9 April 2025
Protecting Your Practice: Why Contractual Insurance is the Smart Choice for Doctors
Why Contractual Insurance Is the Smart Choice for Doctors
As a doctor, your commitment to patient care is unwavering. In today’s healthcare landscape, however, it’s equally important to protect yourself from the unexpected. For a number of years, it has been debated whether discretionary cover is fit for purpose or Doctors should obtain a contractual insurance policy. With that in mind, and the year-on-year rise of both patient claims1 and negligence payouts2, it is crucial to understand how you are protected.
Discretionary vs Contractual Insurance: The key difference
Discretionary Indemnity
Discretionary Indemnity is a form of Medical Indemnity and has been provided by the Medical Defence Organisations (MDOs) in the UK for nearly 140 years. As the name would suggest, the cover is offered on a discretionary basis, meaning that the provider will have the final say in whether a defendant receives assistance or financial support.
The reason for this is that the MDOs are not insurance companies but rather Mutuals and as such are only regulated by the Financial Conduct Authority to provide Insurance Mediation and Consumer Credit Activities.
While Discretionary MDO policies do not have a specific limit of indemnity, so for all intents and purposes coverage is unlimited, there are some caveats to this. The main being all claims are handled on a discretionary basis and are subject to the Memorandum and Articles of Association. While denial of claims is not a regular occurrence, there is always the potential of leaving doctors exposed when they need cover the most.
“The popularity and longevity of MDOs stems from their proactive support of medical students, offering subsidies for learning materials and a degree of indemnity coverage during their studies. This early engagement builds trust and familiarity, encouraging many to continue with the MDO throughout their careers.
While MDO membership is often perceived as offering unlimited cover, in practice, their liabilities are capped — as demonstrated in the Ian Paterson case.
Furthermore, for certain specialist consultant groups, we have seen the membership fees become prohibitively high, making it difficult for doctors to continue their practice. In contrast, contractual insurances offer more flexibility in pricing, as the individual is looked at as just that, and not viewed as a wider group.”
Harry Mountain, Director, Healthcare, Arthur J. Gallagher
Contractual Insurance
Contractual indemnity assures a legally binding agreement that clearly outlines the terms, conditions, coverage limits and obligations of both the insurer and the insured, ensuring that you are protected when it matters most. With well-defined terms, the provider is legally obligated to cover claims that meet the policy’s criteria, if the insured fulfils their responsibilities, including maintaining premium payments.
Unlike Discretionary Indemnity, contractual policies set clear limits — industry standard is GBP10 million, but this can be increased if required. This gives doctors comfort as they know the exact monetary value that is available to them. While this may seem less attractive than the unlimited cover provided by the MDOs, the level of certainty that claims will be paid is far greater. As contractual insurers are regulated by the FCA and PRA, far greater oversight is placed on them. This includes the expectation that they will maintain the necessary financial reserves to honour their commitments. Furthermore, if a contractual provider becomes insolvent, policyholders are protected by the Financial Services Compensation Scheme (FSCS), which provides compensation if insurers are unable to meet their obligations — an important protection that discretionary indemnity does not offer.
“The primary focus of contractual insurance is providing certainty at what could quite possibly be a very uncertain time for an insured. It is not the underwriters’ role to evaluate the medical appropriateness of the insured's actions but rather support them in their time of need. If a claim falls within the policy's terms and conditions, it will be covered — no ifs, buts, or maybes.”
Harry Mountain, Director, Healthcare, Arthur J. Gallagher
Types of coverage triggers
Understanding the coverage trigger of your insurance policy, including how and when it responds to claims, is essential to understanding the protection each affords. There are two policy forms offered in the market today: claims made versus losses incurred (Occurrence).
Losses incurred (Occurrence) policy
More commonly offered by MDOs, the losses-incurred indemnity policy covers incidents occurring during the policy period. The insurance is triggered by the date of the event that causes the claim, rather than when the claim is first reported. Incidents that take place before the membership's start date are not covered. For this reason, it is necessary to have active membership at the time of the treatment for the indemnifier to respond, regardless of when the claim is submitted.
Claims-made insurance policy
A claims-made policy, commonly offered in contractual insurance, covers claims reported within the policy period. The policy is triggered when the insured individual becomes aware of a potential claim and notifies the insurer. Coverage can extend back in time, to the policy's retroactive date, which is the date the insured first purchased a claims-made policy, provided continuous coverage is maintained through renewals.
Claims-made policies also offer an extended reporting period (ERP) or run-off period, allowing claims to be made after the policy expires, but only for incidents occurring after the retroactive date and reported during the policy or ERP period. It's important to maintain uninterrupted coverage as lapses could mean any claims made could be uninsured, even if the event happened while the policy was still active.
Extended Reporting Period (ERP)
An Extended Reporting Period (ERP) is a valuable feature in claims-made insurance policies. This allows insureds an additional period, 21 years, to report claims or incidents that occurred after their retroactive date and before the cessation of their private practice work. Due to the fact that claims can take some time to develop, it gives the insured a piece of mind that even when they stop private practice work, they still have time to report claims for any prior clinical negligence.
It should be noted that the standard triggers for the ERP are the following: death, disability or permanent retirement. While ERPs can be procured for Maternity, Paternity, Adoption, Career Break or Sabbatical Leave reasons, the lengths are different to accommodate different situations.
We offer 24/7 Medico-legal support
Secure your practice with Gallagher Medical indemnity insurance
In an ever-evolving healthcare landscape, your practice deserves the best protection. Gallagher’s Medical Malpractice insurance comes with the security of a fully regulated, contractual insurance that guarantees the coverage you need, no matter what the challenges. Our key features include:
- Secure contract of insurance underwritten by Lloyd's of London and one of the leading medical malpractice insurers.
- 24/7 Medico-legal support
- An extended reporting period can be triggered for up to 21 years upon your retirement, death or permanent disablement at no extra cost.
To find out more, please access our quote and bind platform here.
Let's talk
Alice Calter
Director – PI Financial and Professional Risk
Mobile: +44 7854 094072
Harry Mountain
Director –Healthcare
M: +44 (0)7548 093651
The Walbrook Building
25 Walbrook
London, EC4N 8AW
Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 119013.