ROAD ACCIDENT FUND

1
ROAD ACCIDENT FUND
BUDGET FOR THE FINANCIAL YEAR ENDNING 31 MARCH
2009 AND 2009/2011 STRATEGIC PLAN

• Presentation to the
• Portfolio Committee on Transport
• 5 March 2008

2
PURPOSE

• To share with the Portfolio Committee on
• Transport the Budget for the Road Accident
• Fund for the financial year ending 31 March 2009
  and the Strategic Plan for the period 2009 to
  2011

3
CONTENTS

• Rescue Plan
• Performance Review
• 2009 Budget
• Strategic Thrusts
• Actions to date

4
Key challenges identified by the RAF
RESCUE PLAN

• Inability to effectively process claims
  (contributing to a growing backlog)
• High costs of administration and service
  providers
• Prevalence of fraud and corruption
• Dissatisfied and disillusioned Stakeholders
• 5. Unsustainable economic model
• 6. Poor financial health

Largely RAF controllable
RAF influencable but not controllable
5
Challenges converted into strategic objectives
RESCUE PLAN
RAF strategic objectives
Key issues facing RAF
Largely RAF controllable

1. Deliver the mandate in an operationally effective
   and efficient manner
2. Minimise the cost of administration and service
   providers (thus maximizing funds available for
   paying compensation)
3. Promote good governance and effectively manage
   risk within the RAF
4. Foster positive stakeholder relations through
   proactive engagement

1. Inability to effectively process claims
   (contributing to a growing backlog)
2. High costs of administration and service
   providers
3. Prevalence of fraud and corruption
4. Dissatisfied and disillusioned stakeholders
5. Unsustainable economic model
6. Poor financial health

Joint pursuit of RAF sustainability with key
stakeholders
RAF influencable but not controllable

1. Develop a sustainable economic model in
   conjunction with the necessary stakeholders
2. Restore RAF financial health

6
and rescue plan actions
RESCUE PLAN
RAF strategic objectives
RAF internal initiatives

1. Deliver the mandate in an operationally effective
   and efficient manner
2. Minimise the cost of administration and service
   providers (thus maximizing funds available for
   paying compensation)
3. Promote good governance and effectively manage
   risk within the RAF
4. Foster positive stakeholder relations through
   proactive engagement

Operational review

• Eliminate the backlog
• Reduce costs of administration and service
  providers

Risk and governance review

• Minimise fraud and corruption

Stakeholder engagement review

• Ensure positive stakeholder engagement

Joint pursuit of RAF sustainability with key
stakeholders
Joint external initiatives
Financial review

• Develop a RAF model that is financially
  sustainable
• Eliminate the deficit and return the fund to
  solvency

1. Develop a sustainable economic model in
   conjunction with the necessary stakeholders
2. Restore RAF financial health

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with target dates
RESCUE PLAN
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RAF could not do it alone
RESCUE PLAN
Broad-based organisational transformation at all
levels
Full change management programme

• Organisational structure
• Team appointments
• Scorecard
• Performance management system

• Stakeholder engagement
• Processes and systems
• Operational efficiencies
• HR capacity building

• Communication
• Change management
• Culture
• Leadership development

Getting the model right
Re-design the business model
Engage government on the funding model
Pursue legislative amendments
9
New systems delivery process remains unchanged
and on tract
RESCUE PLAN
Continue with existing claims model
Set up new claims model
Process all new claims via new model
12-18 months
Agree backlog financing with DOT
Process the remaining backlog via new model
3-6 months
5 years
Pursue legislative amendments
10
Elements of the dashboard implemented
RESCUE PLAN
Business model diagnostic and implementation
planning
Organisational structuring, team appointments and
executive team building
Stakeholder engagement strategy

• Process and technology re-design
• Streamlining
• Automation
• Cost efficiencies

• Operational diagnostic
• Processes
• Organisation
• Operational efficiency
• Support functions

RAF scorecard and dashboard implementation
Performance management system design
HR capacity building
HR capacity building and change management
Communications
Programme office
3 months
3 months
3 months
3 months
11
RESCUE PLAN
Went live on SAP December 2007
12
Begun the roll out of the new Claims Mgt. System
RESCUE PLAN
www
HW
Receive liability
HW
DoHa
Near real-time access
UPFS
HPSCA
HW
DHS
Physical file management
Uploads
Call monitor and recording
Solutions to be procured and implement
ETL
Mining
Interface, network, contracts
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PERFORMANCE REVIEW
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Expectations Progress
PERFORMANCE REVIEW
Progress in meeting shareholder expectations
hampered by LACK OF FUNDING

• Achieve a turn-around of the Fund that brings
  about the stability, efficiency and
  sustainability of the organisation.
• Achieve the social economic objective of
  Government to create appropriate capacity through
  training, development attraction and retention of
  staff as well as succession planning.
• To manage the affairs of the RAF in a manner that
  locates the RAF in the broader strategy of
  delivery in relation to the boarder transport
  sector and social security system.
• Manage stakeholder relations, in particular
  relations with victims, government, legal
  representatives and service providers, in a
  manner that is driven by a risk management
  culture.

• RAF stabilised continued improvements in
  efficiency sustainability is being hampered by
  Governments failure to fund the turnaround
  strategy
• Organisational capacity expanded with roll-out of
  new systems and processes (e.g. SAP)
• Social delivery is being hampered by Governments
  failure to fund the turnaround strategy.
• Risk management culture firmly in place at board
  level. Stakeholder relations gradually being
  address with service delivery. Successes to be
  communicated in the new year.

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PERFORMANCE REVIEW
Total income expected to rise 12 to 2006 levels
Actual Dec 07
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PERFORMANCE REVIEW
Bulk of the increase occur in fuel levy income
Actual Dec 07
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PERFORMANCE REVIEW
Volume of diesel and petrol sold rose 7 to 21,3
mega-litres during the calendar year
Source South African Petroleum Industry
Association
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PERFORMANCE REVIEW
RAF Levy at 41.5 cents per litre represent less
than 5 of fuel price at the pump
19
PERFORMANCE REVIEW
RAF Levy accounts for less than 13 of all
margins levied on fuel
20
PERFORMANCE REVIEW
Diesel rebate continues to grow in line with fuel
levy growth
Actual Dec 07
21
PERFORMANCE REVIEW
Investment income drops due to depletion of cash
reserves despite rising interest rates
Actual Dec 07
22
PERFORMANCE REVIEW
Total expenses, including provision for
outstanding claims, is expected to outstrip fuel
levy income
Actual Dec 07
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PERFORMANCE REVIEW
The bulk of the increase is expected in claims
expenditure (incl. claims provision)
Actual Dec 07
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PERFORMANCE REVIEW
In 9 months, the RAF has already paid in cash for
claims more than in has paid for the full year
last year (excl. structured payments)
Actual Dec 07
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PERFORMANCE REVIEW
Staff costs are expected to rise only 10.6
Actual Dec 07
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PERFORMANCE REVIEW
Admin and other costs are expected to rise mainly
as a result of roll-out of new systems (SAP,
Fineos, etc)
Dec 07
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PERFORMANCE REVIEW
Claims processing has had to be curtailed due to
cash shortages (mix to change for year end)
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PERFORMANCE REVIEW
More supplier claims will be processed up to
year-end to preserve cash
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PERFORMANCE REVIEW
RAF has been experiencing a rise in reported
claims
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PERFORMANCE REVIEW
With change in processing mix, RAF expects to
maintain claims backlog at 2007 levels
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PERFORMANCE REVIEW
For as long as the no-fault system is not
introduced, legal costs will continue to grow
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PERFORMANCE REVIEW
Delays in introducing RAF Amendment Act means R4b
continue to be wasted in general damages
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PERFORMANCE REVIEW
Efficiency gains continue to be made with a
reduction in cost-to-compensation percentages
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PERFORMANCE REVIEW
Efficiency gains made in 2007 hampered by cash
shortages
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PERFORMANCE REVIEW
Staff compliment has remained constant
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PERFORMANCE REVIEW
Increasing accidents arising from growing
economic activity, coupled with the absence of
caps, will results in claims liability growing
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PERFORMANCE REVIEW
Accelerated claims processing had reduced cash
reserves significantly
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PERFORMANCE REVIEW
Cash crunch has reached a level where the it is
difficult to conduct the business of the RAF

• Level of summonses continue to rise
• Writs of execution issued by the courts disrupts
  normal business operations

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PERFORMANCE REVIEW
The RAF now has no choice but to invoke
protection afforded it by the Act
The RAF is now considering mechanisms it needs to
use to invoke Section 21 of the RAF Act
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2009 BUDGET
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2009 BUDGET
Honourable Minister of Finance Budget Speech

• Fuel levy to be increased 5 cents per litre with
  effect from 1 April 2008
• Work outstanding on legislation required to
  remove the burden on taxpayers
• Will this help?

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2009 BUDGET
Assumptions revised to align with delays in
Amendment Act, no-fault and 5 cents levy increase
Variable Value Justification
Macro-economic assumptions Macro-economic assumptions Macro-economic assumptions
GDP Growth Rate 5.14 Conservative long-term economic forecast
CPI Growth Rate 5.10 Long-term forecast
Reserve Discount Rate CPI 2.5 Equivalent to 2.5 real discount rate
Fuel income assumptions Fuel income assumptions Fuel income assumptions
Fuel consumption growth GDP - 1 45 year historical data shows that fuel growth has exceeded GDP growth by 1. However, GDP growth has exceeded fuel sales growth in recent years. A low growth estimate is prudent.
Diesel rebate 10 of fuel levy income Diesel rebate has been 8 to 9 in recent years. A high rebate is prudent.
Interest rate on investment 7.70 Based on bond yields (R186 bond)
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2009 BUDGET
Assumptions
Claims assumptions Claims assumptions Claims assumptions
Claim reporting and payment patterns Varies according to scenario
Growth in claim payments (GDP 2) (CPI 2)
Growth in number of claims GDP 2
Growth in number of claims GDP 2
Growth in undertakings (implicit) (Number of claims growth) (CPI)  
Large claims inflation CPI 2 Derived from history
Claims inflation (excluding legal and large claims) CPI 2
Savings from Amendment act General damages 25 saving Medical No change Loss of income/support 25 increase Claimant costs 10 saving RAF costs 10 saving Conservative estimates based on GRS Actuarial Consulting recommendations. Savings only apply to claims incurred
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2009 BUDGET
Assumptions
No fault assumptions No fault assumptions No fault assumptions
Claim payment patterns Patterns based on faster turn-around times for reporting a payment of claims Less granular categories than other models
Claims growth GDP 2 Used for increase in claims
Medical inflation CPI 2  
Compensation inflation CPI 2  
Accident rates 0.6 fatal accidents per million litres of fuel used 2 serious injury accidents per million litres of fuel used, 5 minor injury accidents per million litres of fuel used.  
Injuries per accident 1.25 fatalities per fatal accident, 1.25 serious injuries per serious injury accident, 1.1 minor injuries per minor injury accident  
Medical costs R5,000 per fatality, R22,500 per serious injury, R5,000 per minor injury  
Rehab costs R10,000 per major injury  
Funeral costs R8,002 per fatality  
Loss of income per litre (c) 0.084 Actuarial forecast
Loss of support per litre (c) 0.009 Actuarial forecast
Claims processed per staff member 200
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2009 BUDGET
Assumptions
Operational assumptions Operational assumptions Operational assumptions
Admin costs R100,000 per employee, excluding salaries, depreciation, and marketing
Staff productivity improvements 5 improvement in 2008, 2009 and 2010
Cost savings - RAF legal costs 10 saving in 2008, 2009 and 2010
Cost savings - Claimant's legal costs 10 saving in 2008, 2009 and 2010
Legal costs inflation CPI
Marketing, communications and distribution R100 million per year from 2008
Other provisions as a of HR costs 21 Accounts for performance bonuses
Staff costs Costs per staff member based on TECs from July 2007. Number of staff based on predicted work-load and efficiency
Staff costs inflation Salaries grow at CPI 2
Scaling factor 100 (no scaling)
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2009 BUDGET
Assumptions
Balance sheet assumptions Balance sheet assumptions Balance sheet assumptions
Capex As per 2008 three-year budget
Fuel levy receivable days 120 days
Payable days of HR and admin costs 30 days  
Sources Reuters consensus long-term forecast SARB Sources Reuters consensus long-term forecast SARB Sources Reuters consensus long-term forecast SARB
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2009 BUDGET
No improvement in claims processing in 2009
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2009 BUDGET
RAF runs out of money! Deficit balloons to R50b!

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2009 BUDGET
Cash not available for systems improvements


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2009 BUDGET
Conclusion

• South Africa requires a model to determine the
  appropriate level of fuel levy on an annual basis
• Delays in funding the turnaround strategy will
  cost South Africa more in the future
• The RAF has no option but to invoke section 21

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STRATEGIC THRUSTS
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STRATEGIC THRUSTS
The RAFs strategy in 2009 will be founded on 4
pillars
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STRATEGIC THRUSTS
Key Features

• Re-examination of the RAF business
• Revised vision, mission and values
• Positioning for lasting recovery

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VISION
STRATEGIC THRUSTS
Revised vision

• To be a sustainable, world class provider of
  cover for personal injury arising from the use
  motor vehicles in South Africa.

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MISSION
STRATEGIC THRUSTS
Revised mission

• To provide appropriate cover to all road users
  within the boarders of South Africa to
  rehabilitate and compensate persons injured as a
  result of motor vehicle accidents in a timely and
  caring manner and to actively promote safe use
  of our roads

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STRATEGIC THRUSTS
Revised values

• UBUNTU
• We care about and support others
• We involve and listen to others and recognise
  their contribution
• We show concern for peoples well being

• PRIDE IN WHAT WE DO
• We believe in the role and work of the RAF
• We celebrate successes and achievements
• We demonstrate integrity, consistency and
  fairness in our actions decisions
• We demonstrate energy, passion and conviction in
  everything we do
• We model the highest standards of personal and
  professions behaviour

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STRATEGIC THRUSTS
Revised values

• FREEDOM TO SUCCEED
• We take personal responsibility for delivering
  our work and we do what we say well do
• We offer solutions not problems
• We empower others to take responsibility for
  their actions and decisions
• We continually look for way to improve what we do
  and how we do it
• We are open to change and learn from new ideas
  and ways of working
• We find ways to remove or minimise obstacles
• We learn from our mistakes

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THANK YOU