Professional indemnity - Your questions answered

Correct as of February 2012

Q1. Is medical indemnity compulsory?

The Medical Council states that doctors must take out adequate insurance or professional indemnity cover prior to engaging in the practice of medicine within the state.

Q2. What makes professional indemnity for clinical negligence so unusual?

With claims for clinical negligence, there is often a significant time-lag between an incident and a claim arising from it. The indemnity requirements for clinical negligence are different from everyday car or household insurance. When an accident or theft happens, the claim is usually made shortly afterwards. By contrast the average length of time between a clinical incident occurring and a claim being made is over three years.

Q3. What is the difference?

Occurrence-based indemnity
Claims-made indemnity.

Q4. Why are there two types?

The principal differences between the two are found in:

The protection they provide after their termination
Their pricing structure.

Q5. How do the two types of cover differ?

Occurrence-based indemnity means that the arrangements you have in place at the time of the incident can be invoked at any time in the future should a claim arise. This may be after you have changed indemnifiers, retired or even after you have died. With claims-made indemnity, you are normally only protected for incidents that both occur and are reported whilst the coverage is in continuous force.

Unlike occurrence-based cover it will not provide protection for claims that are initiated after the policy has been cancelled or has not been renewed.

Q6. What does MPS provide?

MPS offers indemnity (with no limits) to cover claims for clinical negligence on an occurrence-basis.

Q7. Why does MPS think occurrence-based protection is best for doctors?

Even if a claim is brought years after the incident giving rise to it, a member may approach MPS for assistance as long as they were in membership at the time of the initial incident and had paid the appropriate subscription.

Q8. Why do other organisations prefer claims-made cover?

With claims-made cover, in any one year the provider of the indemnity only has to calculate the likely costs of claims it is going to have to meet arising in that year. This is clearly far easier to do than estimate the likely cost of any claims which relate to incidents occurring in that year, but which might not be made until some years in the future.Claims-made indemnity is less financially onerous for a provider. However, MPS does not believe that this option provides the best protection for doctors, dentists and their patients.

Q9. Who would I turn to if a claim arose after I’d changed my indemnity arrangements?

If you were a member of MPS at the time of the incident from which the claim arose you can approach MPS for assistance. If you have basic claims-made cover you would need to have “run-off” cover to protect you for prior acts and claims arising from them.

Q10. What is run-off (or tail) cover?

With claims-made cover this is the additional protection required to cover claims made after your policy has come to an end. Unless these costs have already been built into your premiums you will have to pay additional “run-off” costs, rather like an exit fee. The further back in time the cover must reach to protect you, the greater the risk for the indemnity provider and therefore the more expensive to purchase.

If you’re considering changing your medical indemnity there are some questions you need to consider.

Q11. Why does claims-made cover appear cheaper than occurrence-based cover?

Occurrence-based rates are calculated on the basis of specialty and claims experience and are generally reviewed annually. Your payment affords protection against all future claims arising from incidents occurring in the year. Most claims-made premiums are, at first, lower than occurrence rates. This is followed by a steady rise in price until they often exceed the prevailing occurrence rates. The reason for this is the changing nature of the protection you are purchasing.

For example, during year one, you are paying for cover against claims that both arise and are reported in the first year. During year two you are paying for cover for claims reported during that year from services rendered in the first and second years.

By year five the premium will have to provide cover for claims reported during that year resulting from practice in years 1, 2, 3, 4 and 5. The likelihood of a claim has grown considerably from the first year. By year eight, the majority of claims arising from practice in earlier years will have been reported and the risk is considered to be ‘mature’. From this point the differential in claims-made costs over occurrence costs usually remains constant.

Q12. Why do claims-made rates ultimately exceed occurrence-based rates?

Certain doctors may, over time, qualify for free ‘run-off’. As we all know there is no such thing as a ‘free lunch’. The money to cover the risks associated with this provision is factored into rates charged to other doctors on claims-made indemnity who may, at some point in the future, avail themselves of this extension to their protection.

Q13. What level of protection will be available if I ever cancel my current arrangements?

With occurrence-based indemnity, you will be covered for claims arising from the period when the protection was in force, irrespective of when the claim is made. With claims-made cover you may need to purchase “run-off” cover for future liabilities that may arise from any incidents occurring during the period of your current arrangements.

Q14. I am considering cover that has limits on the indemnity. How do I know whether these limits will be sufficient?

The limit may be appropriate now, but if a claim arises years or even decades in the future these fixed levels may not be enough to cover your future liabilities. For example: 23 years and 364 days after delivering a child, a GP was served with a writ claiming his negligence had caused the child’s cerebral palsy. The GP was by this time retired, but as a past member of MPS he was still able to ask for assistance for the incident resulting in the claim. A claim of this nature, if successful, could lead to very large liabilities being incurred.

Summary: The benefits of occurrence-based protection

Having paid a subscription for occurrence-based cover a doctor knows that, irrespective of how circumstances change in the future, they will not be asked for any additional payment to cover the risks of that year’s practice. Occurrence-based indemnity means that the arrangements you have in place at the time of the incident can be invoked at any time in the future should a claim arise.