The National Treasury on Monday warned that the Road Accident Fund (RAF) was the government’s second-largest contingent liability after Eskom as the balance sheets of state-owned entities (SOEs) deteriorated further in 2019. Photo: Newspress
The National Treasury on Monday warned that the Road Accident Fund (RAF) was the government’s second-largest contingent liability after Eskom as the balance sheets of state-owned entities (SOEs) deteriorated further in 2019. Photo: Newspress

Third-party insurance weighed as means of bailing out insolvent RAF

By Dineo Faku Time of article published Feb 27, 2020

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JOHANNESBURG – The National Treasury on Monday warned that the Road Accident Fund (RAF) was the government’s second-largest contingent liability after Eskom as the balance sheets of state-owned entities (SOEs) deteriorated further in 2019.

Finance Minister Tito Mboweni saidthat the RAF was technically insolvent. 

“The liabilities of the RAF are forecast to exceed R600 billion by 2022/23. We need to take urgent steps to reduce this risk to the fiscus and bring about a more equitable way of sharing these costs. One option is to introduce compulsory third-party insurance," Mboweni said. 

Third-party insurance, a basic type of insurance that covers motorists against third-party claims in the event of an accident, could be revolutionary in South Africa.

Currently automotive insurance is not compulsory in South Africa, although it is in many other countries. Automotive insurance in South Africa is only compulsory if you’ve taken out a finance policy to cover the cost of your car. 

The Treasury said that a decision on the Road Accident Benefit Scheme Bill was required to pave the way for a more affordable system. 

“Over the past 20 years, increases in the RAF levy have typically exceeded inflation, yet the liabilities of the fund have grown at a faster pace,” it said.

The Treasury said the RAF’s liabilities were R262.1bn in 2018/19. The Treasury added that the RAF, like other SOEs, had in recent years fallen victim to mismanagement and poor governance, leading to operational failures, financial distress and increased demands for taxpayer support through the national budget. 

“This problem is compounded by broad, sometimes unfunded mandates and, in some cases, outdated business models.The financial performance of state-owned companies continues to deteriorate,” it said.

BUSINESS REPORT

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