Indemnity – the truth surfaces
As dentists scramble to switch to an insurance model, one question arises over and over again
words: Neil Taylor
In April 1912, 90 minutes after the Titanic hit the iceberg, the president of the company who built the ship jumped into one of the last lifeboats to leave. Using this analogy, one wonders which of the current crop of indemnity companies will make it into the lifeboats unscathed, and who will be left floundering in the sea.
Why, all of a sudden, do you see numerous articles on the topic of indemnity, with variations in opinion, and new indemnity companies opening up?
Having spent nearly a decade advocating the facts, I find my thoughts echoed within the Government consultation paper on ‘Appropriate clinical negligence cover’ 1, which closed on 28 February 2019. Given the manner in which the consultation paper is written, it appears very likely that the era of discretionary indemnity will be confined to the annuls of time. Essentially, this is stage one of the consultation, and has yet to be concluded. However, as dentists scramble to listen and switch to an insurance model, which is the preferred Government option, one question arises over and over again:
“Should I be buying a
‘claims made’ or a ‘claims occurring’ policy?”
This is the topic that has been waiting to be discussed for a decade.
If you are currently a member of a medical defence organisation (MDO), you currently have membership of that organisation. You may seek and may be afforded indemnity at the discretion of that organisation. In the majority of cases, this is provided on the basis of “claims occurring” indemnity. If an incident occurs which relates to your period of membership, you will have been advised that you are covered in perpetuity, regardless of whether you remain in membership at the time of the claim arising. Of course, this can only be the case if the organisation still exists when the claim arises. This has not gone amiss by the Government, who at page 27 at 5.10 state:
“The absence of regulatory requirements for the provision of discretionary indemnity in terms of reserving adequately to meet expected claims raises the risk that providers may not be able to meet the cost of claims in the future, for example, because of an external shock or changes in the market. This may increase the risk of an indemnity provider exercising their discretion not to support their members, with patients losing out on potential compensation as a result, or the risk of insufficient and/or unaffordable clinical negligence cover in the market.”
Thus, the issue is not the future, it is the past, and who will pick up the liability of the past claims as they arise.
Consider two identical pots with plugs at the bottom.
Pot A is the MDO ‘claims occurring’ pot. Member dentists, including those who have retired, have put money into this pot over the years. If a claim arises, at the discretion of the MDO board, the plug is opened, and a claim is settled or defended, with defence costs being paid out. The plug is replaced, and all the members put in more money by way of annual subscriptions. If the plug is opened more often, then the members need to put in more money to keep this topped up. As the model is utilitarian, it doesn’t matter if the claim is yours; the books need to balance, so all the members pay more year on year, as the climate of litigation rises.
Following the Government consultation paper, and if this is enacted upon, which looks very likely, the MDOs will need to be regulated and will need an insurer. We will refer to this as Pot B. This may appease the Government; however, take care with your past claims which have not yet arisen.
Some appear to be advocating, and may even genuinely believe, that for Pot B to be the gold standard the model must be ‘claims occurring’. If the MDOs with a new insurer attached, or indeed any new insurer, hits the market, the money the dentists pay in by way of annual subscriptions will be diverted into Pot B. As a consequence, Pot A will not be receiving much money now, or the combined price of A and B will be higher.
Most new models will have no past cover (retroactive cover) as they are set up on a ‘claims occurring’ basis. This is obvious, as most new insurers will not want to pick up your past unquantifiable claims. Thus, if a claim arises in the future from an incident in the past, the dentist will be pushed back to the MDO to cover the claim, in view of the assurance that “we will cover you in perpetuity”. Of course, this is discretionary cover, and now there is far less money going in at the top of Pot A, as most of it has been diverted into Pot B. Guess who is going to be liable for past claims when the money runs out in Pot A, if you only have ‘claims occurring’ insurance?
Fortunately, this has long been predicted by me and has not gone amiss by the Government.
At page 32 paragraph 5.32 “ … One option could be that indemnity providers could prudently run-off their historic liabilities on a discretionary basis for a period, while, subject to authorisation, selling a regulated product through the establishment of separate subsidiaries under a mixed-activity insurance holding company.”
The problem, as we know, is that some claims do not arise for years.
The solution has been proffered to the Government by TDS. The only viable options are:
1. Use taxpayers’ money to bail out the run-off period of the MDOs if/when their money runs out, or;
2. ‘Claims made’ policies with retroactive cover and subrogation clauses. This means in the event that a claim arises from treatment during MDO membership, the claim would be picked up by the insurer in the event the MDO is unable to do so.
In my opinion, these are the only two solutions that will adequately deal with this dilemma.
If the MDOs pick up an insurer, this is a new and untested product. The TDS model of ‘claims made’ attached to a service product has been tried and tested for the last eight years. There has been never been an unrepresented client at the GDC, and endless appraisals of the model which is specifically designed to remove the dentists from this current predicament. Time will tell; however, do not be surprised if there is radical change in the very near future.
1This document can be found at the following link: bit.ly/2XZpi3g
Neil Taylor, Head of Services at Taylor Defence Services, is qualified in dentistry, law and a retired five-year member of the Faculty of Advocates.