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Thursday, 16 June 2005
Page: 1

Mr ABBOTT (Minister for Health and Ageing) (9:01 AM) —I move:

That this bill be now read a second time.

The bills I am introducing this morning should help to preserve the viability and sustainability of the medical indemnity industry.

The Commonwealth government was forced to intervene in the medical indemnity market in 2002 when the United Group—comprising United Medical Protection (UMP), and its registered insurer, Australian Medical Insurance Limited (AMIL)—went into provisional liquidation. Several factors contributed to this situation but the most significant was its failure to recognise ‘incurred but not reported’, or IBNR, liabilities on its balance sheets.

If United had gone into full liquidation, nearly 60 per cent of Australia’s medical practitioners would have been without medical indemnity cover. The government acted quickly to avert this potential crisis.

It introduced a short-term guarantee for all of United’s liabilities, the IBNR indemnity scheme and a high-cost claims scheme. The IBNR indemnity scheme provided coverage of claims for which United and other medical defence organisations had failed to make adequate provisions. At the time, United’s unfunded liabilities were estimated at $460 million.

The government’s rescue package allowed doctors to continue to practise without fear of losing their personal assets as a result of litigation against them. Stabilised by the rescue package, and especially by the IBNR indemnity scheme, United came out of provisional liquidation in November 2003. United was effectively brought back from the dead. And it was fortunate to have kept its independence through this tumultuous period in its history.

This brings me to the reason that the government is introducing these bills. Within 12 months of coming out of provisional liquidation, AMIL—part of the United Group—announced that it would substantially reduce its premiums for 2005. This unexpected move sent a shock wave through the medical indemnity industry. It signalled that United had returned to a position of financial strength much sooner than expected. The move also sparked concerns that United may have a competitive advantage due to the government’s rescue package for the industry.

This government is not in the business of ‘picking winners’ in a competitive market. Because of this, on 17 December 2004, an independent review of competitive neutrality in the medical indemnity insurance market was established to ensure that all medical indemnity providers operate on an equal footing. No medical indemnity insurer should gain a competitive advantage from assistance provided to make insurance for doctors secure and affordable.

This independent review was headed by Mr Graham Rogers, a former head of the Institute of Actuaries of Australia. Mr Rogers, who provided his report to the government on 15 March, concluded that government measures had indeed stabilised the medical indemnity industry. He also concluded that United had gained a competitive advantage from the IBNR indemnity scheme and that it was appropriate to act to address this advantage. The government has accepted the findings of Mr Rogers’s report and thanks him for his considered work on this issue.

The Medical Indemnity (Competitive Advantage Payment) Bill 2005 will eliminate the advantage enjoyed by insurers associated with MDOs which have benefited from the government’s IBNR package. It will require them to make a series of payments over 10 years to the Australian government. The amount of the payments will be set annually, as a percentage of the outstanding net IBNR exposure for each MDO.

The percentage will be set in regulations and based on the formula set out by Mr Rogers in his report. To ensure that the government can respond flexibly to emerging circumstances the percentage will be set annually. If a regulation is not made, no payment will be required in that year. As a result there is no need for insurers to carry on their balance sheet a liability relating to payments that may be required in future years.

In recognition of these payments to the government by insurers, the associated Medical Indemnity Legislation Amendment (Competitive Neutrality) Bill 2005 reduces the payments that doctors need to make under the UMP support payment scheme. Contributing doctors will have their annual UMP support payments reduced by $1,000 for the third and fourth years of the scheme, after which the scheme will end. This means that from next year some 7,000 of the 17,000 doctors currently making payments will no longer be required to do so, while the liability for many other doctors will be reduced to a few hundred dollars for two years. This is an important part of stabilising the medical indemnity system. I present the explanatory memorandum to the bill and commend the bill to the House.

Debate (on motion by Mr Gavan O’Connor) adjourned.