The Secretary of State recently announced some planned changes to the medical indemnity scheme. The plans are still in the early stages and not expected to be implemented for at least 12 to 18 months, but it seems clear that the state will be playing a larger role in medical defence insurance in future, which should hopefully assist in controlling the spiralling costs.
In response, the MDU announced that it will move from an occurrence based policy to a claims-made policy. Their rationale for doing so was to reduce the cost of the premium. It is not yet clear whether other insurers will follow MDU’s lead.
To understand the consequences of the MDU’s announcement, it is necessary to be clear on the difference between the two policy types:
An occurrence policy protects you from any covered incident that occurs during the policy period, regardless of when a claim is filed – even if this is after the policy has been cancelled. This means that when you retire, you can do so safe in the knowledge that if a problem should ever arise from your time in practice, you will be covered. It also makes it easier to switch insurers, because a new insurer does not need to concern themselves with the risk associated with events that happened previously: they just need to understand where and how you will be practising in future.
A claims-made policy protects you from any covered incident that is claimed for whilst the policy is in force, regardless of when the actual incident occurred. When you stop paying the premium the cover stops, even if the incident occurred whilst the policy was in force. This means that when you retire (and stop paying your insurance premiums), you are not covered for any claims that may arise relating to your time in practice unless you buy “run-off” insurance. Such cover can be expensive, so make certain you understand how the premium will be calculated before signing up to the policy.
Switching from an occurrence policy to a claims-made policy is likely to save you money in the short term, since the occurrence policy will cover everything arising from the past, and an incident would have to both occur and a claim be made in the first year of the new claims-made policy for it to be covered. However, this ‘saving’ will likely catch up with you when you need to buy run-off cover to retire or move back to occurrence based insurance. The Government has stated that they do not currently plan to offer run-off cover in the state-backed scheme.
If you are considering taking out claims-made insurance, here are some things you should consider:
- Firstly (and most obviously) don’t let your existing professional indemnity insurance lapse until the new scheme is active and you have the policy in place.
- Look at your partnership deed – it may prohibit you from taking out claims-made insurance, and even if it is not prohibited, it probably doesn’t explain how to deal with the risks of a claims-made policy and in particular the risk that a retiring partner doesn’t buy adequate run-off cover. It is difficult to ensure a retired partner maintains run-off cover once they have left the partnership, which leaves the remaining partners at a risk of picking up residual liability in the unfortunate event of a claim being made (see our recent article on joint and several liability).
- Check the status of any clinical employees and sub-contractors – are they expecting to be covered by the practice’s medical defence insurance? They will most likely want to reassure themselves that they are covered for all their actions whilst employed, regardless of when a claim is received. This will need to be set out in employment contracts and locum agreements.
- If you’re considering merging with another practice, you will be well advised to investigate the type of insurance policies which have been and currently are in place, since claims-made policies will enable the risk to transfer from one practice to another. This is likely to significantly increase the amount of due diligence that practices should undertake before considering a merger.
For more information, please contact Daphne Robertson on 01483 511555 or email email@example.com
- Discuss with insurance brokers whether there are opportunities for remaining within an occurrence-based insurance scheme until any government alternative is avalable
- If you are considering moving to a claims-based policy, seek legal advice on how this will impact your partnership agreement, employment contracts and other key contracts.
- If you do decide to stay on an occurrence-based scheme, then you should ideally ensure that all partners are obliged to do the same We would recommend seeking the help of specialist, professional advisers to help you navigate the changes to the medical indemnity scheme.