Did you know that every time you fill your car up with fuel you are paying a levy towards the Road Accident Fund (RAF)? The levy, currently R1.98 per litre of petrol, buys a type of personal injury insurance which is available to all drivers (both resident and non-resident alike) who are involved in motor vehicle accidents on South African roads. The intention of the levy is to provide a safety net for all users of the South African roads. A noble cause. But systematically flawed. And also, heavily litigated.

The woes of the RAF

A current universal challenge – cash flow issues.

In an article titled South African taxpayers will foot the bill for a problem that could be much bigger than Eskom, tax consultants at PwC warn that –

“The Road Accident Fund (RAF) is projected to become government’s largest contingent liability by 2021/22, despite receiving an ever-increasing share of combined fuel tax revenues”.

In South Africa, approximately 1 million road accidents are reported per year. The majority of the accidents that occur are caused by human factors. On average, over 40 people a day are fatally injured and at least 20 are left permanently disabled. These are all the people who would be claiming from the RAF, naturally resulting in an increase in their litigation costs. Despite the liability of the RAF growing at a rapid rate, the RAF maintains that it is not broke. Rather financially burdened. The reality however is that the RAF currently owes claimants an amount of R17.2bn.

And broke or not, that paints a very bleak picture of the current state of affairs within the RAF.

What has caused the RAF’s woes?

The RAF claims that most of its financial burdens can be placed fairly at the feet of its panel attorneys. For the past five years the RAF has utilised a panel of attorneys to represent it in respect of actions instituted for compensation of damages or loss caused by the driving of motor vehicles. However, the legal costs of this panel of attorneys accumulated. Substantially. In a study undertaken by the Department of Private Law at the University of Pretoria, Emeritus Professor Hennie Klopper set out that –

The Road Accident Fund (RAF) regularly laments its precarious financial position and has consistently blamed legal practitioners for this. The RAF’s legal bill emanates principally from the high number of annual claims and the RAF’s litigation policy and practice. It is not simply the RAF being dragged to court by legal practitioners but based on recent judicial pronouncements, largely the RAF’s approach to claims handling and litigation, which is and remains in urgent need of review because it is costing motorists and our country approximately R 10 billion per annum”.

In a further article titled Law firms hit Road Accident Fund with court action, it was set out that –

”The RAF has been technically insolvent for more than a decade, with liabilities amounting to more than R262billion by late last year, making it the second-largest contingent liability for the government after Eskom. With more money being pumped into the entity, the chief executive said he wants to change things around — and that includes doing away with the billion-rand panel of lawyers. The RAF’s model, including its litigation strategy, needs a review if not an overhaul. The RAF cannot enrich legal practitioners at the expense of claimants without acting unconstitutionally,” said Letsoalo.

The “letter”

This has already been reported on but it bears repeating. On February 18th 2020, the RAF’S acting chief executive, Collins Letsoalo sent letters to panel attorneys requesting them to hand over files of all unfinalised cases .This sent shock waves through the personal injury world – the RAF was clearly in a process of revising its ‘litigation model’ and this did not go unchallenged. However, Judge Norman Davis, in turning down the panel attorneys application (27 March 2020), said that while he appreciated the panel of lawyers had built their practices around the work received by the RAF and their concerns for the public, he added that “in the end it still appears to be about the retention of their lucrative practices”. The judge went on to say that with each passing day the present litigation model continued to exist, the deeper the RAF’s financial outlook would sink. The Judge also cited Prof. Klopper’s article stating that, should the RAF change its litigation model and properly deal with and settle all meritorious claims expeditiously, it could save up to R 10 billion of public funds

“Things can be done much better by the legal practitioners who are practicing in this field instead of seeing the Funds as an easy quick money making machine. That amounts to an abuse and unprofessional conduct”, the judge said

The take-away? The RAF needs to stop hemorrhaging cash. And it needs to do so urgently.

What does the RAF’s new model look like?

Taking from Judge Norman Davis’s judgement, the RAF’s ‘new model’ consists of the intention to settle as many meritorious claims as possible (within 120 days) with the aim of achieving a 98% settlement rate. The immediate aim is to target those claims already on the civil rolls from 1 June 2020 onwards. For this purpose, the RAF intends using an integrated claims assessment system and an additional ~250 employees to insource the assessment and settlement process and mediate matters where required. The RAF admits that not all matters can or will be settled within the 120 days. To cater for this scenario, the RAF would still require representation in court of those matters with real triable issues. Here, the RAF will instruct attorneys on an ad hoc basis or utilise some of the attorneys on its corporate panel.  As a further resource, the RAF has approached the State Attorney who has in principle agreed to employ attorneys dedicated to handling RAF matters at the RAF’s costs.

The reality for personal injury firms

Whilst this new model poses a positive outlook for the RAF, it is a very different story for the panel attorneys as well as those personal injury firms acting on behalf of claimants. Trial matters have been unable to proceed. This is due to both the directive of Judge President Dunstan Mlambo in July 2019 as well as the RAF not being declared an essential service, and therefore unable to operate during lockdown.

Additionally, with people staying at home, spending significantly less time in the car than normal, it stands to reason that there are far less vehicle accidents. This is (naturally) a good thing but also means that the intake of new matters has fallen significantly with a corresponding decrease in income.

This has left personal injury firms in a state of flux. Being unable to proceed with trial matters and now being strongly encouraged to settle matters as opposed to running to court (thereby losing out on contingency fees), one needs to consider what the future of personal injury firms looks like.

The future of the personal injury firm

Looking to the future, it is not difficult to see why discussion is already emerging as to alternative dispute mechanisms.  There is a clear need for the introduction of online courts with online submission functionality (as was seen during lockdown). While South Africa is not yet ready to enable the sustainable holding of all court matters online, we are not far from it. So this move would make sense but is not yet supported by the required infrastructure.

What is certain however is that there is a significant shift in landscape, both for the panel attorneys and those acting for claimants. This has resulted in many personal injury firms having to re-evaluate their practices and business strategies entirely. These firms should be doing more right now than just waiting, which may seem counterintuitive – why spend money when none is coming in? But this is an unprecedented opportunity to strengthen personal injury practices against both current and future uncertainty.

So how can personal injury firms strengthen their current offering?

Given recent court directives, all personal injury firms now face challenges in not only finding work but also in getting ahead of the pack. As lockdown regulations soften, allowing people to go back to work under the “new normal”, cars will once again “hit the road”. By sheer number of vehicles alone this will obviously (and regrettably) result in a higher number of road accidents. And this will once again lead the public to seek assistance from personal injury firms both as claimant in triable cases but also in instituting settlement claims in line with the RAF’s “new model”.

In either situation, if a claim is submitted to the RAF containing contradicting or weak evidence, the claim will almost certainly remain unpaid. Worse still, poorly prepared applications will not even be considered by courts resulting in matters being thrown out with time and money being wasted at the crucial trial stage. As the current situation remains uncertain, it is imperative that all claims and triable matters be properly and fully prepared ahead of submission. This includes having expert testimony finalized as soon as possible, requiring a significant upfront cost incursion.

Additionally, it will be more important than ever to embrace technology and digital transformation allowing personal injury firms to properly participate in online courts (when it is both available and readily accepted as the norm), whilst also allowing for papers to be submitted online. Those that embrace this inevitable move to digital transformation, will find themselves properly prepared for the future of RAF claims. And therefore find themselves ahead of the pack.

But how to fund this?

Taurus Capital, the leading third-party lenders to the legal fraternity, have ample experience in personal injury firm financing. They recognise the great demand for working capital to sustain these firms’ overheads through this period of uncertainty. Likewise, Taurus understands that personal injury firms (right now) require sufficient cashflow to cover intensive upfront expenses required to fund disbursements for expert assessments and to eventually litigate matters. It’s a catch 22 and certainly a “chicken before the egg” scenario. But Taurus Capital, not applying a ‘one size fits all’ approach in evaluating repayment solutions, is able to fully support personal injury firms during this time of transition and possible shift in focus. Get in touch with Taurus Capital today to see how they can best support your personal injury practice.

This article was written by Alicia Koch for Taurus Capital.