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Tuesday, 11th August 2020
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EU initiative needed to solve regulatory gap in indemnity insurance Back  
There exists a major regulatory anomaly in Ireland in respect of Medical Indemnity/Insurance contracts Professor Ray Kinsella writes. Unless it is addressed, in terms of legislation and regulatory process, it will constitute a threat, not alone to the patient but, also, to the wider public interest.
This anomaly, in one form or another, is not unique to Ireland. It is a ‚€ėgap‚€ô in the fabric of EU regulatory and supervisory legislation and will, ultimately, have to be addressed in Brussels. When the dust settles ‚€‘ as it will ‚€‘ over the present dispute between the Government, MDU and Hospital Consultants, the full implications of the situation existing prior to the implementation of the Clinical Indemnity Scheme (CIS) for Consultants, on 1st February 2004 will become apparent.

Absence of certainty
Commercial ‚€ėInsurance Undertakings‚€ô had exited the Medical Indemnity Market ‚€‘ largely because of the knock-on effects of the increased number and costs of claims, on premia being paid by Government and (jointly) by consultants. Medical indemnity was then provided by two provident-type institutions ‚€‘ the Medical Defence Society (MDU) and the Medical Protection Society (MPS). MDU ‚€‘ at the heart of present discussions ‚€‘ provided, inter alia, ‚€ėdiscretionary‚€ô cover i.e. there was an absence of certainty, though it should be added that in practice they had not rejected any claim. The companies were fully compliant with UK company law. Also, MDU are reportedly moving away from an essentially pay as you go system to a insurance/reinsurance model, going forward.

But‚€¶
But ‚€‘ and it is a very important but ‚€‘ these were not ‚€ėInsurance Undertakings‚€ô, as defined in EU Directives and Irish Insurance Law. They were not, therefore, encompassed within the very strict, pan ‚€‘EU, regime regarding reserving, solvency and the run-off of claims. Nor are they covered by the consumer protection regime of the Irish Financial Services Authority (IFRSA). They were ‚€‘ and are ‚€‘ quite simply ‚€‘ ‚€ėnon-regulated entities‚€ô in the terminology of the IFRSA.

It really shouldn‚€ôt have happened ‚€‘ potentially it put patients (and by extension consultants) at risk and was wholly contrary to the whole idea of the Single Regulator (IFRSA). In fairness, no one ‚€‘ regulators, academics, policymakers or analysts ‚€‘ picked up on it.

It is important to point out that this is part of a more general regulatory issue that the Government will have to confront. There are a number of ways of looking at this. The state, in general, insures on a pay-as-you-go basis as do some mutual and provident institutions in some EU countries. Individual and private sector entities still insure e.g. liability cover, for the most part, through ‚€ėinsurance undertaking‚€ô, that are fully funded. They are quite different in terms of accounting practice and, also, the cost of funding. Its not a ‚€ėlevel playing field‚€ô.

But take a further step. Increasingly, large companies are, part self-insuring; This can be very sensible in some instances ‚€‘ the danger is that the company and the ‚€ėInsurance Undertaking‚€ô who is underwriting part of the risk may use very different accounting and presentational methods. This could lead to what one leading authority has called a form of ‚€ėregulatory arbitrage‚€ô.

What all of this means is that firstly there is emerging an un-funded liability, within both the public and, the private sectors, the size of which we don‚€ôt know. What the medical indemnity issue proves is that you cannot really afford to take your eye off the ball i.e. consistency and transparency in relation to funding arrangements. Secondly, this is complicated by differences in accounting procedures.

Thirdly, there are latent dangers in terms of competition policy as between e.g. the states pay-as-you-go approach and that of ‚€ėinsurance undertakings‚€ô. A very uneven ‚€ėplaying field‚€ô. The medical indemnity issue illustrates some of these issues ‚€‘ and very real problems- in microcosm.

CIS ‚€‘ Putting the package together
The introduction of CIS ‚€‘ based on the legal liability of the enterprise, rather than that of the individual(s) may yet prove a template for other countries. Essentially it provides free indemnity cover for consultants working in public hospitals and ‚€‘ because the public ‚€‘ private mix is the cornerstone of the acute system in Ireland ‚€‘ it also covers private procedures in ‚€ėdesignated‚€ô beds in public hospitals. In regard to wok carried out by consultants in private hospitals ‚€‘ such as the Mater Private, St. Vincent‚€ôs Private, the Blackrock Clinic and later this year, the new Galway Clinic ‚€‘ the Government have, it would appear offered to pay the premia relating to exposures above ‚ā¨1 million. Consultants will be indemnified for work carried out under the National Purchase Treatment Fund.

At one level, all of this replaces a patchwork of arrangements whereby Government bore 90 per cent cost of cover, to the MDU or MPS, with Consultants paying the residual ‚€‘ quite considerable ‚€‘ premia costs.

So, for much of the scheme. The CIS ‚€‘ based with the State Claims Agency in the National Treasury Management Agency (NTMA) ‚€‘ will simply replace what was generating into a rapidly escalating volume of expenditure by Government. But it is tidier, less fragmented and ‚€‘ most important of all ‚€‘ incorporates a National Risk Identification System.

Total potential exposures and consultants
There are two points that are not ‚€‘ yet ‚€‘ clear. The first is the total potential exposures ‚€‘ in terms of future claims ‚€‘ which the CIS are taking over. Medical indemnity is a notoriously ‚€ėlong-tailed‚€ô exposure. The second is the financing deal which will underpin the negotiated package: one which deals, in particular, with the potential exposures of consultants in respect of incidents which happened prior to February 1st 2004, when the Minister introduced the scheme over the head of the consultants.

It is regrettable that matters came to such a head ‚€‘ after all, it has, in the event, proved necessary to take another month to try hammer out a fair and equitable arrangement. The Consultants are, by far, the most vulnerable section of those covered by the CIS, since patients were at risk depending on whether their insurer would, or could, cover such exposures.

In practice, the Government would have found it difficult to walk away from successful litigation by a patient in a situation where most consultants believed they were dealing with certainty of funding (in cooperation with Government) from a de facto ‚€ėInsurance Undertaking‚€ô.

Nonetheless, the transition was always likely to be difficult and should not detract from the Government‚€ôs success in developing and implementing the new scheme and ‚€‘ almost certainly ‚€‘ in working with the MDU and the Consultants to provide a fair and equitable arrangements in regard to retrospective (i.e. prior to 1st February 2004) exposures.

Regulatory ‚€ėtime ‚€‘warp‚€ô
All of this leaves a number of absolutely fundamental regulatory and supervisory issues to be dealt with, as part of a settlement, or to be resolved in the near-term.

Firstly, the MDU, and also the MPS, arguably exist ‚€‘ in terms of EU supervisory practice ‚€‘ in a historical ‚€ėTime Warp‚€ô. This is not to say that they do not provide a range of valuable services for their membership. What is at issue is the reality that they are ‚€ėunregulated entities‚€ô, compared with ‚€ėInsurance Undertakings‚€ô who provide complimentary/substitute products.

In the event of a re entry of commercial insurers into this market in Ireland, we would have the same ‚€ėtwin - track‚€ô regulatory processes as existed in the 1990s: substitutable products being provided, on the one hand, by (heavily) regulated insurers and, on the other hand, ‚€ėunregulated entities‚€ô.

In practice, it is difficult to envisage a re entry of commercial insurers ‚€‘ partly because of the CIS taking out a large chunk of the potential market and partly because of the uncertainty (and therefore difficult to price) nature of clinical risks. But even the possibility of such a ‚€ėgap‚€ô is contrary to regulatory ‚€ėbest practise‚€ô and against the whole intent of the IFSRA.

Regulatory inconsistency
There is another issue. Even if commercial insurers do not re enter ‚€‘ at least in the short to medium term ‚€‘ there are still two regulatory arrangements in place in regard to integrated medical indemnity risk. Firstly, there is the CIS, managed by the State Claims Agency (part of the NTMA), which is accountable to the Dail and ultimately comes within the remit of the Minister for Finance.

Then there are the MDU and the MPS which, as matters stand, are neither ‚€ėregulated entities‚€ô (as commercial ‚€ėinsurance entities‚€ô would be‚€ô) nor is it easy to see to who they are accountable, within the jurisdiction.

A Private Consultant, operating in a private hospital, could have (a) private cover by an unregulated entity with the ‚€ėexcess‚€ô of ‚ā¨1 million funded by the State (b) If he/she were engaged in National Treatment Purchase fund work, cover provided by the CIS. These arrangements cannot be satisfactory. They do not e.g. conform to the principles set out by Government itself in ‚€ėBetter Regulation‚€ô (Department of An Taoiseach 2004)

Internationalisation of exposures: an EU issue
The procedures operated by the State Claims Agency in respect of the CIS are as rigorous as could reasonably be anticipated in 2000.

Still, there are issues that may prove difficult. Medical consultants operate across sectors (Public/Private), as well as a North/South basis. More importantly, they increasingly operate in an international (EU and US, mainly) domain. This requires consistency of indemnity arrangements, to begin with across the EU. It requires rigorous protocols, based initially on [a development of] the NTMA (Amendment) Act, 2000. More generally, this whole anomaly of the CIS being accountable to the Dail (though not formally regulated/supervised according to EU/IFRSA standards; MDU is not tenable.

There remains an unpredictable element. The state is now back in the insurance business. One of the most far-sighted elements of the CIS is the introduction of the National Incident Report System. This should - given management commitment, investment in I.T. and especially in training - generate a considerable reduction in clinical risk, by identifying ‚€ėclusters of incidents‚€ô; thereby reducing the number and costs of claims. In this environment, there are three possible trajectories, each with very different regulatory and policy implications.

The first simply assumes that the CIS will produce a cost-effective set of outcomes. Central to this will be the quality of claims settlement, as opposed to claims management. The second assumes that the State Claims Agency will be so successful that, at some future time, the issue of privatisation will arise. It‚€ôs inevitable. Effectively, the CIS will have resolved with the ‚€ėmarket failure‚€ô ‚€‘ stemming from the exit of commercial insurers - which presently exists, opening up new possibilities. The fact that the whole scheme is ‚€ėun-funded‚€ô may be its ‚€ėAchilles heel‚€ô. The third scenario is rather different.

It presupposes that, notwithstanding the inherent strengths of the CIS initiative, the State will be left as an ‚€ėInsurer of Last Resort‚€ô, within an environment of escalating medical cost inflation and litigation generated by ‚€ėmoral hazard‚€ô (‚€ėthe States picking up the tab‚€ô mentality, reinforcing Irelands ‚€ėcompensation culture‚€ô) and the uncertainty generated by seismic advances in clinical and therapeutic advances ‚€‘ partly driven by the application of the human genome project. From the Exchequers perspective, its not a pretty picture.

None of this should detract from the quality of the CIS as a world-class management innovation. But it is only prudent to identify the actual - and potential - regulatory anomies, as well as the uncertainties with which it will have to cope with over the next decade.

We need legislation now to centralise all regulation in the field of medical indemnity/ insurance within the IFRSA in order to ensure consistency and transparency.

And we need to begin talking with Brussels about how best to develop responses to the wider issues, relating to the protection of patients in the event of an ‚€ėadverse incident‚€ô within a wholly new, emerging acute care scenario, within and across, the EU.

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