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Thursday, 12 December 2002
Page: 10269


Mr SLIPPER (Parliamentary Secretary to the Minister for Finance and Administration) (10:10 AM) —I move:

That this bill be now read a second time.

The provision of medical indemnity is of critical importance to ensuring the continued provision of essential health services to the Australian community.

The government has already shown its commitment to the continued provision of services by introducing legislation to give effect to the IBNR scheme, the High Cost Claims Scheme, and the subsidy to certain specialties. The government also provided an indemnity to the provisional liquidator of UMP/AMIL to allow certain claims to be paid in full.

This bill gives effect to the balance of the Prime Minister's announcements of 31 May and 23 October 2002.

The government is committed to ensuring the long-term financial sustainability of the market for medical indemnity cover. Prudential regulation provides the highest level of certainty that financial promises made by financial institutions to their customers will be met.

Medical indemnity providers essentially operate as insurance companies. However, medical indemnity providers have not been subject to regulation because they formally offer coverage subject to discretion such that any claim by a medical practitioner against the provider can be denied in any circumstance.

However, medical defence organisations rarely deny a claim—indicating that there is no reason to treat these entities differently to insurance companies.

In addition, in the case of medical indemnity cover, a long period of time can elapse between an adverse incident taking place and the point at which a claim is made against the provider. This poses a much higher risk to consumers than some other forms of insurance, because consumers cannot be sure what the financial position of the provider might be at the time at which a claim is lodged, as it may be many years in the future. In addition, insurers face uncertainty in deciding how much to set aside to meet claims.

In this context, it is essential that medical indemnity providers not only provide affordable cover to practitioners but that medical practitioners and their patients have a reasonable degree of certainty that their claims will ultimately be met.

Under this bill, medical practitioners and their patients will have a reasonable degree of certainty that their claims will ultimately be met, through the move to contracts of insurance. The current system of unlimited, discretionary cover has resulted in considerable uncertainty to doctors as to the extent to which a claim for indemnity will be met. In practice, `unlimited' cover is limited by the capital available to the medical defence organisation. The experience of UMP has clearly demonstrated that doctors are not prepared to provide unlimited capital to their medical defence organisations to fund unlimited claims.

In contrast, insurance companies are prevented from providing unlimited cover, in recognition that no company has access to unlimited capital.

This bill therefore provides that, from 1 July 2003, medical indemnity cover will be provided by means of a contract of insurance from an authorised insurer. Authorised insurers are subject to prudential regulation by the Australian Prudential Regulation Authority (APRA).

The bill also provides for the transition of medical indemnity providers to the new regime over five years from 1 July 2003 to allow medical indemnity providers to meet prudential capital requirements.

The bill also provides for doctors to receive greater certainty in insurance coverage by prescribing minimum standards for medical indemnity cover. Providers of claims-made cover will be required to provide retroactive and run-off cover to ensure that all doctors have access to continuous cover.

The bill does not prohibit the provision of claims-incurred cover for doctors. However, it is essential that, if this type of cover is offered, medical indemnity providers will be required to hold appropriate capital, reserves and reinsurance against the risk of claims.

I commend the bill to the House and I present the explanatory memorandum.

Debate (on motion by Mr Zahra) adjourned.