The initial signs of trouble with medical indemnity insurer Australasian Medical Insurance Ltd – United Medical Protection’s fully owned insurance company – came to light in March. In response to concerns from nervous doctors, APRA launched an investigation into the viability of the mutual insurer. According to the regulator, there had been a “significant decline” in AMIL’s financial position. The group would need to increase consolidated capital from $38 million to $68 million by June 30.

But by April it became clear that not only would Australia’s biggest medical insurer not be able to meet APRA’s capital deadline, but that UMP was dangerously close to collapsing. So the Federal Government pledged its support, providing UMP with a capital guarantee.

Despite the effort, nothing could prevent UMP’s collapse. In May UMP fell over and the liquidator was called in. While the Federal Government refused to bail out the failed mutual, the Prime Minister guaranteed doctors would be covered.

Just a week earlier a Canberra forum had been held where health ministers from every state and territory discussed ways of reducing the high level of litigation in medical insurance and encouraging dispute settlement through mediation. The forum had recommended bringing medical indemnity insurers under APRA supervision. Other reforms proposed were changing the tax treatment of structured settlements and the introduction of tort reforms allowing negligence victims to take tax-free payouts via annual payments.

In June Prime Minister John Howard announced a further extension of the Government’s guarantee to UMP. Mr Howard said the six-month extension would give the Government time to sort out a solution. That didn’t arrive until October, when the Government extended its financial guarantee to UMP for another 12 months until December 31 next year.

From January, the Government will also cover half the cost of medical indemnity claims higher than $2 million. It will also subsidise Medicare-billing obstetricians, neurosurgeons and GPs to help them meet the spiralling indemnity premium costs. The subsidy alone is expected to cost the Government about $50 million a year and will be funded by taxpayers. The cost of the UMP bailout will continue to be covered through a levy on doctors who are part of medical defence organisations with unfunded liabilities.