RAF by 2017

BackgroundBusiness Model

Road Activity

Number & severity of accidents

Levy on fuel

Grants & investment

revenue

Financial Position

Volume of claims

Value of claims

Third party costs

Administrative costs

Fuel sold

Revenue

Cost

BackgroundOperational Context

1. Fault based & founded on insurance

principles

2. Benefit assessment is subjective

and complex

3. Inequitable benefits awarded

SYSTEMIC ENVIRONMENTAL

OPERATIONAL FUNDING

1. Disconnect between Fuel levy

income and claim costs

2. Increasing future liability

1. High accident rate and fatality rate

2. Strong interest groups

3. Significant fraud opportunities

1. Delays in finalising claims

2. Antagonistic customer interface

3. Lack of integration between role

players

1 2.

4.

3

Background

•Accidents with fatalities increased by 3.6% (11,228)− Lead cause of death in persons younger than 30 years of age

•60 year funding regime driven by an “accessible” revenue stream− Deficiencies in the business model are now evident− Moved from protecting a wrongdoer from being sued to supporting victims

•Compensation is fault based and must be proven or excluded

•Rulings and Orders are not always consistent− Inequitable outcomes shaped by the legal spend and historic income− Legal officer with whiplash awarded R2.8m for a week off

•Micro-economy has developed and is sustained by RAF payments− Lawyers, Advocates, Assessors, Experts etc− Contingency fees in excess of 25%

•Scale of operation frequently overlooked− 50% of matters on the Court roll relate to road accidents− RAF is 4 x the size of the UK based Motor Insurer’s Bureau (£268m)

•Claimants are not receiving all that is awarded

Operational Context

Purpose

• The purpose of this presentation is to an overview of the performance of the Road

Accident Fund in 2011/12


Background


Audit findings


Operational Indicators

Revenue

8,405

11,969 12,683

14,526

17,104 8

,22

2

8,8

45

12

,56

6 14

,47

4

16

,98

9

18

0

10

4

48

40

11

3

-

2,5

50

60

- -

3

47

0

9

12

2

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2008 2009 2010 2011 2012

R'm

illi

on

Financial year

Composition of total revenue

Tota l revenue Net fuel levies Investment income Government grant Reinsurance and other income


Core Expenditure

6,698

8,595 8,685

9,3698,948

2,0

09 2,8

27

3,1

77 4

,10

8

4,2

63

3,9

05 4

,89

5

4,7

51

4,4

67

3,8

51

76

4

84

7

73

3

76

8

78

5

20

26

24

26

49

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2008 2009 2010 2011 2012

R'm

illio

n

Financial year

Composition of compensation

Total Compensation Loss of earnings and support General damages

Claimant medical costs Funeral costs


Operational Demand26

7,13

3

294,

771

209,

981

222,

634

172,

859

(311

,207

)

(330

,453

)

(262

,185

)

(187

,168

)

(164

,400

)

297,

072

261,

390

209,

186

244,

652

253,

111

(400,000)

(300,000)

(200,000)

(100,000)

-

100,000

200,000

300,000

400,000

2008 2009 2010 2011 2012

Num

ber o

f cla

ims

Financial year

Claims volumes (alll claims)

Total claims lodged Total claims finalised Total claims outstanding


Claim Cost

24,2

31

23,4

92

28,1

98

31,1

65

26,5

19

33,1

71

38,5

02

46,9

95

54,8

08

162,688132,204

182,397211,798

331,155336,511

290,710270,479

225,905

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

-

10,000

20,000

30,000

40,000

50,000

60,000

2004 2005 2006 2007 2008 2009 2010 2011 2012

Num

ber

Rand

val

ue

Financial year

All claims: average per claim

Average rand value Number of individual payments


Claim Processing

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

2004 2005 2006 2007 2008 2009 2010 2011 2012

260,

807

340,

925

332,

903

271,

800

265,

240

238,

193

194,

926

208,

406

207,

445

86,9

35

102,

474

112,

779

69,3

46

31,8

32

23,1

97

14,2

60

36,2

46

45,6

66

Num

ber

Financial year

Claims outstanding

Personal claims Supplier claims

Reasons for outstanding claims:

1.90% of claims represented

2.Case mix comprised of more “serious” cases

3.Maximum medical improvement required

4.Greater use of experts (industrial psychologists)

5.Mvumvu Bill outcome awaited


Claim Processing

Financial Indicators

Statement of Financial Performance31 March 31 March

Statement of Financial Performance 2012 2011R'million R'million

Restated

Revenue from non-exchange transactions- Transfers from Government - - - Net fuel levies 16,989 14,474

16,989 14,474 Revenue from exchange transactions- Investment income and other revenue 115 52

Total Revenue 17,104 14,526 Expenses:

- Claims expenditure (excluding provision for outstanding claims) 12,216 12,941 - Reinsurance premiums 23 28 - Employee costs 655 621 - Administrative expenses 238 224 - Depreciation, amortisation and impairment 64 60 - Finance costs 24 43 - Road Safety Project - - - Road Accident Fund Commission - -

Total Expenses 13,220 13,917

3,884 609

Provision for outstanding claims (20,372) (2,081)

(Deficit)/ surplus for the year (16,488) (1,472)

Surplus/ (Deficit) before provision for outstanding claims

Financial IndicatorsStatement of Financial Position

2012 2011Assets Note(s) R '000 R '000Current AssetsCash and cash Equivalents 3 4,245,050 1,137,636Transfers receivable from fuel levies 4 3,884,349 2,950,173Interest receivable 5 18,686 4,317 Other financial assets 6 144,927 144,546Consumable stock 7 2,609 2,365

8,295,621 4,239,037Non-Current AssetsProperty, plant and equipment 8 214,037 236,147Intangible assets 9 62,657 91,453

276,694 327,600

Total Assets 8,572,315 4,566,637

LiabilitiesCurrent LiabilitiesPayables and Accruals 10 84,388 87,009Financial liabilities measured at amortised cost 11 323,762 526,560*Provision for outstanding claims 12 11,840,060 7,351,272Other provisions 13 604,499 287,989

12,852,709 8,252,830

Non-Current LiabilitiesFinancial liabilities measured at amortised cost 11 531 1,410*Provision for outstanding claims 12 42,078,643 26,195,778Employee benefits 14 35,980 31,608

42,115,154 26,228,796

Total Liabilities 54,967,863 34,481,626

Net Deficit (46,395,548) (29,914,989)

Financial IndicatorsStatement of Financial Position

Reconciliation of provision for outstanding claims - 2012

R '000 R '000 R '000 R '000 R '000 R '000

Provision for outstanding claims 33,547,050 32,587,268 (12,215,615) 53,918,703 18,688,860 72,607,563

Reconciliation of provision for outstanding claims - 2011

R '000 R '000 R '000 R '000 R '000 R '000

Provision for outstanding claims 31,465,998 15,022,198 (12,941,146) 33,547,050 14,100,000 47,647,050

2012 2011R '000 R '000

Current liabilities 11,840,060 7,351,272Non-current liabilities 42,078,643 26,195,778Total 53,918,703 33,547,050

Claims IBNR Total Claims Liability including IBNR

Claims IBNR Total Claims Liability including IBNR Provisions

made during the year

Opening balance

Utilised during the year

Total Provision for outstanding claims

Opening balance Provisions

made during the year

Utilised during the year

Total Provision for outstanding claims

Financial Indicators

Statement of Financial Position

2012 2011 2010 2009 2008

R'000 R'000 R'000 R'000 R'000

Total Assets 8,572,315 4,566,637 3,878,585 3,395,738 3,296,916

Total Liabilities (54,967,863) (34,481,626) (32,308,577) (43,231,115) (31,124,667)

(46,395,548) (29,914,989) (28,429,992) (39,835,377) (27,827,751)

1. Liability shaped largely by the Provision for Claims Incurred

2. Reasons for the increase in the liability in 2011/12:

• Earlier assumptions were not sufficient

• Claims are more expensive (as qualifications apply to damages)

• Actual settlements are higher than estimates

• Beneficiary base has been widened (Mvumvu case)

• Closed cases reopened and additional amounts paid

• Data for post-Amendment Act not credible yet

Operational Outputs

• GovernanceNo audit findings and King 3 effectively appliedCompliance requirements met

• Stakeholder relationship managementMinister and Deputy MinisterDoT, SATAWU, NT, DoH, FSB, DoJ, SADC counterpartsSACO, SANCO, AA, SANTACO

• Financial managementUnqualified audit obtainedProcurement environment capacitatedInvestment policy maintained

• Legal and complianceRegulations developed, submitted and some approvedRisk mitigation measures successfully implemented

Noteworthy Progress

Operational Outputs

• Operations149,000 claims processed (one third pre-Amendment Act)

• ITNo material downtime and claim systems maintained

• HRPerformance scorecards introduced Leadership Forum established

• Customer Service NetworkOrigination infrastructure optimised−29,060 claims originated directly (21% of personal claims)

−Nelspruit regional office planned13,934 patients received continuous care−1,849 home visits conductedOver 440 mass burials attended to

Noteworthy Progress

Operational OutputsNoteworthy Progress

• MarketingOver 2,000 people serviced at RAF on the Road

- In 2012: Over 4,500 people and R60m settledQuarterly staff newsletter and CEO’s Blog introducedCampaigns run on radio, TV and print media

• Forensics6,782 cases finalised3,160 fraudulent files detected at a value of R461m502 arrests and 244 convictions in 2011/12

• Decade of Action for Road Safety 2011-20N3 Toll Concession (N3TC) Providing trauma equipment at Leratong Hospital RTMC on road safety measures aimed at the youthContributing to the SADC Transport Forum

Summary of Performance

Summary of Performance2011 – 2012 Performance

• Particularly challenging operating environment (longstanding)

• Significant work was executed with progress made!

• Performance concerns relate to slower claim processing and the increased provision for outstanding claims Increased number of open claims

Increased litigation and protracted claim settlementsPended claims in expectation of legislative changesLower output per staff member

Increased claims liability and provisionIncreased volume of open claimsHigher average cost of a claim

• Must be appreciated that 149,000 claimants and there families were supported, in addition to 111, 628 previous claimants who have continued access to medical services

Purpose




Background


Audit findings


Audit

• Unqualified Opinion

• Auditor-General findings Emphasis of matter

−Going concern status

Predetermined objectives −Achievement of planned targets

Compliance with laws and regulations −Accounting authority did not take adequate steps to prevent fruitless and wasteful

expenditure

Opinion

AuditGoing Concern Status

R 0

R 10,000,000

R 20,000,000

R 30,000,000

R 40,000,000

R 50,000,000

R 60,000,000

R'0

00

Analysis of important financial indicators

Provision for outstanding claims Accumulated deficit Net Fuel levy income Total cash claims expenditure

AuditAnomalous Expenditure

Note:•Values have reduced, disciplinary action was taken and an SOP has been developed•Entire amount is not fruitless and wasteful as there is a disjuncture between RAF Act and Attorneys requirements

2012 2011R '000 R '000

Interest and sheriff cost 22,108 26,267

2012 2011R '000 R '000

Irregular Expenditure - Current Year 7,042 14,529Less: Amounts condoned 7,042

Note:•Values have reduced, disciplinary action was taken and management intervention are focused on reducing this further through integration between procurement, legal and line functions.

AuditPerformance Targets

National Objective RAF Strategic Outcome MeasureTarget

Full Year

Actual achieved

Management of transport costs and infrastructure development to contribute to ASGISA

Ensure that the RAF is appropriately funded by timeously submitting the Fuel Levy increasing application to National Treasury using the Revenue Requirement Model.

Date of submission of RAF Fuel Levy increase proposal to National Treasury

30/09/2011 30/09/2011

Efficient administration of the organization

Manage RAF costs

Total RAF legal, claimant legal, administration and human resources costs, as a percentage of fuel levy income to be lower than or equal to the target amount

27% 27%

Efficient administration of the organisation

Increase the RAF footprint across the country

Number of claims originating from the Customer Service Network (hospitals, mobile units, etc)

25 000 29 060

Improve stakeholder communication

Commence communication with RAF stakeholders in accordance with the clearly defined Integrated Marketing, Communications and Stakeholder Relations Management Strategy by target date

Corporate social investment, stakeholder engagement and road

safety engagement plans and activities as at 31

March 2012 (as approved)

Corporate social investment, stakeholder

engagement and road safety

engagement plans and activities as at 31 March 2012 (as

approved)

Decade of Action for Road Safety

Promote road safety awareness Amount spent on Road Safety Awareness campaigns to be greater than or equal to the target

To increase the amount spent by 10% on the

number of targeted road safety campaigns

greater than or equal to the target

R2,495,563.56


National Objective RAF Strategic Outcome Measure

Target Full Year Actual achieved

Efficient administration of the organization

Commence the roll-out of the new RAF Operating model

Date by which elements of the new operating model begin to be rolled out

Fully implemented contact centre with general

enquiries medical and accident information cells. The general enquiries cell

was scheduled to be implemented by 31.03.2012

General enquiries cell implemented by

31.03.2012

Management of transport costs and infrastructure development to contribute to ASGISA/ Black Economic Empowerment/ Employment equity and Corporate social investment

Submit proposals/ comments to DOT on the No-Fault system

Date of submission of proposals/comments Per dates set by DoT Dates set by DOT

Increase BEE procurement

Discretionary BEE spending on administration, RAF legal and experts costs as a percentage of the total administration, RAF legal and experts costs to be greater than or equal to the target

54 % which was adjusted to 60% to align to the DoT BEE

procurement target100%

Invest in social development

Amount spent on corporate social investment to be greater than or equal to the target. R1.5m R 3 145 000


Finance Perspective

RAF Strategic Outcome

Target Full

Year

Actual achieved

Difference Reason for variance

Manage RAF solvency

(R44,974 bn) R46,395 bn R1,420 bn

RAF remains grossly under-capitalised .The fuel levy does not correlate with the increasing need to settle claims. The provision for outstanding claims increased to R53,919 billion (2011: R33,547 billion). The asset base has grown, albeit off a smaller base, than the liability over the past 5 years.

Process Perspective

Increase the RAF footprint across the country

· PSC: 9 0 -9 Expansion was postponed until the backlog of claims has been substantially reduced and a revised customer service network model is piloted and refined. A current total of 5 PSC, 75 HSC, 16 MSP's and 1 CSC exists within the customer service network. The wording of the target was not intended to suggest that the targets were in addition to what existed.

· HSC: 85 0 -85· MSP: 2 0 -2

· CSC: 2 0 -2


Finance Perspective


Target Full Year

Actual achieved


Commence the roll-out of the new RAF Operating model

Pilot of the CSN in terms of the following elements of NOM :- Number of vacancies filled in the CSN is 166; and

124 partially achieved

(-42)

Expansion was postponed until the backlog of accumulated claims has been substantially reduced and a revised customer service network model is piloted and refined. A moratorium on external recruitment is in place.


Finance Perspective


Target Full Year

Actual achieved Difference Reason for variance

Fully operational Fineos system

22,898 claims processed, 67 staff

operational and business processes

in place

partially achieved The scanning solution was not implemented in all regions and the expansion of specialised units was cancelled.

Process claims efficiently

177 475

Claims are more complex and the assessment of serious injury for claims of general damages can take up to 18 months. A large number of personal claims are litigated and are subjected to court processes. The impact of the Mvumvu judgement on pre-Amendment Act claims has also caused a delay. Processing by staff was not optimal.

Personal claims finalised

46 949

Supplier claims finalised

102 518

177 475 149 467 -28 008



Target Full Year

Actual achieved


Innovation and Learning Perspective

Improve employment equity among staff

+1% -3% -4%The target was not achieved due to the higher turn over of HDI staff and a lower number of HDI appointments of 66 staff. A moratorium on external appointments is in place.

Build capacity among staff

2% 1.38% -0.62%

Training interventions were curtailed in line with the cessation of further customer service network expansion. The training budget no longer falls under the sole control of HR but is now also controlled by line managers.

Provide employment opportunities for people with disabilities

40 33 -7A moratorium on external appointments has been in place for two years.

Purpose




Background


Audit findings


Priority Focus Areas

• Processing open claims− Confirm the backlog by way of an audit− Repudiate unprocessed claims and run block settlements

• Enhancing operational delivery − Optimise performance and increase capacity− Align structure to operational demand and business processes

• Optimising Financial controls− Implement a Writ SOP and comply with policies and the PFMA− Take decisive steps where non-compliance occurs

• Managing the deficit− Quarterly reviews of the provision, as well as independent reviews− As the provision is shaped by claims on hand, reduce the backlog− Definitively prioritise the amendment of legislation to remove fault and to define a

set benefit− Mvumvu Bill and passengers

− Paixao Supreme Court of Appeal Ruling and partners

Conclusion

• The RAF operates in a context which is different to other entities in our social security framework:

• Funding via the fuel levy is not associated with claim frequencies and costs

• Beneficiary base is not constituted by past, present or future contributors to the RAF Fuel Levy

• Benefits available to beneficiaries or claimants are not defined and in some instances are not limited to a maximum value

• Social security obligation extends to protecting income, providing support, and funding healthcare needs

Conclusion

Social Security

PillarSolvent Ben. Benefit

Social Support

FundingLoss of Income

Loss of Support

Medical Expenses

RAF No AllUnlimited & Increasing

Yes Yes YesFuel Levy & Unrelated

UIF Yes Employed ++Limited Yes No NoPayroll tax &

Related

COIDA Yes Employed +Limited Yes No YesPayroll tax &

Related

SASSA Yes Poor +++Limited No Yes NoFiscus & Budget

Conclusion

• The Board and management have a firm understanding of what must be done, how it should be done and the urgency with which the work is required

• All efforts will go into:• Ensuring that the four strategic pillars are fulfilled • Providing efficient support to the victims of car accidents • Preventing the catastrophic socio-economic effects of accidents in our society

• It is proposed that the Portfolio Committee note this overview of the performance of the Road Accident Fund as captured in the 2011/12 Annual Report.

Thank You

overview of the performance of the road accident fund as captured in the 2011/12 annual report...

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