THE collapse of United Medical Protection this week has drawn attention to this sector of the insurance industry and a WA player that is outperforming the market.
THE collapse of United Medical Protection this week has drawn attention to this sector of the insurance industry and a WA player that is outperforming the market.
In stark contrast to UMP, Medical Defence Association of WA claims to be one of Australia’s most secure medical defence organisations.
MDA WA President Dr David Watson said a decision to change the way the business functioned in 1997 has underpinned the success of the group.
“In 1996 we were forced, following an audit, to declare ‘Incidents But Not Reported’ or IBNRs on the balance sheet,” Dr Watson said.
The IBNR is a statistical calculation based on analysis of past claims to work out a figure that represents future liabilities.
In 1997 the MDA altered its practice to a ‘claims made’ model which in effect limits the coverage to those claims reported within the period of the policy.
“We switched to claims made in 1997,” Dr Watson said.
“After five years there’s no financial advantage to the claims made model but it makes it so much easier to look at what you’ve got because you’re only doing it year by year.
“UMP went claims made in November 2000 and that’s where the rot started.”
UMP was forced to levy its members to pay for the new model which prompted a number of them to desert the group.
It is not just the insurance side of the business that is facing challenges. Medical defence organisations as a whole are likely to face compliance requirements to continue operating in the future.
Another cost driver in the sector is the looming minimum capital adequacy standards imposed by the Australian Prudential Regulation Authority.
These standards, scheduled for introduction on July 1, will apply to all insurers and possibly MDOs as well.
“APRA also has a view on how to handle the regulation of the historical INBR debt,” Dr Watson said.
Industry analysts expect the APRA will force groups to account for their claims incurred but not reported and this could push some MDOs into a negative capital position.
For MDA WA the collapse of UMP presents some interesting opportunities, however, it has adopted a cautious approach.
“We’re certainly not taking every one. We said we’d vet people very carefully,” Dr Watson said
“And we said we wouldn’t take on people that are very high risk and we want to keep a balance across the disciplines.”
Dr Watson estimated the group was rejecting between one in seven and one in ten applications.
MDA WA has capped the number of new members at around 1,000 to ensure the group does not end up with big numbers of high-risk members or an unbalanced portfolio of specialists.
“However, we can make a decision in 24 hours if we have to because we don’t want to keep members dangling,” Dr Watson said.
“And we keep the re-insurers and the actuaries involved in this process.
“A huge influx of members would cause concerns for our re-insurers.”
Australian Medical Association WA public relations manager Stewart Richmond said the medical defence organisation was very strong in WA.
“What would be happening is a lot of doctors covered by UMP would be talking to MDA,” Mr Richmond said.
The AMA also believes legal reforms are needed to stop the spiralling costs of medical indemnity.
“Huge premiums will be passed on to patients and included in the cost of health care,” Mr Richmond said.
“ I don’t think there will be any simple solutions or quick answers.”
In stark contrast to UMP, Medical Defence Association of WA claims to be one of Australia’s most secure medical defence organisations.
MDA WA President Dr David Watson said a decision to change the way the business functioned in 1997 has underpinned the success of the group.
“In 1996 we were forced, following an audit, to declare ‘Incidents But Not Reported’ or IBNRs on the balance sheet,” Dr Watson said.
The IBNR is a statistical calculation based on analysis of past claims to work out a figure that represents future liabilities.
In 1997 the MDA altered its practice to a ‘claims made’ model which in effect limits the coverage to those claims reported within the period of the policy.
“We switched to claims made in 1997,” Dr Watson said.
“After five years there’s no financial advantage to the claims made model but it makes it so much easier to look at what you’ve got because you’re only doing it year by year.
“UMP went claims made in November 2000 and that’s where the rot started.”
UMP was forced to levy its members to pay for the new model which prompted a number of them to desert the group.
It is not just the insurance side of the business that is facing challenges. Medical defence organisations as a whole are likely to face compliance requirements to continue operating in the future.
Another cost driver in the sector is the looming minimum capital adequacy standards imposed by the Australian Prudential Regulation Authority.
These standards, scheduled for introduction on July 1, will apply to all insurers and possibly MDOs as well.
“APRA also has a view on how to handle the regulation of the historical INBR debt,” Dr Watson said.
Industry analysts expect the APRA will force groups to account for their claims incurred but not reported and this could push some MDOs into a negative capital position.
For MDA WA the collapse of UMP presents some interesting opportunities, however, it has adopted a cautious approach.
“We’re certainly not taking every one. We said we’d vet people very carefully,” Dr Watson said
“And we said we wouldn’t take on people that are very high risk and we want to keep a balance across the disciplines.”
Dr Watson estimated the group was rejecting between one in seven and one in ten applications.
MDA WA has capped the number of new members at around 1,000 to ensure the group does not end up with big numbers of high-risk members or an unbalanced portfolio of specialists.
“However, we can make a decision in 24 hours if we have to because we don’t want to keep members dangling,” Dr Watson said.
“And we keep the re-insurers and the actuaries involved in this process.
“A huge influx of members would cause concerns for our re-insurers.”
Australian Medical Association WA public relations manager Stewart Richmond said the medical defence organisation was very strong in WA.
“What would be happening is a lot of doctors covered by UMP would be talking to MDA,” Mr Richmond said.
The AMA also believes legal reforms are needed to stop the spiralling costs of medical indemnity.
“Huge premiums will be passed on to patients and included in the cost of health care,” Mr Richmond said.
“ I don’t think there will be any simple solutions or quick answers.”
