If you've ever been in a car accident, or even if you haven't, you've probably heard of the Road Accident Fund. In theory, the Road Accident Fund sounds like a great idea, but in practice this fund is costing you thousands of Rands per year. How? Read on to find out, and to see why the solution to this problem could be easier than you think.
What is the Road Accident Fund?
Let's start with the basics. The Road Accident Fund (the RAF) is a government organisation that pays money to people that have been injured (or the families of those that have died) in car accidents. Anybody is entitled to make a claim to the Road Accident Fund, except those that were the sole cause of the accident. This means that if only one driver was involved in the car accident (such as driving off a bridge), or if one driver is considered to be 100% responsible for the accident (i.e. the accident was entirely that driver's fault), then no claim may be made by that driver. Other than that though, the Road Accident Fund is open to anyone, South African or tourist, men, women and children.
Road Accident Fund claims can be made to cover health care or funeral costs, or to compensate for being unable to do your job, though you cannot claim for the costs of damage done to your vehicle. And with so many crashes on South African roads, it should be no surprise that Road Accident Fund payouts are rising. In fact, according to the RAF Annual Report for 2015, last year the Road Accident Fund paid out a whopping R28 billion. But just where is all this money coming from?
Where the Road Accident Fund Gets its Cash
The answer is: from you. Though the fund is allowed to have investments and even to ask the government for extra money if necessary, the vast majority of RAF’s revenue comes from a levy on petrol prices. That means that every time you buy a litre of petrol, you give money to the Road Accident fund. Right now (for the year 2015-2016) this fuel levy is set at 154 cents (or R1.54) per litre of petrol.
What Does That Mean for Me?
Alright, let's crunch some numbers here to find out exactly what that means for you as a driver. The average South African driver drives around 30,000 km a year. Right now, the top selling car on the South African market is the Volkswagen Polo Vivo, which needs around 6.2 litres of fuel every 100 km (it’s usually more, but this is the official figure). So for the average driving year you will need approximately 1,860 litres of petrol per year (30,000 km/100 x 6.2 litres= 1,860 litres).
According to the AA, the average fuel price at the moment is R12.37 per litre. 1,860 litres will therefore cost you about R23,000 per year. But remember, of that 1237 cents per litre, 154 cents is going to the Road Accident Fund (which is around 12% of the cost of a litre). 154 cents multiplied by 1,860 litres per year means that you're paying R2,864 each year to the RAF, or around R239 each month.
Just for ‘fun’, let’s go deeper down the rabbit hole: so for 10 years, you’ll be paying, give or take, R28,000, and for 50 years (which is the average period that we’re on the road), you’ll have paid R140,000! And these figures don’t even take into account the damages caused to public property which is ultimately paid from the taxes you pay.
If those numbers confuse you a little, just take a look at the chart below:
*based on the average 45 litre fuel tank
**based on the average 2,500 km of driving per month and a 6.2 litre/100 km engine
***based on the average 30,000 km of driving per year and a 6.2 litre/100 km engine
Solution: No More Road Accident Fund?
Given that R2,864 a year is a good amount of money, could there be a solution to this problem that saves us all cash and still allows the injured assistance? Well, yes, there could be. Unlike in many other countries (such as the UK and the USA), car insurance is not required in South Africa. This is partly because the Road Accident Fund exists to pick up the bill when it comes to personal injuries. In fact, the vast majority of cars (around 60% of vehicles) have no vehicle insurance whatsoever. Why should this concern us?
Well, introducing compulsory insurance for all car drivers could mean that we don't need the Road Accident Fund any more. In effect, the Road Accident Fund acts as a sort of public insurance company, or social security, and the introduction of required car insurance could mean that private companies (i.e. the insurers) could pay compensation for injuries rather than you, the tax payer (and petrol buyer) paying for them. Even the cheapest third party insurance policy will pay out for injuries to others caused by an accident, and maybe your insurance company should be picking up these bills, rather than you paying for them at the petrol pump.
Wait, Won't That Cost Me More?
You might be a little worried right now that compulsory car insurance will cost you more than paying into the Road Accident Fund, so let's take a look at that. There are two kinds of drivers, those who are insured and those who are uninsured.
Already Insured Drivers
If you're currently insured then compulsory insurance would end up saving you money. For a start, doing away with the Road Accident Fund would save you that 154 cents per litre on petrol, saving you about R2,864 each year. Those are direct savings, but there's another point to consider. If car insurance becomes compulsory, then insurance companies will have a total of 60% more clients and can therefore spread their risk over more people, which eventually means cheaper premiums for everyone. So with this plan you may even see your car insurance premiums go down, resulting in even more savings.
If you're not currently insured, then the news isn't all bad. Abolishing the Road Accident Fund would still save you that R239 each month. But you would then need to pay for vehicle insurance. Insurance premiums depend on many things, but based on a study done by Hippo.co.za on the cheapest cars to insure in South Africa, you're looking at minimum payments of around R370 per month. Meaning that in the long run, compulsory insurance will cost you about R131 more per month (R370 – R239= R131) – But wait – this isn't the final calculation.
As mentioned already, the more people that have insurance the cheaper car insurance premiums are likely to become. According to one insurance expert, the increase in the number of insured drivers due to compulsory insurance could bring third party insurance premiums down to as low as R100 to R130 each month, which means that you would actually be saving R100 or so each month (paying R130 for insurance instead of R239 for the RAF).
Also, there's the fact that even if you do claim to the Road Accident Fund and have personal injuries covered, there will still be the cost of repairing damage to a car to consider in the event of an accident, which is likely to cost you a lot more than a few insurance premiums. And, with car insurance you generally will also get extra services such as roadside assistance, towing costs and even windscreen repair covered, the cost of which would otherwise be paid by you in the event of an accident.
Bottom line here: compulsory insurance would save money for everyone involved.
Sounds Great, So Why Isn't Car Insurance Already Compulsory?
It is unclear why insurance is not compulsory, but it seems that the Road Accident Fund just picks up the slack, whilst in other countries, insurance companies are expected to do so. The subject of having compulsory insurance isn’t new, and has been discussed by the government as early as 2010, when Transport Minister Ndebele was contemplating the idea. More recently, the South African Insurance Association (SAIA) published a report on how compulsory insurance could effect South African roads and drivers.
The Bottom Line
The bottom line is that whilst the idea of the Road Accident Fund might seem like a good one, it's costing all of us money. Introducing compulsory car insurance instead could not only save us this money (and more), but could also improve driving behaviour (people will drive more safely to avoid an increase on their premiums) and save on other indirect and direct costs that are paid through our taxes, for example, the administration and overhead costs of the RAF.
Even if the government legislates a “basic car insurance” package based on a percentage of the driver's income or the value of his/her car, this still could be a better solution than all of us paying high fuel prices. And think of what you could do with that extra R2,864 each year…
Feel free to share your thoughts in the comments below.
Main Subject: road accident fund
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