C: COMMONWEALTH GOVERNMENT INITIATIVES
The Commonwealth's Medical Indemnity (Prudential Supervision
and Product Standards) Act 2003 has brought Medical Defence Organisations
(MDOs) under the prudential framework which applies to general
insurers.
Arguably one of the reasons that the MDO industry has experienced
financial difficulties is that it has not been subject to the
same prudential regulatory framework as general insurers. Under
the Commonwealth's legislation, MDOs are required to increase
their reserves to ensure that they have the ability to meet future
claims, and so that there is greater transparency in the financial
reporting of MDOs. Insurance contracts are required to meet minimum
standards to ensure that medical practitioners are covered for
all claims that may be made against them.
MDOs have traditionally provided protection to medical practitioners
on a discretionary basis. This means that members have had no
legal right to be indemnified, and the MDO can exercise its discretion
not to indemnify a member.
MDOs have, in the past, marketed their discretionary products as "unlimited".
However, unlimited cover is, in fact, limited by the amount of capital
and reserves that a company holds, so it is only as good as the reserves
it has to meet any claims. MDOs do not have access to unlimited capital,
so there is a natural limit upon the amount of cover they can provide.
The move to contractual cover makes this limit more transparent and more
explicit.
The need for 'run off' cover
To enable more timely identification of claims and improved
provisioning for future liabilities, MDOs have generally shifted
from "claims incurred" cover to "claims made" cover. Claims incurred
cover is cover for any claim arising out of an incident that
took place during the term of the insurance policy, regardless
of when the claim was notified to the insurer. Claims made cover
is cover for all claims arising out of incidents that occur and
are notified to the insurer during the term of the policy.
The Commonwealth legislation requires providers of "claims made" cover
to offer medical practitioners minimum "run off" cover. Claims
made policies are terminated when the insured person retires,
dies, becomes disabled or ceases to be insured. "Run off" cover
is designed to indemnify for claims arising from incidents that
occurred while the person was insured, but notified to the insurer
after the termination of the policy.
The medical profession is concerned about the availability and
affordability of appropriate run off cover for medical practitioners
in retirement. The Commonwealth has made further announcements
about its policies in relation to the "run off reinsurance vehicle".
Other relevant Commonwealth policies include -
- the Premium Support Scheme;
- subsidies to rural procedural GPs;
- the IBNR Scheme; and
- the High Cost Claims Scheme.
Information about these policies can be found at the site of
the Commonwealth Department of Health and Ageing
http://www.health.gov.au/medicalindemnity/index.htm |
