The Australian Prudential Regulation Authority (APRA) today met with Medical Defence Organisations (MDOs), representing over 90% of the medical community, to progress reforms aimed at underpinning the security and continuity of medical indemnity insurance in Australia.

Todays meeting was prompted by an industry initiative to develop and road-test options for bringing unregulated medical indemnity business under APRAs new prudential regime for general insurance, which took effect on July 2002. Ultimately, any reform proposals will need to be submitted for consideration by the Government.

APRA is strongly of the view that the medical defence industrys safety and soundness is important not only for the protection of member doctors and injured patients, but also for public confidence in the medical system more generally.

As convenor of the meeting, APRA General Manager, Dr Darryl Roberts said that APRAs role at todays meeting was to highlight the inherent flaws in the traditional but now outmoded system of discretionary medical quasi-insurance.

"We are confident that MDOs will also see the potential benefits of conducting all medical indemnity business through commercial insurance contracts under the protection of the Insurance Act," he said.

MDOs are mutual aid schemes in which members pool resources to provide coverage to the membership on a discretionary basis. They are not licensed or regulated under the Insurance Act because there are no contractual terms and conditions governing the payment of a claim. Claims are paid at the discretion of the organisation and only if there is sufficient capital.

Discretionary mutual funds have been established over many years in various sectors of the economy by community and business groups seeking to reduce the cost of insurance through forms of cover that escape the stringent capital requirements of the Insurance Act. While discretionary mutual funds have sometimes worked in the past, APRA views them as being inherently flawed, potentially under-funded and ultimately unsustainable in an environment of rising community standards and expectations.

"Discretionary quasi-insurance involves too much uncertainty to provide workable, sustainable and predictable protection for doctors in the current environment. APRA is committed to a more modern and commercially-based solution to the medical indemnity crisis," said Dr Roberts.

Talks between APRA and the industry are focussed on bringing all medical indemnity protection under the new regulatory requirements for general insurance companies. These new requirements include risk-based capital reserving and upgraded corporate governance standards, including Directors meeting a suitability test, and whistle-blowing responsibilities for auditors and actuaries. This process will likely entail a considerable transition period to allow for an orderly re-capitalisation of the industry.

The industry has agreed to meet in the future for further discussions on moving reform of MDOs forward.