The departures of the two UK based medical defence organisations mark the dawn of a new era for both the indemnity industry and the medical profession in Australia. The establishment of UNITED Medical Protection Limited in 1997 was the result of an arrangement between The Medical Protection Society and United Medical Defence to underwrite the indemnity business of the two organisations in NSW and Qld by the new organisation. The Medical Defence Society of Queensland played a major role in this arrangement.
The financial benefits to members of the participating MDOs were obvious from the first year of the operation of UNITED. Subscription increases for GPs in Qld and NSW increased by a single digit figure, and over 7000 doctors received a proper insurance policy for medical malpractice from a medical mutual organisation for the first time in their career.
In the wake of 12500 medical and 2500 dental members of the MDU joining UNITED, and after a financially successful first year of operation, UNITED GP members are to receive in 1999 the lowest increase in subscription in over a decade. The so-called non-procedural GP increase in subscription in NSW is around 3.5%. Procedural GPs, however, have had to face the historical deficit in the funding of their litigation risks by an increase of around 15%; along with Obstetricians and Neurosurgeons, they continue to be subsidised by the rest of the profession.
The success behind UNITED is the result of over ten years of strategic planning, and commenced with the establishment of Australasian Medical Insurance Limited (AMIL) in 1989. AMIL is a fully owned subsidiary of the then NSW Medical Defence Union Ltd, and has been a licensed insurer under the Australian Insurance Act 1973. A major part of the risks in NSW MDU and now UNITED is carried by AMIL.
AMIL provides UNITED with numerous corporate benefits which lead to at least two tangible financial benefits. First, as a licensed insurer and in contrast to discretionary MDOs, AMIL investment income is capable of being offset against it claims reserves, long before these claims are paid out. The Annual Report of UNITED for 1997/98 expresses a net members fund of close to $60 million; this fund is largely derived from ten years of investment income. This is in turn a major reason for the low increases of subscription rates for GPs since 1989 in UNITED and its predecessor, in marked contrast to the financial performances of competitors.
Secondly, the existence of a fully operational insurance subsidiary means a better chance of establishing reinsurance partners which provide more cost-effective programs. These partners need to know that the business of the MDO that they share is properly managed, and that claims are properly reserved. Through an reinsurance contract of one year, their exposure to AMIL and UNITED may last as long as 20 odd years. Their financial success or demise depend on the operations of the party they are re-insuring. For some years now, AMIL has enjoyed the confidence of a large number of reinsurers.
Tax effective investment and cost effective reinsurance have been the touch stones of UNITED’s financial success. In a sense, the departure of both MPS and The MDU reflects their recognistion that UNITED is better able to manage their Australian business than they could, and that it made no sense for them to continue to compete against UNITED. The Australian Consumer and Competition Commission, in deciding not to intervene, recognises the dilemma of the two UK based competitors, as well as the benefits UNITED would bring to their members.
In turn, UNITED is well aware of its awesome responsibility to manage the indemnity business of its members properly; this means not just simply low subscription rates, but also the need to manage the issue of professional competence and tort law reform. UNITED and UMD before it were the clear leader on these two additional fronts.
UNITED is a not-for-profit organisation, owned mainly by medical and dental practitioners, and provides indemnity only for the owners. Whatever is owned by UNITED is owned by the members. It has a commitment for the members: United Medical Defence was established in 1893, MPS in 1887 and MDSQ 1901. We provide more than just mere indemnity, we provide defence against unmeritorious cases and defence of our members’ reputation. We are in stark contrast to commercial insurers; the people they insure are not the owners, and indeed they do insurance business on the insured in order to make profits for their owners (shareholders).
The so-called American litigation crisis in the mid seventies was caused by commercial insurers ceasing their unprofitable malpractice insurance business. The medical profession reacted by establishing their own mutual insurance companies, which currently have around 50% share of the market.
UNITED has the confidence of the reinsurance market. AMIL has the confidence of the Australian Prudential Regulation Authority (which supervises insurance operations), UNITED has gained the confidence of both the UK based MPS and The MDU, and has the support of the vast majority of the medical practitioners in Australia. The challenge is to improve the confidence and support of the whole of the medical profession and the wider Australian community. By this means, UNITED will be able to play a more effective role in tort law reform.
Chairman and Chief Executive officer
UNITED Medical Protection Limited
Graphiti@nrg.com.au