Australian Government, Australian Government Actuary

Appendix 4: Methodology, assumptions and uncertainty

Assumptions

Claim frequency

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 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. According to the NCPD data, there had been only three reported midwifery claims at June 2016.

Claim size

A.4.3 Previously, we have assumed an average claim size of $227,000 as at 2010 (that is, Year 1). Based on previous inflation assumptions, this figure is about $270,000 in 2018 dollars. According to the NCPD data, this is broadly in line with the average inflated size of claims against obstetricians (that is, $260,000). However, the average inflated size of the claims against midwives is considerably lower. This data was not previously available.

A.4.4 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.

A.4.5 For all claims, we have assumed a gamma distribution of claim size which varies approximately along the following lines.

Table 6: Gamma distribution of claim size

Number of midwives and number of births

A.4.6 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.4.7 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.4.8 Based on the data provided by MIGA in late 2017, the growth in the number of eligible midwives has been consistently below expectation. 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 actual numbers from 2010/11 to 2016/17.

Table 7: Number of midwives eligible for Commonwealth supported professional indemnity cover

Economic assumptions

A.4.9 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.4.10 Claim payments were discounted at a rate of 6 per cent per annum. This is unchanged from last year.

Methodology

A.4.11 The model used for estimation of the future liabilities of the Scheme is based on a model developed within this office, which was used for the costs of the Level 1 and Level 2 Commonwealth contributions.

A.4.12 We have 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 that is, the ROC Scheme will pick up $3,540.

A.4.13 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.

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