Appendix 4: Methodology, assumptions and uncertainty
A.4.1 We have adopted the same assumption as that used for costing the Commonwealth’s Level 1 and Level 2 contributions. That is, we have assumed an underlying claim frequency of 1.1 claims per 1,000 births for births in clinical settings.
A.4.2 I do not regard this assumption as unreasonable because, when combined with the number of births we have assumed that each midwife manages per annum, it is similar to the assumption that we have adopted in a model we built for medical practitioners. However, it is clearly subject to a high level of uncertainty.
A.4.3 Due to the small number of claims against midwives to date, the average size is not statistically reliable. We have therefore adopted a claim size assumption of $200,000 (in 2018 dollars) which is about 80% of the average claim size against obstetricians. This assumption is very subjective, and we intend to review this assumption as more claim experience becomes available. This assumption is the same as last year.
A.4.4 For all claims, we have assumed a gamma distribution of claim size which varies approximately along the following lines (in 2018 dollars).
Table 7: Gamma distribution of claim size
Number of eligible midwives and number of births
A.4.5 We have assumed that midwives who are eligible for Commonwealth supported professional indemnity cover will manage 40 births each per annum. This assumption is the same as that used for costing of the Commonwealth’s Level 1 and Level 2 contributions.
A.4.6 In order to undertake costings it is necessary to make assumptions regarding the number of midwives who will become eligible for Commonwealth supported professional indemnity cover and the number of births each eligible midwife will manage in clinical settings.
A.4.7 Based on the data provided by MIGA in late 2018, the growth in the number of eligible midwives has been consistently below expectation since June 2016. The significant increase in 2015/16 was likely to have been caused by Vero ceasing to write professional indemnity cover to privately practising midwives which limited their options to only the Government-supported cover.9 Moreover, the data provided by DHS in December 2018 showed the Scheme gained only 3 additional midwives between June and December 2018. We have therefore revised down our projections regarding the number of midwives who will become eligible. The current projections are set out in the table below, along with the actual numbers from 2010/11 to 2017/18.
Table 8: Number of midwives eligible for Commonwealth supported professional indemnity cover
A.4.8 Professional indemnity claim costs are assumed to be increasing by 4 per cent per annum. This is intended to be neither optimistic nor conservative. However, over the medium term, it is conceivable that claim inflation could exceed this rate.
A.4.9 Claim payments were discounted at a rate of 5 per cent per annum. This has reduced from 6 per cent per annum as was assumed in previous years. The chosen rate provides consistency with the rate adopted in a number of similar contexts and therefore is suitable from a whole of government perspective at 30 June 2018.
A.4.10 There have only been a few midwives who became eligible for the ROC Scheme. There is insufficient data to project when the current practising midwives will become eligible for the Scheme.
A.4.11 Thus, the model used for estimation of the future liabilities of the Scheme is based on a model developed within this office for the costs of the Level 1 and Level 2 Commonwealth contributions.
A.4.12 We have simply assumed that the ROC Scheme will pick up 6 per cent of the total amount of the net cost to the insurer, after the Level 1 and Level 2 contributions are made to the insurer. The model estimates the net cost to be around $59,000 per claim (in 2018 dollars), that is, the ROC Scheme will pick up around $3,540.
A.4.13 In developing this assumption, we have given consideration to the experience of the ROC Scheme for medical practitioners as well as considerable uncertainties associated with midwife ROCS due to the absence of any claim. This approach is unchanged from last year.
A.4.14 The new accrual for each of the next five years is calculated based on the assumptions above. The interest is credited each year to the opening balance of the liability.
9 Medicare-eligible midwives can join the Commonwealth-subsidised Midwifery Professional Indemnity Scheme, provided by Medical Insurance Group Australia (MIGA). For those not able or willing to meet the eligibility requirements, the Vero product was their only option.