Discretionary Medical Indemnity Cover

Insights from the Australian Crisis

Choosing the right medical indemnity cover is crucial for healthcare professionals. Discretionary cover, offered by Medical Defence Organisations (MDOs), is one common option, providing flexibility and services like legal advice and risk management. However, the Australian medical indemnity crisis of the early 2000s highlighted potential risks with discretionary cover, demonstrating the importance of understanding the limitations of each option. These lessons can be applied to reflect how similar challenges might arise within the UK market.

Lessons from the Australian Medical Indemnity Crisis

In the early 2000s, Australia faced a medical indemnity crisis that exposed the financial vulnerabilities of discretionary cover. At the time, a surge in litigation and rising compensation claims placed significant financial pressure on MDOs, many of which were not prepared for long-term liabilities particularly in relation to there being a high number of IBNR (incurred but not reported) claims^[[1]]. IBNR claims represented potential future payouts, creating uncertainty and making it difficult for MDOs to accurately estimate and allocate the necessary financial reserves.

United Medical Protection (UMP), the largest MDO in Australia, covered most doctors in New South Wales but struggled to meet its obligations when claims exceeded its financial reserves. The crisis left many healthcare professionals facing sudden premium increases and unexpected ‘call-ups’ to cover these deficits. This was especially detrimental to doctors located in more rural areas, who often had fewer resources and lower patient volumes making it harder for them to absorb unexpected financial burdens. The financial instability of UMP led to government intervention to stabilise the indemnity system, preventing further disruption to the medical profession.

This crisis revealed a key weakness of discretionary cover: while MDOs offer flexibility, the decision to pay claims remains at their discretion and depends heavily on their financial stability. When MDOs are under financial strain, members may be exposed to unexpected costs or disruptions in coverage.

Discretionary vs. Contractual Coverage

Understanding the risks highlighted by the Australian crisis is essential for healthcare professionals deciding between discretionary and contractual cover. Discretionary cover gives MDOs the power to decide on claims case-by-case, which can provide personalised support. However, the crisis demonstrated the potential downsides, particularly during periods of financial instability.

In contrast, contractual insurance provides a legally binding agreement where claims are guaranteed, offering more security and predictable coverage. This model may appeal to healthcare professionals working with high-risk factors because it provides absolute certainty of cover.

To assist in making an informed decision, here’s a comparison of discretionary and contractual cover:

Choosing the Right Coverage for Your Needs

The Australian medical indemnity crisis highlights the potential risks of relying on discretionary cover during periods of financial instability. Understanding these risks is key to choosing the right cover for your practice. Medicas offers bespoke solutions designed to meet your needs, and our provision of expert advice ensures that you are fully informed, giving you the confidence to make the best decision for your practice. We ensure you’re not caught off guard by unexpected financial pressures.

Disclaimer

This article is intended for educational purposes only and does not constitute legal advice. Healthcare providers are encouraged to consult with legal professionals to ensure compliance with applicable laws and regulations regarding professional boundaries and sexual misconduct. Medicas disclaims any liability for actions taken based on the information provided in this article.

Reference

[1] https://www.amansw.com.au/how-the-crisis-unfolded/