Medical Indemnity (Prudential Supervision and Product Standards) Act 2003

Medical practitioners and registered health professionals: They are the beneficiaries of the minimum cover and compulsory offer obligations. They cannot waive the minimum cover protections; these are mandatory minimums imposed by statute and automatically apply even if the policy would otherwise provide less (section 17(4) and 18(5)).

Medical indemnity insurers (general insurers and Lloyd's underwriters): The primary regulated entities. They must comply with Part 2 (prudential requirements) and Part 3 (product standards) in every contract they issue to health care professionals. APRA regulates them under the Insurance Act 1973 for prudential purposes; ASIC administers Part 3's product standards.

Medical Defence Organisations (MDOs): Not themselves insurers, but organisations that provide discretionary assistance to members. Under Division 2A of Part 3 (sections 26B and 26C), MDOs must arrange with insurers to provide mandatory run-off cover for eligible practitioners who were covered by the MDO. Failure is a criminal offence carrying up to 12 months imprisonment.

Financial services intermediaries: Any person who arranges, recommends, or facilitates the entry into or renewal of a medical indemnity arrangement provided by a non-insurer commits an offence under section 11, regardless of whether the cover provider also commits an offence.

The Commonwealth: Commonwealth, State, and Territory governments providing cover as employers are exempt from the Act's requirements (section 8(2)(a)). Employer-provided cover for employees is also exempt (section 8(2)(b)).

Prudential requirement (section 10): The primary obligation in Part 2. A person may not offer, enter into, renew, or maintain an arrangement to provide medical indemnity cover (including having such an arrangement come into effect) unless: the person is a general insurer or Lloyd's underwriter; and the arrangement is effected by a contract of insurance. Violation is a criminal offence carrying 12 months imprisonment.

Minimum cover per claim (section 17): A regulated insurance contract must provide at least $5 million for any single compensation claim. If the contract provides less, the statutory minimum automatically applies as the actual cover.

Minimum annual cover for incident-occurring policies (section 18): For incident-occurring based contracts, the insurer must provide at least $5 million for all compensation claims arising from any one relevant period (generally a year). Same automatic uplift applies if the contract provides less.

Minimum annual cover for claims-made policies (section 19): Separate minimum annual cover applies for all claims made during the claims period under a claims-made policy. Same $5 million floor and same statutory uplift.

Compulsory retroactive cover offer (section 22): When entering into, renewing, or having a regulated insurance contract come into effect, the insurer must simultaneously offer to cover the health care professional's otherwise uncovered prior incidents for the whole of the new claims period. This offer must be a complying offer (section 24). Failure is an offence carrying 12 months imprisonment. The insurer cannot enter into the regulated contract before the client has responded to this offer in writing.

Compulsory run-off cover offer (section 23): When a prescribed event occurs during the claims period (such as retirement or permanent disability, as specified by regulation), the insurer must make a complying offer for run-off cover within 28 days of becoming aware of the event.

Mandatory provision of run-off cover for eligible practitioners (section 26A): The last insurer to have provided cover to an eligible practitioner must provide free run-off cover until the practitioner ceases to be eligible. This obligation arises without any application from the practitioner.

MDO arrangement obligation (section 26B): Where no insurer is obliged under section 26A to provide run-off cover for an eligible practitioner who was an MDO member, the last MDO must arrange for an insurer to provide that cover.

Record-keeping (sections 22(3) and 23(4)): Insurers must keep copies of compulsory offers, client responses, and any other related offers and invitations for five years from the date of the offer. Failure is an offence carrying 6 months imprisonment.

Notification obligations (section 26D): An insurer providing run-off cover under section 26A or 26C must give the covered person written notice stating the nature and range of incidents covered and the terms and conditions of the cover.

APRA administration of Part 2: APRA has general administration of Part 2 (section 28). The Minister may give APRA directions about the performance of its functions. APRA's prudential oversight extends through the Insurance Act 1973's prudential standards and supervisory powers.

ASIC administration of Part 3: ASIC has general administration of Part 3 (section 30). The Minister may give ASIC directions. ASIC may apply to the Federal Court for injunctions requiring insurers to make compulsory offers under sections 22 or 23 (section 26).

Federal Court injunctions (section 26): The Federal Court may order an insurer to make an offer where it has engaged in or is proposing to engage in conduct that contravenes sections 22(1) or 23(1). Applications may be made by the client, ASIC, or the Minister administering the Medical Indemnity Act 2002. The Court may specify the offer terms, timing, and the period for acceptance.

Reasonableness of premiums (section 7A): In assessing whether a premium is reasonable, regard must be had to the nature of the risks, claims handling and administrative expenses, reinsurance costs, capital-raising and prudential compliance costs, a reasonable profit margin, taxes, information provided (or not) by the client, provisioning for future liabilities, Commonwealth assistance received, and any other prescribed matters. This framework governs the complying offer premium requirement for retroactive cover under section 22.

Exclusions discretion: Insurers may exclude particular incidents or claims from compulsory offers if it is reasonable and appropriate having regard to the nature of the health care provided, usual industry exclusions, and any other relevant considerations (sections 22(1A), 23(2B), and 24(2)(d)).

Anti-avoidance (sections 31(1)-(3)): Arrangements entered into, brought into effect, or renewed before 1 July 2003 with the sole or dominant purpose of avoiding the Act's application are treated as if they occurred on or after 1 July 2003.

Section 10 (unlicensed provision of medical indemnity cover): Imprisonment for 12 months for providing, offering, or maintaining medical indemnity cover as a non-insurer. The offence applies whether the arrangement has a relevant constitutional connection (under the insurance or corporations constitutional powers) (section 10(2)(b)).

Section 11 (intermediary offences): Imprisonment for 12 months for intermediaries who arrange or recommend medical indemnity cover provided by a non-insurer.

Section 17(2), 18(3), 19(3) (below-minimum cover): Imprisonment for 12 months for offering or issuing a policy with cover below the $5 million statutory minimum. Note that the policy automatically provides the statutory minimum regardless of conviction status (section 17(4) and equivalents). The offence is thus directed at deterrence, not contract invalidity.

Section 22(1) and 22(2) (compulsory retroactive offer failure): Imprisonment for 12 months for failing to make the compulsory offer simultaneously with the regulated contract offer, or for entering into the contract before receiving the client's written response.

Section 22(3) (record-keeping failure): Imprisonment for 6 months for failing to maintain five-year records of offers and responses.

Section 23(1) (run-off offer failure): Imprisonment for 12 months for failing to make a run-off offer within 28 days of a triggering event.

Section 26A(1) (mandatory run-off cover failure): Imprisonment for 12 months for failure by the last insurer to provide free run-off cover to an eligible practitioner.

Section 26B(1) (MDO arrangement failure): Imprisonment for 12 months for an MDO failing to arrange run-off cover through an insurer where required.

Section 33(2) (regulations): Penalties up to 10 penalty units may be prescribed for offences against the regulations.

All offences are subject to the Criminal Code Act 1995 (Chapter 2). Certain defences (such as that every relevant incident occurs outside Australia) require the defendant to bear an evidential burden under section 13.3(3) of the Criminal Code.

Compulsory retroactive offer (section 22): Must be made at the same time as the offer or invitation leading to the regulated insurance contract, or its renewal. The insurer may not enter into the regulated contract before receiving the client's written response to the compulsory offer.

Compulsory run-off offer (section 23): Must be made within 28 days of the insurer becoming aware of the triggering event (such as retirement or permanent disability). The offer must remain open for at least 28 days (section 24(2)(b)).

Automatic run-off cover: Must be provided continuously until the practitioner ceases to be an eligible practitioner under section 34ZB(2) of the Medical Indemnity Act 2002, subject to any termination date set under that Act (section 26A(1)(e)).

Record keeping: Five years from the date the compulsory offer is made (sections 22(3)(iv) and 23(4)(iv)).

Commonwealth exemption cutoff: The Act applies from 1 July 2003. Anti-avoidance provisions bite on arrangements structured before that date to avoid the Act's requirements (section 31).

Medical Indemnity Act 2002: The Act works closely with the Medical Indemnity Act 2002, which provides: Commonwealth assistance for high-cost claims (high cost claim indemnity); the Run-off Cover Support Payments Scheme; definitions of eligible practitioners and MDOs; the mechanism by which run-off cover support terminates (section 34ZB); and conditions for insurers receiving Commonwealth assistance. The minimum cover calculation in section 20 of this Act expressly excludes the insurer's right to high-cost claim indemnity, run-off cover indemnity, and allied health high-cost claim indemnity under the 2002 Act.

Insurance Act 1973: General insurers must comply with APRA's prudential standards under the Insurance Act 1973 as a precondition to providing medical indemnity cover lawfully under this Act. Section 116 of the Insurance Act 1973 (which prohibits insurance business after winding-up commences) limits the insurer's obligations to make compulsory offers (section 22(6) and (7)).

Corporations Act 2001: The definition of 'provide a financial service' adopts the Corporations Act meaning. MDOs and insurers are corporations subject to the Corporations Act framework. The scheme of arrangement procedures in Part 5.1 of the Corporations Act have been used for mergers between MDOs.

Australian Prudential Regulation Authority Act 1998: Section 56 secrecy provisions apply to information received under this Act (section 29).

Insurance Contracts Act 1984: Arrangements renewed under this Act may engage section 58(3) of the Insurance Contracts Act, which may by force of law continue an insurance contract after its nominal expiry (noted in section 4).

Criminal Code Act 1995: Chapter 2 applies to all offences. Strict liability applies to the premium reasonableness element of compulsory retroactive offers (section 22(1B)).

Constitution: The Act's application is limited to arrangements with a relevant constitutional connection: insurance under s 51(xiv), trade and commerce under s 51(i), or Territory arrangements. State insurance is excluded (section 8(1)).

The retroactive offer must occur at the time of the main contract offer, not after: Section 22(1) requires the compulsory retroactive offer to be made at the same time as the main offer or invitation leading to the regulated insurance contract. An insurer who sends the main offer first and the retroactive offer later commits an offence, even if both documents are sent within the same day.

The insurer cannot enter the contract before receiving a written response: Section 22(2) makes it an offence to enter into the regulated insurance contract before the client has given a written response to the compulsory offer. Verbal acceptance of the main policy while the retroactive offer is still pending creates criminal exposure.

Extended reporting benefit (ERB) cover and death/disability/retirement (DDR) cover are excluded from both claims-made and incident-occurring cover: Both types of cover fall outside the definitions in section 6. This matters because ERB cover (where the claims period begins after the incidents period ends) and DDR cover (without a fixed claims period) are not regulated insurance contracts and do not trigger the compulsory offer obligations under sections 22 and 23.

Minimum cover is automatically applied, but the offence still occurs: When a policy's contractual limit falls below $5 million, section 17(4) automatically replaces the contractual maximum with $5 million. But the insurer still commits a criminal offence by issuing the policy (section 17(2)). Both outcomes operate independently.

Run-off cover is free for eligible practitioners: Section 26A(4)(f) requires that no premium or other consideration be payable for run-off cover provided to eligible practitioners. An insurer who charges any premium for mandatory run-off cover breaches this requirement.

MDO obligations attach to the last MDO in the chain: Section 26B requires the last MDO to have provided relevant medical indemnity cover to arrange for an insurer to provide run-off cover. If an MDO merged or was taken over, the successor body bears the obligation (section 26B(3)).

The exclusions discretion requires genuine consideration: Sections 22(1A) and 24(2)(d) permit exclusions from compulsory offers only where it is reasonable and appropriate having regard to the nature of the health care provided, usual industry exclusions, and other considerations. An insurer who adopts blanket exclusions without genuine engagement with these factors risks the offer not being a complying offer.

GP entering into a new claims-made policy: A general practitioner enters into a new claims-made policy for the 2026 calendar year. The insurer must simultaneously offer to cover all incidents that occurred before 1 January 2026 for which the GP would otherwise be without cover (section 22). The offer must remain open for at least 28 days, specify a reasonable premium, and include a clear explanation of the cover. The insurer cannot issue the 2026 policy until the GP provides a written response (acceptance or decline) to the retroactive cover offer.

Surgeon retiring and claiming run-off cover: A cardiothoracic surgeon retires after 30 years of practice. The last insurer to have provided claims-made based cover must provide free run-off cover for all the surgeon's medical practice periods under which that insurer (or its predecessor through takeover) provided cover. The cover must be at least as broad as the last policy and must continue until the surgeon ceases to be an eligible practitioner under the Medical Indemnity Act 2002.

MDO member retiring: An MDO member retires. The MDO, not being a general insurer itself, must arrange for a general insurer to provide run-off cover for the retiring member under section 26B. The cover must comply with the requirements in section 26A(4). If the MDO fails to make this arrangement, the MDO commits an offence carrying 12 months imprisonment.

Non-insurer attempting to provide cover: A professional body decides to provide medical indemnity cover to its members by accumulating a mutual fund, without converting to a licensed general insurer. This violates section 10. Both the body and any intermediary who facilitated the arrangement commit criminal offences. ASIC may also seek an injunction under section 26 requiring the body to convert or transfer coverage to a licensed insurer.