Fatal Blow
Sydney Morning Herald
Saturday May 4, 2002
A jump in claims to beat legislative change and the collapse of HIH helped kill off United Medical Protection, writes Brian Robins.
`THE boy who flew too close to the sun" may well be the epitaph of Dr Richard Tjiong, the medico-barrister who built United Medical Protection into the country's largest medical indemnity outfit, which collapsed this week. Surging indemnity premiums in the wake of a rising tide of claims and payouts saw him forced out in mid-2001, amid a revolt of members. The HIH collapse a few months later might have been the final nail in United's coffin.
Yesterday, with United's directors waiting to resign en masse, extreme difficulties in obtaining director's insurance and an evaporating capital base, saw United placed into provisional liquidation. Its impending collapse had already thrown the NSW medical system into turmoil with some doctors refusing to treat private patients because they don't have insurance cover.
Starting out in Taree in the early 1970s, Tjiong was the only ear, nose and throat specialist between Newcastle and the Queensland border. Keen to drum up business, his entrepreneurial bent was clear early on. For example, he was famous for jumping into his plane to head off to treat a patient. Medicine was not his only calling: there was an early move into growing lychees for export.
But it was in the mid-1980s that he began to spread his wings when he joined the council of the then NSW Medical Defence Union (MDU), a doctor-owned mutual which had been rocked by the Chelmsford Hospital scandal in which 18 people had died and about 60 had suffered damage through deep-sleep treatment, which involved drugging patients for several days.
Tjiong is credited with turning the organisation around after it was hit by a rash of claims. He then pushed for it to provide indemnity insurance. In the late 1990s, United, as MDU was then known, expanded by acquisition to emerge as the main player in medical indemnity.
But by then the playing field had changed, with payouts on claims beginning to rise. As rivals moved to provide for all outstanding claims both the known and the prospective, the so-called incurred but not reported (IBNR) cases United held back until it was too late.
When United ruled off its books in mid-2001, it had $550 million of known claims, covered by funds of more than $650 million. But it expected a further $455 million in IBNRs a gap of about $350 million.
The high-water mark of claims was the Calandre Simpson case early in March last year, a cerebral palsy victim who was awarded $14.2 million in damages. It followed a surge in big payouts, blamed by many on the decision to allow lawyers to launch no-win, no-fee claims, as well as to advertise.
Damages payouts are higher in NSW, although this is due to the higher cost of living, coupled with the escalation in wages over the past decade, especially since claims are for ``whole of life" care. Even so, the contrast with payouts in other states can be stark.
``The Simpson case ... would have got $3.5 million in Queensland, based on precedent available up here," says Peter Marer, of Queensland Doctors Mutual, a rival medical indemnity operator.
Escalating payouts forced medical indemnity premiums higher, primarily in specialist areas, prompting a backlash among rural doctors, especially obstetricians. To head off this unfolding crisis, NSW moved to cap payouts, with the Health Care Liability Bill taking effect from the middle of last year. If the Simpson case was before the courts now, contingency fee lawyers argue, damages would be limited to about $9 million.
That impending legislative change prompted a spike in claims which forced United to book another $30 million in claims.
``Prior to the changes, we filed any meritorious claim in our filing cabinet," says Bill Madden, partner with Slater & Gordon. ``Since July, we've only filed two claims."
Despite the slump in claims since mid-2001, claims levels are expected to revive over the next 18 months but will stabilise at a lower level.
Ahead of those changes, the average medical negligence claim was worth about $40,000, indicating that there were thousands of small claims, and only a handful of bigger payouts. ``The Health Care Liability Act decimated small claims, and big claims are worth less," says Madden.
The huge spike in claims ahead of the new legislation coupled with HIH's collapse, which cost United the $67 million it had paid HIH for reinsurance, is credited with United's collapse.
Capital of $118 million in mid-2001 had dwindled to just $27 million by March. And UMP reckons it will be unable to meet tougher capital requirements that take effect from mid-year.
To strengthen its finances, United imposed a one-off premium in 2000, seeking $75 million, which provoked a severe backlash. And underwriting losses persisted as claims topped $90 million in 2000-01.
Despite the loud complaints by doctors about surging premiums, insurers argue that professional indemnity insurance costs have been on the march across most professions. ``If a management consultant or a landscape designer wants $10 million cover, it would cost $10,000," says Ian Birtwhistle, of Macquarie Underwriting. ``The whole field of professional indemnity has seen rates rise."
Despite the media hype that the problems in NSW result from a lawyer-driven frenzy, the number of medical procedures has also risen sharply, with the proportion of claims made holding fairly steady.
Professor Bruce Barraclough, of the Safety and Quality Council, says about 10 per cent of people using hospital care will have an ``adverse event", with 2 per cent being severe. ``Approximately 50 per cent of adverse events are preventable, but few are due to negligent activity," he says. ``Only half of all claims that get to court win. It is a lottery for those seeking redress," Barraclough argues. ``But it shouldn't be."
This week, under intense pressure as the private health system ground to a halt, the Federal Government stitched together a package to keep doctors operating until mid-year, but this doesn't resolve the problem for United's doctors.
On June 30, an estimated 8000 of them mostly in Queensland are faced with subscription renewals. And on December 31, some 20,000 doctors almost all in NSW will be looking for cover.
Medical insurance providers such as Victoria's MIPS are lining up to chase this business, and others are looking to enter the market. An advertisement on page 3 of last Saturday's Herald sought legal managers and solicitors experienced in medical indemnity insurance. The company expanding into the field described itself as a ``household name" with over 3.5 million customers across Australia.
Most have fingered IAG, the former NRMA, as the advertiser, especially since its deputy chief executive, Ian Brown, addressed the Canberra summit on medical indemnity insurance last week, even though NRMA has no presence in the industry.
As for Tjiong, he has been lying low since being pushed out of United, refusing to speak about the problems that beset the company he ran for many years, or the difficulties now confronting medical indemnity generally.
© 2002 Sydney Morning Herald