Road Accident Fund Budget & Strategic Plan Presentation - 31 March 2009

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. RESCUE PLAN Challenges converted into strategic objectives Key issues facing RAF RAF strategic objectives • 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 • Unsustainable economic model • Poor financial health Largely RAF controllable • Deliver the mandate in an operationally effective and efficient manner • Minimise the cost of administration and service providers (thus maximizing funds available for paying compensation) • Promote good governance and effectively manage risk within the RAF • Foster positive stakeholder relations through proactive engagement Joint pursuit of RAF sustainability with key stakeholders RAF influencable but not controllable • Develop a sustainable economic model in conjunction with the necessary stakeholders • Restore RAF financial health

6. RESCUE PLAN … and rescue plan actions RAF strategic objectives RAF internal initiatives • Deliver the mandate in an operationally effective and efficient manner • Minimise the cost of administration and service providers (thus maximizing funds available for paying compensation) • Promote good governance and effectively manage risk within the RAF • 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 • Develop a sustainable economic model in conjunction with the necessary stakeholders • Restore RAF financial health

7. RAF internal initiatives RAF internal targets Operational review • Eliminate the backlog • Reduce costs of administration and service providers • Process the required claims to eliminate the backlog over 5 years • Reduce costs to 33% of compensation paid by 2010 • Reduce levels of fraud • Improve Stakeholder relations to acceptable levels Risk and governance review • Minimise fraud and corruption Stakeholder engagement review • Ensure positive stakeholder engagement Joint external initiatives Financial review targets Financial review • Develop a RAF model that is financially sustainable • Eliminate the deficit and return the fund to solvency • Develop a sustainable economic model • Return the RAF to financial health over 5 to 10 years (financial solvency and liquidity) RESCUE PLAN … with target dates

8. RESCUE PLAN RAF could not do it alone 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. RESCUE PLAN New systems delivery process remains unchanged and on tract 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. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% RESCUE PLAN Elements of the dashboard implemented 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. Material management and Procurement Integrated Financial Accounting Integrated Cost Management FI SD CO MM SAP AM PP R/3 PS QM Work flowed Approvals of Purchases PM WF HR IS Online Reporting Human Resources Management Plant Maintenance RESCUE PLAN Went live on SAP December 2007

12. Begun the roll out of the new Claims Mgt. System RESCUE PLAN HW Scanning and Indexing Document Management Colossus Document Repository Save and retrieve Electronic imaging Submit injuries Scanning of claim papers Index solution QA counting HW FINEOSCLAIMSMANGEMENT Integration VPN Capture Incident Approve Medical Services Capture Incident Funeral Benefits U/T Medical Merit Assessment Batch Integration / Uploads ITC eNatis Claim Info Benefit Information LOE LOS Summons Supplier Claims RTMC File Management CC Mobile POP Offers Reports Security Audit File tracking E-docs generate Forensic Workflow Call Centre CRM Interfaces Invoicing Faxing HW Portal E-Mail CRM E-connect Faxback Escalation Management Business Warehouse HW Included in FINEOS www HW Receive liability HW DoHa Near real-time access UPFS HW HPSCA DHS Uploads Physical file management Call monitor and recording Solutions to be procured and implement ETL Mining Interface, network, contracts

13. PERFORMANCE REVIEW

14. PERFORMANCE REVIEW Expectations Progress 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 Government’s failure to fund the turnaround strategy • Organisationalcapacityexpanded with roll-out of new systems and processes (e.g. SAP) • Social delivery is being hampered by Government’s 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.

15. PERFORMANCE REVIEW Total income expected to rise 12% to 2006 levels Actual Dec 07

16. PERFORMANCE REVIEW Bulk of the increase occur in fuel levy income Actual Dec 07

17. 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

18. 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

23. PERFORMANCE REVIEW The bulk of the increase is expected in claims expenditure (incl. claims provision) Actual Dec 07

24. 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

25. PERFORMANCE REVIEW Staff costs are expected to rise only 10.6% Actual Dec 07

26. 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

27. PERFORMANCE REVIEW Claims processing has had to be curtailed due to cash shortages (mix to change for year end)

28. PERFORMANCE REVIEW More supplier claims will be processed up to year-end to preserve cash

29. PERFORMANCE REVIEW RAF has been experiencing a rise in reported claims

30. PERFORMANCE REVIEW With change in processing mix, RAF expects to maintain claims backlog at 2007 levels

31. PERFORMANCE REVIEW For as long as the no-fault system is not introduced, legal costs will continue to grow

32. PERFORMANCE REVIEW Delays in introducing RAF Amendment Act means R4b continue to be wasted in general damages

33. PERFORMANCE REVIEW Efficiency gains continue to be made with a reduction in cost-to-compensation percentages

34. PERFORMANCE REVIEW Efficiency gains made in 2007 hampered by cash shortages

35. PERFORMANCE REVIEW Staff compliment has remained constant

36. PERFORMANCE REVIEW Increasing accidents arising from growing economic activity, coupled with the absence of ‘caps’, will results in claims liability growing

37. PERFORMANCE REVIEW Accelerated claims processing had reduced cash reserves significantly

38. 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

39. 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

40. 2009 BUDGET

41. 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?

42. 2009 BUDGET Assumptions revised to align with delays in Amendment Act, no-fault and 5 cents levy increase

43. 2009 BUDGET Assumptions

44. 2009 BUDGET Assumptions

45. 2009 BUDGET Assumptions

46. 2009 BUDGET Assumptions

47. 2009 BUDGET No improvement in claims processing in 2009

48. 2009 BUDGET RAF runs out of money! Deficit balloons to R50b!

49. 2009 BUDGET Cash not available for systems improvements

50. 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