Rejection of ‘opportunistic’ minor injury claims could save RAF R3 billion annually

The financially distressed Road Accident Fund (RAF) could save about R3 billion a year by rejecting opportunistic loss of income claims from individuals who suffered only minor injuries in a motor vehicle accident, according to an actuary and damages expert.

Gregory Whittaker has recommended amendments to the Road Accident Fund Amendment (Rafa) Act do away with the provisions that allow individuals with minor injuries to submit loss of income claims.

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Whittaker said such an amendment would also reduce by about 25% the number of RAF cases in South African courts, resulting in substantial savings in expert witness costs.

The legal fraternity has for many years also been complaining about RAF cases clogging up the high court rolls.

Whittaker has further recommended that legislators address the “substantial mismatch” between compensation provided in terms of the Compensation for Occupational Injuries and Diseases Act (Coida) and the RAF.

RAF claims ‘excessive’

Whittaker’s comments follow research he did for the Actuarial Society of South Africa that shows that, by local and international standards, loss of income compensation from the RAF for non-serious injuries is excessive.

“A simple amendment of removing compensation for non-serious injury and, hence aligning this to the treatment of compensation for non-pecuniary losses, would result in a saving to the fiscus of some R3 billion a year in compensation payments,” he said.

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This saving is estimated based on RAF statistics showing that loss of income settlements for the financial year to end March 2021 totalled R18.4 billion, of which about 14% was paid to individuals with non-serious injuries.

(The RAF paid R22 billion in loss of income claims in its financial year to end March 2023.)

Whittaker said in the absence of exact figures, assuming that 14% of total loss of income claims was paid for non-serious injuries, this equates to R3 billion.

He said a key change introduced by the Rafa Act of 2005, which came into full effect on 1 August 2008, was to no longer allow compensation for non-pecuniary loss – general damages not quantifiable in monetary terms, such as pain and suffering – for non-serious injuries.

However, Whittaker said the same exclusion was not applied to loss of income claims from individuals who suffered minor injuries in a vehicle accident.

Whittaker said this has led to widespread abuse of the system, costing taxpayers billions of rand every year.

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He said this problem has been compounded by a new trend where pre-Rafa Act claims for minor injuries have now turned into claims involving future loss of earnings related to minor to moderate head injuries.

Whittaker said there has been a significant increase in the number of loss of income settlements made by the RAF over the years.

“In the financial year ending 31 March 2008, the RAF made 5 957 individual claims payments in respect of loss of income, whereas in the financial year ending 31 March 2023, the RAF made 20 957 individual claims payments in respect of loss of income,” he said.

Whittaker said before 2008, people used to get a small claim award for whiplash “and that would be it”, but a lot of those claims have now turned into loss of income claims.

“They are putting through claims for hundreds of thousands of rands for whiplash injuries and so on.

“What they should have done is paired the amendment to stop general claims for non-serious injuries with loss of income claims but they did not.

“My research points to some research overseas that when you cap one head of damages then everyone goes after one of the other heads that is not capped.

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“This is exactly what has happened here. We have seen a shift to more loss of income claims than there has ever been,” he said.

Whittaker added that in many of these cases, the person could have been injured in 2018, for instance, returned to work three days later and has received normal increases up until now but then submits a claim for future loss of earnings.

“That is the sort of thing that has been exploited,” he said.

‘Compensation culture’

Whittaker added the research looked at the UK, where 90% of the accidents where people are injured are not serious accidents.

He said the UK implemented major reforms to try to move away from what they refer to as “a compensation culture, which they define as a propensity for people with minor injuries to try and maximise their claims”.

“They overhauled their system only a year or two ago where, especially for whiplash claims, they limited the amounts you can claim. We [South Africa] have not done the same yet,” he said.

Whittaker also believes there “must be some or other link” between these types of claims and the contingency fee agreements some legal firms enter into with accident victims.

“Obviously there is a financial incentive if there is a contingency arrangement in place, then obviously you have to try and maximise the award for whatever matter comes across your desk,” he said.

Whittaker said a common theme evident in a lot of these matters is that “the person hasn’t lost any earnings at all”.

“Three or four years down the line from the accident there hasn’t been any noticeable reduction in earnings but in the future there is a claim for future loss of earnings and along with it a whole host of expert reports that try and substantiate it,” he said.

Road vs workplace accident compensation

Whittaker has further recommended the establishment of a central government body responsible for determining fair compensation to individuals, whether injured in a car accident or at their place of work, to address the “substantial mismatch” between compensation provided in terms of Coida and the RAF.

Such a central body should also be tasked with determining how the compensation regime should function, he said.

Whittaker said these steps would help address the worsening financial situation of the RAF.

The RAF had a deficit of R3.8 billion at the end of its 1994 financial year but this had grown to R344.8 billion by the end March 2022.

Whittaker said that in the financial year to end March 2021, the biggest claim paid for a non-serious injury claim by the RAF was about 25 times the maximum claim paid under Coida for a non-serious injury claim with a whole person impairment of 30%.

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“It is far more expedient to just have a standard table and then award something a lot less based on a standard table where it’s a quick assessment and it also expedites the whole compensation system, which is what one would probably want of any compensation system.

“It should substantially reduce those [claims] numbers because of the outlay on expert costs but also because of the much larger amount awarded compared to the Coida,” he said.

Whittaker added that irrespective of the level of injury, there is the same core number of experts and one has to question if that is really necessary.

RAF claims for lots of ‘future graduates’

RAF CEO Collins Letsoalo on Wednesday confirmed the RAF is looking at “defined benefits”, which will mean the RAF knows how much to pay for a fractured femur, for instance, and this does not depend on the lawyer or doctor the claimant hires.

“That is why we are trying to make it more standard,” he said.

Letsoalo highlighted the number of claims the RAF receives for future loss of earnings for children and claims that more than 90% of these children ‘are going to be graduates’.

“Only 7% of South Africans are graduates and this is not aligned with what you see in the population.

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“Very clearly people are exaggerating and with children we know that their claims are over-valued by about 65%.

“This is why we are now developing an actuarial formula, with a statistical weighting, that will be gazetted very soon and will then take into cognisance these things,” he said.

Letsoalo said the defined benefits will be introduced when the new RAF Bill has been passed.

This article was republished from Moneyweb. Read the original here