Concerns related to the discretionary nature of the indemnity products

In the ever-evolving landscape of South Africa's legal terrain, a discernible shift is taking place, marked by a surge in litigious activities, particularly in the realm of medical malpractice claims.

In this environment, where medical malpractice lawsuits are on the rise, specialists find themselves navigating a heightened risk of litigation. This raises pressing questions about the nature of this duty of care and its implications for healthcare professionals grappling with the increasing spectre of malpractice lawsuits.

FAnews spoke to JP Ellis, Head of Legal & Claims at Ethiqal about medical malpractice in South Africa and the discretionary nature of the indemnity products.

A duty of care

Every healthcare practitioner, according to Ellis, whether they work in the public or the private sector, owes a duty of care to act in the best interest of their patients. Regrettably, he said, there are instances where patients suffer harm, either directly or indirectly, due to the negligence of a healthcare practitioner. 

“Medical malpractice happens when healthcare practitioners or those following their instructions fail in their duty to take proper care of a patient. This failure, whether through decisions, judgments, or omissions, leads to harm or injury to the patient. If a patient has been harmed due to clinical negligence, they or someone representing them can seek compensation for the damages incurred,” said Ellis. 

Medical malpractice claims can be influenced by various factors, including an increase in awareness of consumer rights, changes in healthcare standards, and a more litigious environment. In South Africa, we are experiencing an increase in awareness of rights under the Consumer Protection Act (CPA) not only in healthcare. Our concerns lie with the level of care that is being provided and this is evident in the headlines we have seen in the past year, in September 2023 the Auditor General raised concerns noting that medical claims have now risen to R125 billion in the public health sector. 

Medical malpractice indemnity cover

Contrary to popular belief, Ellis pointed out that South African healthcare practitioners are not legally required to hold appropriate medical malpractice indemnity cover. In 2010, the Department of Health promulgated regulations^[1] which sought to introduce mandatory professional indemnity cover for healthcare practitioners. The regulations were made by the Minister of Health in terms of sections 61(1)(c) of the Health Professions Act. The impetus for mandatory cover was to ensure that victims of medical malpractice incidents were not left without compensation. 

“The regulations stipulated, among other things, that the health practitioner had to obtain professional indemnity cover from a person registered as an insurer^[2]. The regulations were placed in moratorium and later repealed in the same year it was introduced. Credible sources^[3] have suggested that the reason for repealing the regulations was due to the pushback of an offshore discretionary indemnity provider, the Medical Protection Society (MPS). In South Africa, most healthcare practitioners are indemnified by the MPS, on a discretionary basis (i.e., assistance is provided at the discretion of the provider). In other words, the MPS has no contractual obligation to support the healthcare practitioner,” said Ellis. 

“As a result, there is no legislation that deals with mandatory professional indemnity cover for healthcare practitioners. It is for this reason that there has been a significant call to bring about legislation to regulate mandatory professional indemnity cover for healthcare practitioners. It seems obvious that there should be mandatory professional indemnity cover for healthcare practitioners,” stated Ellis. 

Concerns around indemnity products

Currently, Ellis said, the indemnity arrangements available to South African healthcare practitioners are either that state-employed doctors are indemnified in terms of the Treasury Regulations of the Public Finances Act read with the Public Services Act, or private sector doctors voluntarily take out their own indemnity from a discretionary indemnity provider like the MPS, or short-term insurance from a regulated financial services provider. 

One of the most contentious issues on this topic, according to Ellis, relates to the role that discretionary indemnity providers play in the medical malpractice insurance market. “Discretionary indemnity providers, like the MPS, are commonly known as Medical Defence Organisations (MDOs) and are not subject to prudential standards in respect of the indemnity they provide.” 

Ellis mentioned that there have been worldwide concerns, especially from Australia^[4] and the United Kingdom^[5], raised relating to the discretionary nature of the indemnity products provided by MDOs. The obvious risk is that an MDO could use its discretion to not indemnify a claim, potentially leaving healthcare practitioners personally liable, and patients potentially without appropriate compensation. There are publicised examples of MDOs using their discretion to not indemnify^[6]. 

According to Ellis, the problems with the discretionary nature of indemnity products provided by MDOs are that: MDOs, as indemnity providers who provide cover for many healthcare practitioners, do so under discretionary indemnity arrangements. Unlike commercial insurers, this means they have no contractual obligation to meet the cost of any claim against the healthcare practitioners they cover; debate surrounds how MDOs account for liabilities from discretionary indemnity products, and as a result, they have no legal obligation to ensure they have the reserves to cover the cost of claims, raising the risk of a patient being unable to access appropriate compensation; they do not have to disclose their full financial position, meaning that healthcare practitioners may be unaware of the risks of their discretionary indemnity provider refusing to provide cover due to being in a poor financial position; and lastly, MDOs are not subject to regulation on financial conduct and fair treatment – by the regulators – potentially leaving healthcare practitioners at risk of unfair treatment.

Contrary to SA’s regulatory framework

“The discretionary nature of the indemnity products provided by MDOs are contrary to South Africa’s insurance regulatory framework. According to Section 5 (1) of the Insurance Act of 2017, no one may conduct insurance business in South Africa unless licensed under the Act. Section 5 (2) provides that if anyone conducts business "similar to the insurance business" outside South Africa and is represented by anybody in South Africa they will be regarded as conducting business in South Africa,” he said. 

“MPS is an offshore business and the dominant provider of medical malpractice indemnity in the South African market, who conduct business "similar to the insurance business" in South Africa without any insurance license. There is no oversight on the business of MPS from both prudential and market conduct perspectives. Consequently, the business activities of MPS can be characterised as unregulated insurance within the South African context,” he continued. 

The intricate web of discretionary indemnity in South Africa's healthcare system raises profound questions about the extent of coverage for healthcare practitioners and the rights of patients, according to Ellis. “The absence of mandatory professional indemnity cover, compounded by the repeal of regulations in 2010, leaves a concerning void in the protection of patients harmed by medical malpractice.” 

“The role of discretionary indemnity providers, particularly MDOs, adds another layer of complexity. The discretionary nature of their indemnity arrangements presents a significant risk, potentially leaving healthcare practitioners personally liable and patients without rightful compensation. The South African scenario, where MPS operates without adherence to local insurance regulations, underscores a critical gap in oversight and accountability. The lack of regulation exposes healthcare practitioners to potential unfair treatment and patients to the uncertainty of accessing appropriate compensation. The dissonance between the operations of MPS and South Africa's insurance regulatory framework raises questions about the need for regulatory reform. As the call for legislation to mandate professional indemnity cover gains momentum, it is evident that the discretionary nature of indemnity products must be addressed,” he concluded. 

Writer’s thoughts:

The discussion with JP Ellis sheds light on the discretionary nature of indemnity products, revealing gaps in regulation and accountability. The absence of mandatory cover and the role of providers underscores the need for reform. Addressing the discretionary nature of indemnity products is crucial as calls for regulatory changes gain momentum, do you agree? Please comment below, interact with us on Twitter at @fanews_online or email me - myra@fanews.co.za

[1] Government Gazette No 33498,

[2] This requirement was made in terms of the then section 7 of the Short-Term Insurance Act

[3] Bateman "Clumsy patient-friendly regulations could strip 25 000 of MPS cover" Izindaba November 2010 www.samj.org.za/index.php/samj/article/download/4564/2988

[4] Following the collapse of the largest MDO in Australia, United Medical Protection, in 2002 the Australian government introduced a regulatory framework that required medical malpractice cover to be subject to appropriate prudential supervision by Australian Prudential Regulation Authority.

[5] In 2018 the UK Department of Health and Social Care commenced with a consultation process in the UK based on their concerns regarding the appropriateness of discretionary indemnity.

[6] In the case of Hussain v Medical Defence Union and MDU Services Ltd [2020] EWHC 157 (QB) the MDO had initially assisted him in the defence of his claim but that assistance was withdrawn as he had not paid the correct subscription; and in the Report of the independent inquiry into the issues raised by Paterson (2020) it reported that patients were not being able to access appropriate compensation for injuries due to the criminal actions of a regulated healthcare practitioner and in the case a surgeon, Dr Paterson, his MDO used its discretion to withdraw cover since his activity was criminal. This left patients without cover.

The Medical Protection Organisation has responsed as follows:

Responding to the claims by JP Ellis, Head of Legal & Claims at Ethiqal, Graham Craig, Medical Protection Society (MPS) Business Development Director said: 

“MPS is the world’s leading member-owned, not-for-profit protection organisation for doctors, dentists and healthcare professionals. We are a mutual, not-for-profit, member-owned organisation, which has been providing professional indemnity in South Africa for 65 years. 

Our sole purpose is to protect members’ careers, reputations and financial security through a comprehensive package of benefits, including the right to request indemnity for any complaints or claims arising from their professional practice. 

MPS is not an insurance company and does not currently distribute or market insurance products or provide regulated financial services in South Africa. That is why we are not required to be registered or licensed as a financial service provider. 

“Given our size and position as a leader in the South Africa indemnity market, the FSCA is however fully aware of MPS and we provide it with input when requested. 

“More widely, MPS complies with all applicable South African laws and regulations (and indeed the laws of every other jurisdiction in which we work), and has a robust system of internal audit and oversight which ensures we act in accordance with the principles of good corporate governance, fair outcomes and ethical business practice. 

“The discretionary indemnity approach has served MPS members in South Africa well, and in the year to February 2024, we agreed to assist in more than 99.5% of all requests that met our basic qualifying criteria. 

“Discretion enables us to be flexible in determining the assistance that we can provide when new issues arise in healthcare, which may not have been known at the time an insurance policy was taken out. It is this flexibility which also enables us to protect more members.

“In an ever-changing market such as South Africa, being able to help in unusual circumstances or where unique problems arise is vital. 

“This uniqueness is what drove me to want to work for MPS, after working for many years for insurance companies, and it is also this that draws thousands of doctors and dentists to join the organisation each year. 

“Medical Protection has a proud track record of supporting its members in South Africa with our strong and expanding local team working for our members in South Africa. Based out of our Pretoria office, our large team supports members directly with cases and claims, legal services, as well as medicolegal and dentolegal services. 

“MPS operates in a way that ensures the funds we generate in South Africa stay in the country and are used to support members, continually improve the service we provide, and invest in our growth in South Africa. Subscription monies collected in South Africa are invested in South African Bonds, which are currently valued at over ZAR6.4bn. 

“Our financial strength and approach to supporting members has helped to ensure our membership in South Africa remains strong, with more than 33,000 members. It has also maintained our presence in South Africa for the past 65 years, during which time several insurance competitors have come and gone.”

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