The recent suspension of Road Accident Fund (RAF) CEO, Collins Letsoalo, followed by Minister Barbara Creecy’s decision to dissolve the RAF board this week, is a welcome move and a long overdue signal that serious intervention is finally under way at this embattled institution.
While the RAF’s rot certainly worsened under Letsoalo’s leadership since 2019, its dysfunction long predates his tenure. The decline began as far back as 2008/09, not coincidentally, the same period when State Capture began to take root under former President Jacob Zuma.
The RAF has since become a textbook case of how cadre deployment, poor governance and weak financial oversight give rise to the collapse of a state institution, which in turn leads to widespread failure to deliver on its mandate to the people and massive increases in costs to society.
Consider this: in 2005/06, the RAF received just more than R5.5-billion in fuel levy income (then 37 cents a litre), ran a manageable claims book and even produced a surplus of R1.4-billion – thanks in part to a once-off Treasury grant of R2.5-billion. It was, at the time, still largely functional and able to fulfil its mandate, and a 5c increase in the RAF levy would have negated the Treasury bailout.
However, within three years, by 2008/09, the RAF’s operating expenses had ballooned more than 350% to R24-billion. To cover this growing shortfall, the fuel levy was pushed up to 47c per litre, which was a 27% increase in just three years that significantly outpaced inflation. The rot had taken hold, and opportunistic law firms and other specialist advisory services began feasting on the RAF’s inability to manage claims effectively, many settling on courthouse steps at enormous cost to the fund.
From 2009 onwards, this chaos spiralled. By 2020, operating expenses had doubled again to nearly R49-billion. However, this figure masked a growing backlog of unpaid claims, with the RAF simply stalling many settlements. Its actuarial liabilities had exploded to an estimated R322-billion, as referenced in its 2020 annual report.
Fuel levy hikes
In a deeply troubling move, Letsoalo and the RAF Board attempted in 2021 to manipulate the fund’s finances by rewriting its accounting policies to reduce liabilities by R306-billion, effectively hiding the problem rather than fixing it. Thankfully, the Auditor-General rejected this cunning plan, and the matter was taken to court.
During these loss-of-control years, the public paid a heavy price. Between 2009 and 2022, the RAF levy on the fuel price shot up 360%, from 47c to R2.18 per litre. These hikes inflated the cost of transport, food, and consumer goods for every South African. Instead of fixing the RAF’s broken systems, the government simply passed the costs on to the public through excessive, above-inflation levy increases.
Had the RAF levy increased only at the rate of inflation, it would have reached just 94c by 2022 – not R2.18. In real terms, the RAF received around R200-billion more than it would have under inflation-linked increases, which is essentially a hidden tax caused by incompetence, maladministration and poor political will.
Minister Creecy’s intervention must now be the start of a serious turnaround. The next step is critical: appointing a capable, independent and professional board with the skill and courage to fix this institution.
That board must recruit qualified executives and people with experience in managing risk, claims, and fraud prevention. South Africa has many capable, retired insurance industry professionals with a deep understanding of complex claims environments and the controls needed to stop internal and external abuse. These are the people the RAF desperately needs.
I would also urge the minister to send a strong and unambiguous message to the ANC’s cadre deployment machinery – hands off the RAF. It’s time to rebuild this institution based on merit, integrity and competence. Not politics.
The pain inflicted on accident victims, the public purse, and our economy by a broken RAF is incalculable. Fixing it will take courage and resolve, but it must be done. The window for action is now open. Minister Creecy must not waste it. DM