Commonwealth Numbered Regulations - Explanatory Statements

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MEDICAL INDEMNITY (PRUDENTIAL SUPERVISION AND PRODUCT STANDARDS) REGULATIONS 2003 2003 NO. 109

Statutory Rules 2003 No. 109

Issued by the Minister For Revenue and Assistant Treasurer

Medical Indemnity (Prudential Supervision and Product Standards) Act 2003

Medical Indemnity (Prudential Supervision and Product Standards) Regulations 2003

Section 33 of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

The Act, which commences on 1 July 2003, provides that medical indemnity insurance is only to be provided by general insurers and only under contracts of insurance. The intention is to ensure that providers of medical indemnity cover are subject to appropriate prudential supervision by the Australian Prudential Regulation Authority (APRA). The Act provides for transitional arrangements for certain providers of medical indemnity cover to meet the minimum capital requirements required by APRA for all general insurers. Such a provider may, under the Act, make application to APRA by 1 July 2005 for the transitional arrangements to apply to it. The transition period will be in force until 30 June 2008. The Act also provides for minimum product standards for medical indemnity insurance contracts in certain circumstances.

The purpose of the regulations is to outline the form of any application to APRA for transitional relief from minimum capital requirements imposed as a result of the Act's requirement that providers of medical indemnity cover be general insurers, and the form of any funding plan lodged ' in support of such application; and to ensure that the Act applies as intended.

The regulations will:

•       ensure that the Act does not apply to those types of insurance outside of the original policy intent;

•       prescribe the form for applications to APRA for a determination that minimum capital requirements do not apply to the applicant during the transition period;

•       allow certain medical indemnity insurance providers who are already authorised insurers to apply for such an APRA determination; and

•       prescribe the form for a funding plan that would form part of any application for an APRA determination.

Details of the regulations are set out in the Attachment.

The regulations will commence at the same time as the Act, that is, on 1 July 2003.

REGULATIONS

Regulations 1, 2 and 3

Regulations 1, 2 and 3 set out respectively the name of the Regulations, the commencement date and the definition of certain terms.

Regulation 4 - Application of Act - prescribed arrangements

Section 8 of the Act specifies the application of the Act. Paragraph 8(2)(e) provides for regulations to exempt particular types of arrangement from the application of the Act. Regulations made under this paragraph are designed to avoid any unintended consequences of the application of the Act.

Oral and maxillo-facial surgeons are registered as both medical and dental practitioners under the relevant State and Territory legislation. As such, subsection 21(1) of the Act would render professional indemnity insurance contracts written to cover these practitioners as 'regulated insurance contracts,' With the result that the minimum product standards at Part 3 of the Act would apply to such arrangements. This would be so even if the indemnity cover were only in respect of dental procedures. This outcome would not match the policy intent for Part 3 of the Act, which is aimed at ensuring minimum product standards apply only to contracts of medical indemnity insurance for doctors in respect of health care incidents arising from practice as medical practitioners, not as dental practitioners.

The Act is not intended to apply to reinsurance arrangements. However, it may be argued that the Act potentially extends to such arrangements. To put the matter beyond doubt, it is necessary to prescribe such arrangements as exempt from the application of the Act.

Regulation 4 therefore prescribes the above arrangements as ones to which the Act does not apply.

Regulation 5 - APRA determination that minimum capital requirements do not apply application form

Medical defence organisations (MDOs), which are the predominant providers of medical indemnity cover in Australia, may not be able, on 1 July 2003, to satisfy the minimum capital requirements under the Insurance Act 1973. These requirements are a prerequisite to being granted an authorisation from APRA to be an insurer. Part 2 Division 2 of the Act therefore establishes transitional arrangements for the attainment of minimum capital adequacy by MDOs and their related bodies, where they will be offering medical indemnity insurance contracts from 1 July 2003. Under subsection 13(1) of the Act, such bodies may make an application to APRA to access the transitional arrangements.

Subsection 13(2) of the Act specifies that the application to APRA must be in the form prescribed by the regulations. Regulation 5 and Schedule 1 outline the form that such an application must take. Schedule 1 requires that the applicant MDO or related body state how it meets the eligibility and other requirements specified under the Act for a determination to be made, and further requires that the application be approved by the applicant's Board of Directors.

Regulation 6 - APRA determination that minimum capital requirements do not apply prescribed bodies corporate

Under subsection 13(3) of the Act, in response to an application, APRA must make a determination in certain circumstances, that the minimum capital requirements do not apply to the MDO or related body applicant during the transition period. The Act specifies that the applicant MDO or related body must be either a body corporate that is not a general insurer, or if it is a general insurer, one that is prescribed by the regulations.

Generally, MDOs are associated with captive insurers - entities that are tied to the MDOs and are already authorised insurers regulated by APRA. The policy intention with respect to the transitional arrangements for the minimum capital adequacy requirements is that MDOs be given the maximum opportunity to use existing business and corporate structures to comply with the Act. This includes allowing them to use their existing captive insurer to issue contracts of insurance from 1 July 2003.

Regulation 6 therefore prescribes certain bodies corporate that are already authorised insurers, so that they may also apply to APRA for the transitional arrangements under Part 2 Division 2 of the Act.

Regulation 7 - APRA determination that minimum capital requirements do not apply funding plan

Under the Act, if a MDO or a related body wishes to apply to APRA for transitional relief under Part 2 Division 2, a funding plan must be lodged as part of the application. Subparagraph 13(3)(d)(i) of the Act specifies that the funding plan must be in the form prescribed in the regulations. Regulation 7 states that the form of the funding plan is prescribed at Schedule 2.

Schedule 2 therefore sets out the form of the funding plan, ensuring that sufficient detail is provided, that the funding plan complies with relevant APRA guidelines and that the application is approved -by the Board of Directors. The content of the funding plan itself will be further elaborated upon pursuant to the guidelines APRA may make under subclause 13(9) of the Act.