Understanding contractual vs discretionary medical indemnity cover

Why the distinction matters and how you can secure certainty in private practice

For consultants operating in private practice, medical indemnity is not optional. The General Medical Council (GMC) makes it clear that every doctor must have adequate and appropriate indemnity or insurance in place to practise safely and within regulatory standards¹. This requirement applies regardless of whether you work solely in private practice or alongside NHS commitments. 

What is less well understood, and often a source of confusion, is the difference between contractual and discretionary indemnity cover. The implications of getting this wrong are far-reaching. They affect not only your financial protection but also your professional standing and peace of mind should a claim be brought against you.

This article explains both models in detail and demonstrates why our approach is based solely on contract-certain indemnity for consultants.

The purpose of medical indemnity cover

Medical indemnity exists to protect healthcare professionals against claims arising from clinical negligence. In the UK, doctors are legally required to hold indemnity cover that reflects the scope and risk profile of their practice. Without it, the GMC can refuse a licence or remove a doctor from the register². 

Indemnity is especially important for private practice consultants. Private work is not covered by NHS indemnity arrangements and often involves a wider range of services and liabilities, including:

• elective procedures
• diagnostic interventions
• medico-legal work
• inquests and regulatory hearings

For consultants, the risk profile of private practice can be materially different to NHS work, and your indemnity arrangements must reflect that.

What is discretionary indemnity?

The British Medical Association (BMA) defines discretionary indemnity as being where legal and financial assistance is provided at the discretion of the provider, for example, not backed by an insurance contract between the healthcare professional and the provider³.

In a discretionary model:

• Cover is not backed by a legal contract of insurance.
• Assistance is provided at the provider’s discretion.
• There is no legal obligation for the provider to pay claims.

Put simply, you receive support if the organisation agrees it should be given. The provider’s council or board looks at each case individually and decides whether to offer support. This means that in certain circumstances the provider could decline to assist at all or impose conditions that leave you exposed financially or legally.

Critically, discretionary indemnity is not regulated by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA), or the backing of the Financial Services Compensation Scheme (FSCS). That means these organisations are not held to the regulatory standards that apply to commercial insurers. The FSCS provides protection if the insurer cannot pay - it steps in, so you are not unprotected. With discretionary indemnity, there is no such protection, hence you need to be confident that the provider of the indemnity will be able to meet a claim as and when a payment is due which can be many years down the line with a medical malpractice claim.

What is contractual indemnity?

Contractual indemnity is exactly what it says it is: indemnity provided under a legally binding insurance contract. Unlike discretionary cover:

• The insurer has a legal duty to pay claims that fall within the terms of the policy
• The policy wording clearly defines the cover, limits, exclusions and terms
• Both parties know where they stand from the outset

Crucially, contractual indemnity is regulated by the FCA and PRA. This regulation requires insurers to:

• maintain appropriate financial reserves
• treat policyholders fairly
• disclose material information to clients

Being regulated means you have clear rights. If an insurer fails to meet its obligations, you can take your case to the Financial Ombudsman Service and, where applicable, rely on the Financial Services Compensation Scheme.

Contractual indemnity policies are most commonly claims-made. Under this model, the policy covers claims made and reported during the policy period, even if the clinical incident occurred earlier⁴. Many modern policies also include extended reporting or run-off cover that protects you for decades after you retire at no additional cost. We have also built a safety net into our cover for peace of mind when switching providers, so you don’t have to worry about potential gaps for exposure. Hence if a provider of Occurrence indemnity or insurance declines cover and the activities undertaken were prior to the retroactive date and the policy would have responded save for the retroactive date then our provider will take over the claim and subrogate against the previous indemnifier/insurer on your behalf.

This distinction matters. You would not run your car with a cover that could be refused at the insurer’s discretion. Yet in medical indemnity there remains a misconception that discretionary cover provides equivalent certainty.

Why the misconception persists

There are several reasons consultants still hold discretionary cover:

• Familiarity with MDO brands and long-term membership relationships
• Historical norms in the profession
• A belief that discretionary support will always be there if needed

In reality, the discretionary model places doctors in a position of reliance on benevolence rather than contractual certainty. It also places organisations outside the financial safeguards of regulated insurance. The Department of Health and Social Care’s recent research into indemnity arrangements shows that a significant proportion of healthcare professionals with private practice work use a mix of private indemnity and discretionary cover, even while state indemnity covers NHS activity⁵.

Critically, the same research highlights that indemnity arrangements vary widely depending on profession and practice type. Those in private practice are among the most likely to obtain individual cover from insurers, recognising the need for robust protection.

How contractual cover protects you more effectively

Contractual indemnity does not rely on subjective decision making. It gives you a contractual right to indemnity for covered claims. This matters when:

• a claim is financially large
• the medical facts are finely balanced
• regulatory hearings or disciplinary proceedings arise

Modern contractual indemnity policies can deliver features that go beyond the basics. These can include:

• broad definition of insured services
• retroactive cover to pick up past discretionary periods
• run-off protection extending for 20+ years after practice ends
• legal expenses for inquests and disciplinary at no additional cost 

Without this certainty, you could be left to meet legal fees and compensatory costs yourself.

This level of certainty matters. In situations where your professional reputation, livelihood and financial security are on the line, you want a partner that stands behind its promises.

The difference between discretionary and contractual indemnity cover is not semantics. It defines the security you have when a claim arises. For private practice consultants who face a complex array of clinical and non-clinical risks, contractual indemnity provides a predictable, enforceable and regulated foundation of protection.

If you are unsure where your current cover sits on this spectrum, or what would best serve your practice going forward, it is sensible to review your arrangements with a specialist. With the stakes so high, certainty should never be left to discretion.

To find out more, speak to Simon Gale today. 

1. Insurance, indemnity and medico-legal support for doctors - GMC
2. Insurance, indemnity and medico-legal support for doctors - GMC
3. Types of medical indemnity
4. https://www.totalhealth.co.uk/clinical-experts/simon-gale/what-are-concerns-around-current-model-medical-indemnity
5. https://www.iffresearch.com/app/uploads/2024/03/Clinical-Indemnity-Survey-Report.pdf