A Look at the Medical Indemnity Insurance Fund Schemes in Australia
More than a decade ago, the Prime Minister of Australia announced a raft of changes to address the problems of rising medical indemnity premiums and to ensure a viable and ongoing medical indemnity insurance market (the Market). These changes include: the High Cost Claim Scheme, Exceptional Claims Scheme, Premium Support Scheme, Run-off Cover Scheme and funding for IBNRs (combined to be referred to as "the Schemes".)
Many factors have changed since implementation in 2002 and now there is a recommendation to review the various schemes before Australia’s 2017/18 Federal Budget. Here are some of the changes:
Tort Law Reform
In 2002 the government undertook a review of the law of negligence. The recommendations of the resulting Ipp Report have been implemented to varying degrees in different states. It has been reported that these changes have had an evident and substantial impact in reducing the number of filed personal injury claims.
A leading medical indemnity insurer has also reported that civil liability claim numbers have either levelled or are falling.1
Increased Cost to Run the Schemes
- The High Cost Claims Scheme is reported to have cost AU$33.4 million in 2012-2013.2
- The Premium Support Scheme is reported to have cost AU$11.7 million (of which AU$2.4 million was administrative costs) in 2012-2013.3
- The total combined cost of just these two schemes was AU$45 million in 2012-2013.4 The combined cost of all the schemes in 2013-2014, is reported to be AU$100 million. Projections by the National Commission of Audit (NCOA) indicate that costs will increase to AU$118.3 million in 2016-2017.5
- The total cost, since inception, for running all schemes is reported to be approximately AU$843 million with administrative expenses over AU$7.1 million.6
Improved Market Position
In 2014 the NCOA indicated that though average premiums had actually fallen since 2003-2004, the medical indemnity insurance market had remained viable and had “normalised.”
In 2009 the ACCC reported that the net asset position of medical indemnity insurers had increased from AU$251 million in 2003-2004 to AU$619 million in 2007-2008 and to AU$1,935 million in 2015.
In 2015 the largest medical indemnity insurer, solely, was reporting assets of over AU$1 billion, a combined ratio of 104% (96% in 2014) and investment income for 2015 of AU$95.1 million (AU$143.2 million in 2014.)
Published Reviews by Government Authorities
The last published report, published by the Department of Health in 2007 indicated that the schemes should be maintained without substantial change in policy or administration and that (in 2006) medical indemnity was in good shape. It further mentioned the importance of maintaining the "current" framework in the context of the long-term nature of the market.
In October 2016 the Australian National Audit Office published a review of the Indemnity Insurance Fund. In that review the authors pointed out that the Department of Health does not have an effective strategy in place for assessing the medical indemnity insurance market. Indeed, they stated:
The Department of Health does not have fit-for-purpose monitoring and reporting arrangements in place to assess the impact of the measures - including regulatory and other legal reforms on the stability of the indemnity insurance market, the affordability of premiums or importantly, the government’s exposure to risk.
Two of their key recommendations were that the Department of Health was to undertake a "‘first principles" review prior to the 2017/2018 budget and implement a regime to monitor the performance of the Indemnity Insurance Fund. The Department of Health agreed to the implementation of a monitoring regime; however, it deferred the decision to undertake the "first principles" review to the Australian government - with the implication being that it will have to be a decision by the highest levels of government.
While the question of the timing of the review is pending, the likely future of the schemes is still uncertain.
The NCOA made some intriguing comments in 2014 when it expressed the view that there is “strong evidence” suggesting that the medical indemnity market is normalizing. Furthermore, they suggested the following as areas for reform: 7
The Premium Support Scheme should be ceased, potentially with grandfathering arrangements for a short time. The impact on doctors in rural areas or on low incomes could be monitored.
Given these reported recommendations, Australian medical indemnity insurers should be mindful and prepared for the time when the government may decide to make changes to some or all of the support schemes set up.
- Avant Annual Report 2015. Though claims costs are rising at levels above inflation.
- The Report of the National Commission of Audit - 2014. AU$20.3 million in 2011-2012 and AU$24.5 million in 2010-2011.
- The Report of the National Commission of Audit - 2014. AU$13.9 million (of which AU$2.5 million was administrative costs) in 2011-2012; AU$15.6 million (of which AU$2.5 million was administrative costs) in 2010-2011.
- The Report of the National Commission of Audit – 2014. AU$35.9 million in 2011-2012 and AU$44.7 million in 2010-2011.
- Note that this was a forecast made in 2013-2014.
- The Auditor-General ANAO Report No.20 2016-17 Performance Audit. This includes Benefits paid of AU$516 million, Future liabilities AU$413 million minus revenues of AU$113 million.
- The Auditor General ANAO Report No. 20 2016-17 Performance Audit.