Medical indemnity insurance report—Sixth monitoring report
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2.1.2 Medical malpractice
Malpractice insurance is another name for professional indemnity insurance, but this term has
generally been reserved for the medical professions.
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Although medical indemnity insurance
provides protection similar to that for other professionals, the nature of medical malpractice claims
against medical practitioners will generally differ from claims against other professionals.
For example, accountants, lawyers, investment advisers and valuers are usually sued for ‘economic
loss’—that is, loss of past and/or future income resulting from advice provided. Claims against
architects and engineers are often for some physical damage leading to economic loss. They may
also involve personal injury.
Claims against medical practitioners relate to personal injury or death, and are lodged against a
medical practitioner for a breach, or perceived breach, of a given standard of care in the treatment of
a patient. This may lead to the injured party seeking compensation from the insured for general pain
and suffering, past economic loss, future economic loss, medical costs, attendant care costs and
legal costs.
These types of compensation are typically referred to as ‘heads of damage’ and are similar to claims
arising in public liability insurance in which personal injury claims represent a major portion of overall
claims costs.
2.1.3 Long-tail insurance
As with other types of liability insurance, medical indemnity insurance is often referred to as ‘long-
tail’ insurance. This means that many years may pass between the period for which cover was
provided and the date when claims are finally settled. This contrasts with most claims for damage
to motor vehicles or homes, which tend to be made in the year in which cover is provided, with final
settlement usually occurring soon after the claim is lodged.
Depending on the statute of limitations, which varies between each state and territory, medical
indemnity claims can be made years after an incident, even if the medical practitioner is no longer
practising medicine. Although tort law reforms have reduced limitation periods, this long-tail
characteristic continues to place considerable pressure on providers of such cover to be able to
identify the likely cost of future claims and build this into their pricing (premium) structures.
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2.1.4 Types of indemnity coverage
Traditionally medical indemnity cover was provided to medical practitioners on a claims-incurred
(sometimes referred to as ‘incidents-occurring’) basis. Claims-incurred cover provides indemnity
for valid claims arising from incidents that occur during the period of cover, with a claim able to
be lodged at any time in the future.
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Under this type of protection, the medical practitioner is
indemnified for claims arising from incidents that occurred during the period of cover, even if the
11 Insurance Council of Australia, submission to ministerial forum, Addressing the issues in professional indemnity insurance,
March 2002, p. 1.
12 Revised explanatory memorandum, Medical Indemnity (Prudential Supervision and Product Standards) Bill 2002, p. 8.
13 ibid.