Senator COONAN (Minister for Revenue and Assistant Treasurer) (6:10 PM) —I thank my colleagues for their contributions to this debate. The primary purpose of the Medical Indemnity (Prudential Supervision and Product Standards) Bill 2003 and the Medical Indemnity (Prudential Supervision and Product Standards) (Consequential Amendments) Bill 2002 is to ensure that health care professionals have access to medical indemnity cover that is provided by properly regulated insurers. The issue is one of safety for doctors and consumers as well as a matter of stabilising an industry.

The bills are designed to ensure the long-term financial sustainability of medical indemnity providers. The bills give effect to the Prime Minister's announcements on 31 May and 21 October last year, which essentially aimed to bring all of the insurance business of MDOs into the prudential framework for general insurers. The bills also give effect to the Prime Minister's announcement on 19 March 2003.

There are two main components to the Medical Indemnity (Prudential Supervision and Product Standards) Bill 2003, which I will hereafter refer to as the bill. Firstly, it provides that medical indemnity cover is only to be provided by general insurers and only under contracts of insurance. Secondly, it provides for minimum product standards for medical indemnity insurance contracts. A minimum cover amount of $5 million, or such other amount as may be prescribed by regulation, will be required. There are also minimum product standards set down in the bill to offer doctors retroactive cover in certain circumstances.

The bill also establishes a framework to specify minimum run-off cover via regulations. My press release of 24 March indicated that it is the government's intention to regulate, in advance of 1 July, to require that appropriate interim run-off cover is offered to medical practitioners, consistent with conditions in the reinsurance market and the type of cover that MDOs are able to offer. To help assist the medical indemnity industry adapt to the prudential reforms contained in the bill, the government has offered a generous transition period of five years, from 1 July 2003, from the minimum capital requirements for MDOs currently providing medical indemnity cover that wish to become authorised insurers and that do not already meet minimum capital requirements.

The consequential bill is designed to support the measures contained in the primary bill. Importantly, it will ensure that data must be provided by the MDOs to the Australian Prudential Regulation Authority and will prohibit MDOs with discretionary liabilities from becoming authorised insurers. This prohibition is included so that legacy liabilities—the long-tail liabilities—of MDOs are quarantined from the new insurance business being issued from 1 July 2003.

The government sees the passage of these bills as an important element of a broad strategy that has several parts to stabilise the medical indemnity insurance market in Australia. In addition to the guarantee, to 31 December 2003, provided to United Medical Protection and its wholly owned subsidiary Australasian Medical Insurance Ltd—combined UMP-AMIL—that broad strategy has seen the government already implement a premium subsidy scheme to assist high-risk doctors with their premiums, a high-cost claims scheme to assist with reinsurance and a scheme to fund unfunded incurred but not reported liabilities of MDOs to be recouped by a levy on doctors of participating MDOs over time. These measures will address the safety of doctors and their patients as well as stabilise the industry.

This legislation that we are considering before the Senate will ensure that doctors and their patients can have greater certainty in their indemnity arrangements, better access to appropriate and adequate indemnity arrangements and better information about those arrangements. I urge all members of the Senate to support the passage of these bills in a timely fashion to ensure that doctors have the certainty they need in indemnity arrangements and in the entities that provide those arrangements, thereby ensuring that adequate medical services will continue to be available to all Australians.

I know that in the debate—not all of which I have been able to hear—there have been some concerns raised about a couple of issues: run-off cover and blue sky. I will just say a few words about them. I want to put on record that the government acknowledges the concerns of doctors about the availability and affordability of appropriate run-off cover for doctors on retirement. However, I should also put on the record that this is not a simple issue to resolve and it requires a response which will adequately take into account both the concerns of doctors and the ability of medical indemnity providers to offer this cover in a way that does not jeopardise MDOs' ongoing commercial viability.

It is the government's understanding that the provision of run-off cover by MDOs in the past—either through claims-incurred cover over the working lifetime of the doctor or through the provision of free run-off cover upon retirement for doctors with claims-made cover—may not have been supported by appropriate reinsurance arrangements. Quite frankly, if there are not reinsurance arrangements, there are unacceptable risks. The arrangement could place MDOs at considerable financial risk.

In recognition of what I must say are the legitimate concerns of doctors about certainty in retirement and the commercial difficulties of ensuring safe, sustainable retirement cover for the providers of that cover, an amendment was made to the bill in the other place to remove the more prescriptive elements of the bill relating to run-off cover. The provisions have been replaced with an ability to prescribe run-off cover requirements by regulation. I am now putting on record that it is the government's intention to regulate, in advance of the 1 July 2003 commencement of the bill, to require that appropriate interim run-off cover is offered to medical practitioners consistent with the conditions in the reinsurance market and the type of cover that MDOs are able to offer, so that doctors will have greater flexibility in specifying the type of run-off cover that they can get.

The Prime Minister announced last week that the federal government will commission a study of options to examine the broader longer term retirement cover issues, particularly in relation to cover for medical practitioners who may not retire for many years, to supplement the minimum standards allowed for under the bill. The study will proceed, as a matter of urgency, in consultation with the MDOs and representatives of medical practitioners. The federal government is determined to ensure that workable arrangements are put in place to enable medical practitioners to access affordable and adequate run-off cover. It is committed to examining all options in this area as a high priority.

I now want to say a few words about blue sky claims. The bill requires that medical indemnity be offered by way of a contract. It is the government's view that contractual cover is entirely in the interests of doctors. In the past, doctors have obtained medical indemnity by way of a discretionary promise. These arrangements are certainly not suitable in going forward because they do not contain the certainty that doctors require. Contractual cover provides doctors and their patients with greater certainty as to what they are covered for and provides an avenue to enforce that contract through the courts. Contractual cover also provides more certainty to providers of medical indemnity as to the actual liabilities for which they should hold capital and reserves. Obviously, with discretionary cover you do not have that certainty. A consequence of contractual cover is that it clearly defines the limits of indemnity provided.

MDOs have, in the past, marketed their discretionary products as unlimited, which may be a concept that is not entirely true when you look at it. Of course, unlimited cover is naturally 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. As senators will appreciate, in the context of limited cover, particularly in circumstances where doctors previously had the view that they had unlimited cover, doctors have a very real concern that claims may occur which are in access of the amount for which they are insured.

The potential for claims to be made against personal assets, where insurance is insufficient, is an issue that all other professional groups have long had to grapple with. The resolution of this issue is not simple—I am not suggesting it is—and it must take account of the rights of consumers and their ability to access appropriate compensation in circumstances where they have been injured or suffered loss through the negligence of another. It must also recognise the vulnerability of medical practitioners to long tail claims. However, in all of these things there is a balance, and the government recognises that consumers are not benefited if professionals are so fearful of the potential for their personal assets to be exposed to litigation that they are not willing to continue to provide essential services to the community.

The federal government cannot determine potential solutions to this issue; it will require state and territory government involvement. This is primarily because actions for medical malpractice would, in usual circumstances, be pursued in tort in various state and territory courts. It also involves cross-portfolio interests, including the portfolios of Treasury, Health and Attorney-General's, so it is my view that the most appropriate forum to continue the consideration of this very important issue is the Commonwealth-state ministerial meetings on liability insurance. The next ministerial meeting is scheduled for 4 April in Perth, and I have asked my state and territory colleagues that this item be included for discussion on the agenda for that meeting. I think it is appropriate that this matter be taken forward at a high level and given the priority it deserves.

I thought it appropriate to just mention some of these concerns, without taking issue with every matter raised in debate, because there may well be doctors and others listening to this debate who would expect something to be said about these issues. Apart from that, it is a package designed, as I said, to provide greater safety to doctors and consumers and to stabilise an industry in much need of attention. For those reasons I urge that the bills be passed.

Question agreed to.

Original question, as amended, agreed to.

Bills read a second time.