What now for the future of indemnity?



Yesterday afternoon Health Secretary Sajid Javid provided the Government’s response to the Bishop of Norwich’s recommendations arising out of the Paterson report. The response was a somewhat watered down version of what was expected but it still contains some significant changes for the health sector. Health care providers will no doubt already have actioned many of the recommendations but in the world of medical indemnity we now have a commitment from the Government to reform the regulation of medical indemnity in the UK. The response was as follows:


Recommendation 10

We recommend that the government should, as a matter of urgency, reform the current regulation of indemnity products for healthcare professionals in light of the serious shortcomings identified by the inquiry and introduce a nationwide safety net to ensure patients are not disadvantaged.


Government response – pending

In 2018, the government launched a consultation on appropriate clinical negligence cover for regulated healthcare professionals. This sought views on whether to change legislation to ensure that all regulated healthcare professionals in the UK not covered by state indemnity hold regulated insurance, rather than discretionary indemnity.

The government has now extended this programme to consider the issues raised by the inquiry and is committed to bringing forward proposals for reform in 2022.

Here we consider the background to the indemnity reforms and what it may mean for both clinicians and insurers.


Background

The prime purpose of medical/dental indemnity is to permit an injured patient access to a means of compensation in circumstances where a clinician has acted negligently. Whether this compensation is fair or adequate can be the subject of another paper but for this purpose the indemnity is purchased by the clinician in order to provide this access and of course to protect the clinician by diverting the actual payment of any compensation and associated costs to a third party.


The first Medical Defence Organisation was founded 136 years ago. For over a hundred years, three Medical and Dental Defence Organisations, the MDDOs have provided this indemnity. These are not insurance companies and have never sought to be (apart from a 13 year period when the MDU received claims made insurance backing). They have offered Membership to clinicians with the right to request indemnity and by and large they have done a good job of protecting the profession. Crucially, the indemnity is available on a discretionary basis and, whilst in recent times the discretion appears to have been exercised more frequently to avoid paying claims, for the most part the MDDOs have worked well and in the clinicians’ favour.


MDDO indemnity operates on an occurrence basis. This means that a clinician is indemnified for all work carried out whilst a Member. The benefit of this is that in the case of a career break, maternity for example, or on retirement, cover remains in force, albeit at the MDDO’s discretion. The problem with this model is that the Membership fees are collected in one year and claims may arise and can be paid many years later. Medical claims inflation runs at around 8%. This figure represents the cost of meeting patient claims and associated legal costs and rises in large part due to advances in medicine and the ability to treat and care for injured patients, in recent years increasingly compromised for the indemnifiers by the aggressive stance and costs building with inflated fees by some claimant lawyers. Sometimes it can be 10 or more years between a serious incident of patient harm and the claim being adjudicated in court and settled. These are significant issues associated with the resolution and settlement of claims. Not least is the agreement by the courts to permit treatment and remediation to be calculated as though being provided in the private sector, irrespective of where the original treatment was provided or is available. What is allowable by the courts and inflated claimant legal costs can be the subject of another discussion. For this purpose it is suffice to say that the MDDO Membership fees collected in one year may be inadequate to meet future claims.


This disparity over time has led to inflation in MDDO Membership charges as the MDDOs attempt to refill the coffers for past claims. In large part this inflation is what led to commercial insurers entering the market to offer an insurance alternative around 25 years ago. This commercial insurance operated on a different basis, offering “Claims Made” indemnity. Here the policy that responded to a claim was the not the policy in place at the time of treatment but rather at the time the claim was made. This might be many years after treatment and by its nature was far more proximate to the claim settlement than the “Occurrence” based indemnity.


For 25 years then, insurance and MDDO membership have existed as alternatives for clinicians with the majority of clinicians electing to stay with the model with which they were most familiar and to a large extent the indemnity provider who approached them while at medical or dental school. Over time insurance has gained ground and has even introduced “Occurrence” based insurance. A leading example of this is Densura in the dental indemnity market. Densura is backed by Royal and Sun Alliance and was designed by dentists providing a comprehensive range of indemnity services with the policyholders obtaining advice and support from dentally qualified and legally trained practising clinicians in the event of a patient complaint. To this extent over the past few years the playing field has started to be levelled.


Paterson

In 2017 Ian Paterson, a breast surgeon working in the NHS and at Spire hospitals in the West Midlands was convicted of 17 counts of wounding with intent and three counts of unlawful wounding, although he had negligently treated over 1000 patients. As a criminal act, Paterson’s indemnifier, the MDU, exercised their discretion not to indemnify the surgeon and avoided paying over £40m in damages (the NHS paid over £37m in their settlement). It is important to point out that had Paterson been indemnified by an insurance company the insurer would also have declined cover as insurance indemnity does not extend to cover deliberate or criminal acts.

As a result of the MDU’s decision, injured patients treated privately were left without recourse to compensation as Paterson was essentially a man of straw. In the end they turned to the private hospital where Paterson operated and Spire Hospitals agreed to pay in excess of £47 million. Spire pursued recovery of this sum from their own indemnity insurers.


Given the severity of the case and the number of patients involved, the Government instituted a formal inquiry, led by the Bishop of Norwich and, in February 2020, the enquiry delivered its report. In this report it was recommended that the whole issue of indemnity provision should be investigated and procedures put in place to ensure that, in future, patients would not be left exposed as they had been with the Medical Defence Union’s decision.


In 2019 the Department of Health conducted a full consultation on the future of indemnity and the results were expected in 2020. The process was disrupted by the emergence of Covid-19 and the results and any actions fell dormant, until now.


The future of indemnity

The Paterson inquiry is controversial and it is fair to say that the Government might prefer not to revisit the headlines created at the time. Nevertheless the Government was bound to report on what it intends to do following the report’s findings and to the seasoned observer it will come as no surprise that a statement has just been made, as the House of Commons rises for the Christmas and New Year break. Negative headlines may be subsumed by Christmas lights and January sales. This aside the actions to be taken will be made public and indemnity will be very much front and centre.


We have yet to see what Government’s reforms of indemnity will look like in practice but discretionary indemnity is surely to become a thing of the past. It is just no longer acceptable that an indemnity provider, faced with a large claim can elect not to indemnify a doctor or dentist. This will be a major change and will bring the MDDOs under the regulatory regime of the Financial Conduct Authority. This will have cost implications. The chancellor will likely impose Insurance Premium Tax, currently 12% and as anyone working in the insurance industry knows, regulation is expensive. We expect this to add an additional 6-8% to the MDDO’S cost.


On the positive side, clinicians will finally have contractual certainty of cover with the disappearance of discretion, and proper regulated insurance with a right of recourse if unhappy. Most importantly they will also have certainty around solvency as the MDDOs convert to insurance companies.


What else can we expect from the Government’s reforms in 2022?

To quote Roger Daltry of the Who, “We won’t get fooled again”. Paterson shone a light on the gaps in indemnity provided by both the MDDOs and the insurance market. A criminal clinician or even a clinician who forgets to renew their indemnity and slips a Provider’s regulatory and governance net, can leave an injured patient without recourse to compensation. This is unacceptable. Similarly, some areas of practice are high risk and may be avoided by indemnity providers – Obstetrics, Spinal Surgery and Neurosurgery spring to mind. These specialist areas should not be restricted by an absence of willing Providers.


Elsewhere a surgeon or dentist may find him or herself uninsurable by a run of claims. They may require some supervision or retraining but should they be excluded from practice when we are so short of doctors and dentists?


The answer to this, and it was raised by Lockton in our response the initial consultation, is a form of Risk Pool, funded by all insurers participating in providing medical and dental indemnity. Will this form a part of the reforms next year and what might this mean for insurers, we shall have to wait and see.


So What?

This question is really up to each individual clinician. Change is coming, it is material and may affect, not only any future liabilities but also the past where it might be assumed that the clinicians have protection. Cost is going to be a factor but our belief is that a level playing field with the MDDOs, new market entrants attracted by the opportunity and a strong regulated environment will create price competition and drive up the level of service.


There is a new future for medical indemnity and given its importance it will pay to tune into the detail over the coming months and of course seek advice from those leading the change.




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