The RAF’s state mandate should be abolished
SA drivers and, thanks to the woes of Transnet, the broader SA public fund the Road Accident Fund (RAF). With this state-mandated fund facing financial challenges and taking to court those who try to hold it accountable, it serves as another salient example of how woefully inept the state is commercially.
The Road Accident Fund Act of 1996 established the current iteration of the RAF. Before the adoption of the new constitution in 1996, the fund that compensated parties involved in road accidents was called the Multilateral Motor Vehicle Accidents Fund, established by an act of the same name in 1989.
Before it was the Motor Vehicle Accident Fund, established in 1986, and its counterparts in the then “independent” homelands, coming after the Motor Vehicle Assurance Fund that was established by the Compulsory Motor Vehicle Insurance Act of 1972.
The history of the state being involved in the business of covering motor vehicle accidents stems from the amendment in 1986 of the 1972 law. After the recommendations of the Grosskopf Commission, the state took insurance claims, which were a matter of private law, and made them public law.
Before this change in 1986, individual car owners were legally required to be insured. When one thinks about it, it is quite insidious to force someone to buy a particular product or service.
The Motor Vehicle Assurance (MVA) Fund was initially passed in 1942 and always required private insurers to transfer the state-mandated insurance funds into a collective pool: the MVA Fund.
The change in funding model was motivated by reasons such as there being uninsured drivers who made claiming from them inconvenient. There arose abuses of the system, as happens in any amalgamation of public and private activities, and thus, the state decided to nationalise, in a sense, the motor vehicle accident insurance market.
This historical context is important to show that the idea of ‘big daddy state’ taking care of everyone is not a new one in SA. It has been cultivated for decades of policies from an overzealous state. The RAF, stemming from its apartheid-era days in the 1980s, has been technically insolvent for decades. This means that the fund has been using more funds than it collects through the fuel levy, and it uses avenues such as the Social Security Fund (more than 80% of SSF liabilities are RAF related) to meet its obligations.
The government wants to provide a social safety net for those involved in accidents, and those having nothing to do with accidents must foot the bill.
The RAF is even chastised by politicians in parliament, yet still it soldiers on, with no sight of an amendment to the RAF legislation. Parliament should subject the area of operation of the RAF to competition and market processes such as profit, just like every other market. The state has proven that it is wholly incapable of administering a fund of this nature and its monopolisation has resulted in the disadvantage of the broader SA public.
Commentary by the General Bar Council of SA on the amendment of the RAF Act has shown that subjecting the current monopolised fund to competition is an idea that is held not only by free market advocates. As a general economic principle, the market where individuals exchange property voluntarily is the best mechanism for the delivery and production of goods and services.
The Grosskopf commission was the genesis of the funding for car accidents payouts being monopolised by the state. Specifically, it was a minority report in the recommendations of that commission which recommended the current levy funding model.
Interestingly, the report which finally won out as the model and is now the status quo, cited two economists (professors Geert de Wet and Jan A Lombard), who said that if the fund was to be centralised in the state (then still), administrative chaos would ensue.
It is safe to say that the economists were proved correct, as the administrative chaos which they foresaw decades ago is now a mainstay of SA society.
The Free Market Foundation was honoured to have awarded De Wet its Free Market Award in 1983, and Lombard as its president throughout the 1980s and early 1990s.
The current funding model of the RAF is one wherein every citizen who is not a car owner has to pay for the insurance cover of car owners. Instead of car owners ensuring that the prospect of an accident in their future is planned for, the responsibility and costs are passed on to every SA citizen.
A general levy on fuel means even uses that are not transport-related are subject to the levy. With blackouts a constant feature of SA life, the use of generators has become common. These generators use fuel, which has a levy put on it for the RAF. This cost on fuel for generators is passed on to customers causing higher prices and would not be there had the levy not existed.
The RAF has problems in its funding model and application.
Funding a blanket levy on fuel products in general creates a situation wherein those not involved in car-related activities are forced to finance the insurance of those involved in car-related activities just by using fuel. The administrative problems are well documented, from the backlog in claims to the virtual bankruptcy of the fund or the rampant corruption in the entire process.
If the problems of the RAF are to be adequately addressed, the idea of a state-controlled fund must be discarded. The road accident insurance market must be subjected to competition and the SA taxpayer must be spared the cost of having to bankroll an institution that is incapable of sustaining itself. Free markets are the solution. It is time SA society considered them.