THE SOUTH AFRCAN INSURANCE ASSOCIATION (SAIA)
11 February 2005
Dear Ms Mjoli
COMMENTS FROM THE SOUTH AFRICAN INSURANCE ASSOCIATION ON THE ROAD ACCIDENT FUND AMENDMENT BILL 2005
The South African Insurance Association (SAIA) would like to take this opportunity to thank you for allowing us to submit comments on this Bill. The SAIA, which represents short term insurers in South Africa, including all motor insurers, has been involved in commenting on various proposals, and in consulting with various bodies for at least a decade on the restructuring of Road Accident Fund Compensation.
In submissions to the Satchwell Commission insurers supported the proposals that road accident fund compensation should be offered on a limited liability basis and that it is becoming practice all around the world to move away from unlimited liability. This is especially true in the private sector. The Insurance Industry therefore can raise no real objection to the introduction of caps on liability since this is how the industry itself operates. The SAIA therefore supports the statements of the Road Accident Fund Commission that entitlement to and payment of compensation is currently predicated upon achieving the impossible – restoration of the position of the victim of a road accident as if such accident had not occurred:
seeks to pursue the chimera of equating the pain and suffering of injury
and the absence of health and lost opportunities with the illusion of
of road accidents, save that of the burden of proof. .
The SAIA would however like to comment on the level of those caps, on the retention of the right to sue above those limits and the impact of this on the general public and on the insurance industry.
Substitution of section 17 of Act 56 of 1996
The following section is hereby substituted for section 17 of the principal Act:
"Liability of Fund and agents
The Fund's obligation to pay such compensation shall only extend to a third party who suffers a serious injury as contemplated in subsection (1 A)
b) Assessment of serious injuries shall be based on a prescribed method adopted after consultation with medical service providers and shall be reasonable in ensuring injuries are considered in relation to the circumstances of the third party.
(c) The method of assessment shall entail assessment by
provincial medical panels consisting of a representative from the Fund and external experts representing key medical fields relevant to road accident injuries.
(d) The Fund shall set up a peer review panel to oversee the assessments made by panels contemplated in paragraph (c).
While the SAIA has no objection to the payment of limited General Damages in the event of serious injury only, in light of the need to simplify claims processes we question whether the establishment of a panel as contemplated under Section (d) will not make it more difficult, lengthy and costly to claim against the fund.
We assume that the general damages contemplated, as with all the new limits set out in the amendment Bill are set in such a way that compensation will be sufficient as to be regarded to be fair to the majority of claimants and to the majority of road users in South Africa. This statement is made within the context of understanding that the amendment Bill attempts to remove disparities between urban and rural sectors, the employed and the unemployed, the rich and the poor and thus be conducive to concepts of social security while taking into consideration financial constraints.
The concern of the SAIA is that the introduction of a limited liability Fund, which in South Africa is not true insurance but a hybrid of insurance and social security, while maintaining the right to sue over and above such compensation will continue to provide preferential treatment for the rich.
In order to explain this statement we refer the reader to the following clause Substitution of section 21 of Act 56 of 1996 which states:
The following section is hereby substituted for section 21 of the principal Act:
"Claim for compensation lies against Fund or agent [only] and others
When a third party is entitled under section 17 to claim from the Fund or an agent any compensation in respect of any loss or damage resulting from any bodily injury to or death of any person caused by or arising from the driving of a motor vehicle by the owner thereof or by any other person with the consent of the owner, that third party may not claim compensation in respect of that loss or damage from the owner or from the person who so drove the vehicle……to the extent that the Fund or such agent has already paid or has agreed to pay or is obliged to pay the compensation.
This means essentially that the first port of call for a claimant will always have to be the Road Accident Fund. Knowing however, that the RAF fund will only offer limited liability, and despite the fact that the limits determined may be justifiable and equitable, a claimant will in the majority of cases still be encouraged to put in a claim far in excess of the limits set by the Fund so that a balance can be claimed directly from the wrongdoer after settlement by the fund.
Liability will still have to be established by the Fund since no other party can be sued until the Fund has established that it is, or is not, liable and to what extent. This raises complicated questions around prescription and interest on damages for those sued after the fund has settled which in many cases will be the insurance industry. It also raises questions as to whether the second party being sued will be dictated to by the Fund’s assessment of the merits and liability or whether the second party, for example the insurer, can independently defend liability.
We say in ‘many cases’ and not all, that the second party will be the insurer since only approximately 40% of vehicles in South Africa are insured, this leaves sixty percent of drivers that cause damage to persons, in excess of the limits of compensation afforded by the Fund, unprotected.
The "richer" driver will have insurance and that drivers motor liability insurance will pick up his or her liabilities but also only to a limited amount. The current liability policy is limited to around R2.5 million for the average vehicle but this may be reduced if the number of claims and costs increase dramatically, which we anticipate will happen upon introduction of the amendments in question. Some liability policies currently offer far higher limits.
It is clear that all the current transactional costs will simply be passed from the Fund to the Private Sector but to the detriment of the poorer man as well as the insured public. The SAIA feels that using the examples set by COID or the Workmen’s’ Compensation Scheme, the right to sue over and above the benefits offered by the Fund should be removed.
If the benefits determined are truly equitable, the majority of people, including the poor man will be adequately compensated. It is understood that in this regard the richer person may perceive the limits of the fund to be inadequate simply because they are above average in terms of income compared to the majority of South Africans. If the richer person feels that the benefits will be inadequate they at least are in a position to purchase for themselves additional stated benefits or personal accident cover which will pay out for bodily injury on a no fault basis upon the occurrence of an insured event.
Despite the possible reduction in limits of private insurance or the increase in costs of cover after the introduction of the proposed amendments, the richer driver at least still has some protection while the poorer driver does not. The insurance industry and the innocent victim will still have the right to sue over and above the RAF which undermines the entire concept of social security and will render the compensation made by the Fund meaningless. The richer drivers also have at their disposal the weight of an insurer to exercise rights of subrogation on their behalf and to sue the guilty driver, in many cases uninsured drivers, for compensation. It may be argued that the uninsured driver is a "man of straw" with no assets worth suing for but even if one considers that 60 percent of drivers are uninsured they at least have motor vehicles which can be forfeited to pay damages and insurance companies will pursue recoveries against all wrongdoers.
Many wrongdoing drivers will be faced with financially crippling lawsuits for damages over and above those paid by the RAF.
The SAIA requests that the Portfolio Committee give serious consideration to this issue since it has a bearing on all other decisions to be made regarding amendments of the Act. As mentioned above the SAIA requests that the Committee give consideration to precedents set in other compensation schemes such as Workmen’s Compensation or COID where the right to sue over and above the fund has been removed.
Caroline Da Silva