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Transcripts from the Prime Ministers of Australia

Transcript 20605

Medical Indemnity: Certainty for Doctors

Photo of Howard, John

Howard, John

Period of Service: 11/03/1996 to 03/12/2007

More information about Howard, John on The National Archive website.

Release Date: 23/05/2003

Release Type: Media Release

Transcript ID: 20605

Today I announce further details of measures to ensure that medical practitioners have access to adequate and affordable retirement cover, and a new measure to address concerns by doctors about exposure to so called 'blue sky' claims. These extensions to the government's comprehensive medical indemnity package will allow medical practitioners to continue to practise with increased certainty about their medical indemnity insurance cover.

The government has introduced an improved regulatory regime for medical defence organisations (MDOs) and other medical indemnity providers. The Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 introduces a prudential regime that will take effect on 1 July 2003. The Act will deliver increased certainty for doctors and their patients that claims will ultimately be met. It provides this protection by prudentially regulating the MDO's insurance operations under the same standards as general insurers, and by requiring that medical indemnity cover is offered as a legally binding contract for specified levels of cover rather than as a vaguely defined promise.

'Blue Sky' Claims

The prudential regime will require MDOs to specify the level of cover they offer because in practice no insurer has the unlimited capital needed to underwrite 'unlimited' cover. The government recognises however that doctors are concerned that the move to contracts of medical indemnity insurance may potentially leave them financially exposed to large awards and settlements in the future (the so-called 'blue sky' issue). In particular doctors are concerned that the long tailed nature of medical negligence claims - which in extreme cases can take over twenty years to be finalised - and the high rate of claims 'inflation' may leave them personally liable for that portion of future payouts that exceed their level of cover.

It is essential that the States and Territories continue as a high priority with effective and substantial tort law and legal system reforms. Such reforms will help reduce the number, size and duration of claims. They will have significant flow-on benefits to the availability, adequacy and affordability of medical indemnity cover, while at the same time having due regard to ensuring fair and reasonable compensation for victims.

I am announcing today that the government will establish a Blue Sky Scheme to assume liability for 100 per cent of any damages payable against a doctor that exceeds a specified level of cover provided by that doctor's MDO or other medical indemnity provider. These arrangements will apply to payouts related to either a single large claim or to multiple claims that in aggregate exceed the cover provided by the doctor's MDO, and will apply to claims notified under contracts-based cover since 1 January 2003.

In terms of the threshold of contract cover above which the government will assume liability for payouts, the government's objective is that providers of medical indemnity cover be encouraged to offer the maximum amount of cover that can feasibly be sourced from the commercial reinsurance market and provisioned for under the Act.

The Blue Sky Scheme will be funded by an ex post charge imposed on the MDO that insures the doctor against whom the damages are payable; this is consistent with existing arrangements where the MDOs tend to make ex post 'calls' on their members to meet any unfunded liabilities. Rapid action by the States and Territories to progress tort law reform and develop effective damages regimes will reduce the excessive claims 'inflation' of the last decade, and will reduce the likelihood that doctors will need the Blue Sky Scheme. Claims and payouts above contract limits should be rare if they occur at all, and given the lags in finalisation of claims, if any charge is payable it may not be until many years into the future.

The government will review the Blue Sky Scheme after three years, to determine whether it remains necessary in the light of State and Territory tort law reform and claims trends. The Commonwealth will be closely monitoring State and Territory progress in delivering on tort law reform, and it also encourages the medical profession and the broader community to engage State and Territory governments on this issue.

Details of the new Blue Sky arrangements will be finalised in the near future in consultation with the medical profession and medical defence organisations.

Retirement cover

The market move over recent years from "claims incurred" to "claims made" cover has heightened concerns by doctors about the availability and affordability of retirement cover, and the ability to continue to 'pre-fund' that cover during their working life.

The government has previously announced that it will regulate by 1 July 2003 to require that appropriate minimum "run-off" cover is offered to medical practitioners ceasing practice in 2003-04. We also announced the commissioning of a study of options to examine broader longer-term arrangements for retirement cover, in consultation with the AMA and MDOs.

Today I am announcing details of the minimum interim retirement cover requirements applying to medical indemnity providers. It is important to note that these are minimum requirements. Importantly, the government anticipates that MDOs that haven't already announced details of the retirement cover they will offer members in 2003-04 will be doing so soon, and that the cover they offer will extend beyond the stipulated minimum requirements.

The government will make a regulation under the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 before 1 July 2003 that will prescribe the following minimum standards of cover that must be offered to medical practitioners ceasing practice in 2003-04:

 cover must be offered in the event of the death or permanent disablement of the medical practitioner or the permanent retirement as a medical practitioner at or after 60 years of age;

 an offer of cover must be made initially for the remainder of the term of the medical indemnity contract held prior to the practitioners death, disability or retirement and then the offer renewed annually for at least 6 years; and

 the cover offered upon annual renewal must be offered on the same terms and conditions (other than in relation to price) as medical indemnity cover offered by the insurer to practising medical practitioners in the year of renewal.

In relation to medium to longer-term retirement cover arrangements, I wish to reassure medical practitioners that the government is committed to and will facilitate doctors having access to arrangements that ensure doctors do not have to pay material premiums after they retire. A longer term approach to secure appropriate and affordable ongoing retirement cover arrangements will be in place by 1 July 2004.

In consultation with MDOs and the medical profession the government is examining several options as a high priority, ranging from continued market provision underpinned by minimum retirement cover standards to a government guaranteed statutory retirement cover scheme funded by doctors.

Background on the government's medical indemnity package is available from the Medical Indemnity Information Phone Line on 1800 007 757 and the Department of Health and Ageing's website at

Further details are available from:

Robert Lawrence, Media Adviser, Office of the Minister for Revenue and Assistant Treasurer (0438 690 305).

Randal Markey, Media Adviser, Office of the Minister for Health and Ageing (0417 694 520).

Transcript 20605