When selecting an indemnity provider, healthcare professionals face a critical decision: opting for a contractual policy with a defined limit of indemnity or choosing a discretionary indemnity that often advertises “unlimited indemnity.” While the promise of “unlimited cover” might seem appealing, it is crucial to understand the differences between these two models and why discretionary indemnity may not provide the security it seems to offer.
Understanding Discretionary Indemnity: The Myth of Unlimited Cover
Discretionary indemnity is offered by medical defence organisations (MDOs), such as the MDU, MPS, and MDDUS, and is distinct from traditional insurance because it operates on discretion rather than a binding contract. This means:
- No Guaranteed Payouts: Discretionary indemnity providers are not legally obligated to pay out claims. Decisions are made on a case-by-case basis, which leaves healthcare professionals vulnerable to coverage denials when they need support most.
- Misleading Unlimited Claims: The “unlimited indemnity” offered by discretionary providers is not truly limitless. These organisations do not have unlimited cash reserves; instead, their ability to pay claims depends on their current financial state. Without regulatory oversight, such as the Prudential Regulation Authority (PRA), there is no guarantee that they have sufficient funds to cover large or multiple claims simultaneously. Financial stability is uncertain, and providers are under no obligation to disclose their financial health.
- Lack of Regulation and Oversight: Discretionary indemnity providers are not regulated by the Financial Conduct Authority (FCA) or the PRA, which means they do not have to meet strict financial solvency requirements or reserve funds as traditional insurers do. Without these safeguards, there is a significant risk that they could be overwhelmed by high-value claims, leaving professionals and patients unprotected.
The Risks of Discretionary Indemnity
- No Contractual Obligation: Unlike contractual indemnity, discretionary indemnity provides no legal assurance that claims will be paid. If the provider decides not to cover a claim, the healthcare professional has no recourse to dispute the decision through legal channels or consumer protection bodies like the Financial Ombudsman Service.
- Financial Uncertainty: Discretionary indemnity providers may have significant financial commitments that are not visible to their members. They could have claims reserves that exceed their actual assets, putting their ability to meet future claims at risk. This creates a scenario where clinicians might assume they have coverage, only to find out too late that funds are insufficient.
- Real-Life Consequences: There are numerous cases where discretionary indemnity providers have used their discretion to withdraw cover, leaving clinicians personally responsible for costly legal fees and damages. This not only jeopardises the professional’s financial security but also undermines patient compensation.
Contractual Indemnity: A Defined and Regulated Protection
Contractual indemnity, such as that offered by THEMIS, provides a clear and legally binding insurance contract. Key benefits include:
- Guaranteed Payouts: Contractual indemnity is bound by law to pay claims as specified in the policy. There is no room for discretionary denial; if the policy covers the incident, the insurer must pay. This certainty is critical for healthcare professionals who need reliable protection.
- Financial Security and Transparency: Contractual insurers are regulated by the FCA and PRA, which means they are required to maintain sufficient financial reserves to meet their obligations. This regulatory oversight ensures that funds will be available when a claim is made, offering peace of mind that discretionary models cannot provide.
- Defined Limits of Indemnity: Contractual policies outline specific limits, typically up to £10 million or higher, ensuring that you know exactly what is covered and under what circumstances. This transparency contrasts sharply with the vague promises of discretionary providers.
- Access to Compensation Schemes: In the unlikely event that a contractual provider fails, policyholders are protected by the Financial Services Compensation Scheme (FSCS), which compensates insured parties when insurers cannot meet their obligations—a safeguard that discretionary indemnity does not offer.
Making an Informed Choice
While discretionary indemnity may seem attractive due to claims of “unlimited” cover, the absence of legal guarantees, financial transparency, and regulatory oversight makes it a risky choice for any healthcare professional. Contractual indemnity, on the other hand, provides legally binding protection with clear terms, guaranteed claims payouts, and robust financial security measures.
Choosing contractual cover ensures that you have a dependable, transparent, and regulated indemnity that will support you when it matters most, safeguarding both your career and your patients’ rights to fair compensation.
