When applying for any type of insurance cover, insurers typically ask a set of questions that allows for evaluation of the risk to be protected. This forms part of underwriting – the process whereby an insurer assesses and takes on financial risk for a fee. The higher the potential risk to the insurer’s business, the more stringent the underwriting process.
Taking into consideration the high costs associated with the defence of medical negligence claims, and the high value of demands that may have to be settled – often in excess of R5 million – the risk in providing medical professional indemnity cover is deemed to be high. Also, the higher the limit of cover, the greater the need for caution. Specialists typically request limits of cover between 30 and 50 million rands. Source: EthiQal policyholders.
It is for these reasons that responsible providers of professional indemnity cover, follow a meticulous process when adjudicating any individual practitioner’s risk. Factual information provided by the person to be insured, is known as the declaration and forms the basis of any insurance contract.
Why are declarations important?
Whereas the collection of information often frustrates doctors, it is not only for the protection of the insurer, but also for the healthcare provider. If risk is not assessed, priced and managed properly, the insurer may not hold the required financial reserves in the event of doctors submitting claims, leaving practitioners financially exposed. Thorough underwriting also allows for practitioners to pay premiums aligned as far as possible to their personal risks, which benefits those who manage these well. Declarations furthermore ensure that the practitioner has proof of risks accepted for cover.
Typical information that must be disclosed at the time of applying for cover, includes:
- Professional details such as scope of practice, training, qualifications and experience, and interruptions in practice
- Place of practice
- Practice details like the number of patients consulted, staff employed, records kept, services offered and income earned
- History of medico-legal complaints
- Previous insurance cover, especially cancellation or refusal thereof
- Third-party enquiries, for example by regulatory authorities
- Hospital management or medical funders into professional conduct
- Any criminal offences
What happens if information is withheld or misrepresented?
As it is difficult for practitioners to decide what may influence their risk assessment and what should be declared, insurers provide clear guidance in their application forms. From the perspective of the practitioner, all questions must be answered accurately and honestly. Whereas indemnifiers receive and accept most of the information in good faith, verification of some facts may be requested on application and/or a future date.
Material nondisclosure, which is failure to inform an insurer of all applicable important facts, and material misrepresentation, which is the act of giving a false or misleading account of a relevant fact, could lead to rejection of a claim or worse, an avoidance of the policy. With the avoidance of a policy, the insurer and the insured practitioner are put back in the position they were in, as if the policy never existed, with the insurer refunding all premiums from inception date, and the practitioner forfeits all benefits under the policy and is left uninsured. Any claims paid under the insurance contract prior to the avoidance, would also have to be repaid by the practitioner to the insurer.
For anyone seeking professional indemnity cover, due care must be taken when responding to requests for information by insurers, whether on the first application for insurance cover or the annual renewal of an existing policy. Failure to do so diligently and honestly, could have dire consequences.
Any guidance is intended as general guidance for policyholders only. If you are a policyholder and need specific advice relating to your own circumstances, please contact one of our advisers.