Are your medical practice clients overpaying for insurance?

For your clients who have medical clinics or centres, having their practice adequately insured is important. We wish to share insights with you, as their trusted advisors, to ensure you and your clients are aware that we often find that medical practices are over or underinsured.

No one can run a medical centre without risk. The risks to medical practices can be as significant as a natural disaster, a pandemic, technology failures, regulatory government policy changes, environmental changes, chemical spills, or quarantine restrictions. Risk comes in all different shapes and sizes - exposure, danger, harm, loss, threat to profit and property, and potential loss of reputation or goodwill. 

There are four approaches to managing risk – avoid, mitigate, transfer, and accept. Different people have different tolerances for risk, which is why it is important for your clients and their Practice Manager to work out what the owner is comfortable with, in terms of potential risks across the business, when determining the type of policies and degree of cover.

In our experience as lawyers who work closely with medical practice owners, we see insurance as falling into two key categories -insurance for the practice and insurance for its people. In this article, we explore the categories of insurance and what you, as a trusted advisor, will benefit from knowing, to save your clients who have medical practices from being either underinsured or overinsured. 

Insurance relating to people

There are two forms of insurance that relate to people that a medical practice cannot run without. One is Professional Indemnity Insurance, and the other is Workers Compensation Insurance. Workers Compensation Insurance is state-based insurance, and no one can run a business without it.

Regardless of whether your clients currently have them or not, there are other optional people-related insurances that should also be considered, including Practice Manager’s Insurance and Life Insurance Policies. 

As the title suggests, Practice Manager's Insurance covers key people in the practice, such as the Practice Manager. In the event their Practice Manager unexpectedly fell sick, was injured, or suddenly changed their mind about working for your client, there could potentially be a huge expense and risk to the business. Having Practice Manager's Insurance in place means that the related expenses could be mitigated through insurance. This insurance is a key person risk management tool. 

There is other insurance that covers Practice Manager that can protect owners against acts and omissions of their Practice Manager that may not be insured elsewhere.

Having other key people such as doctors or partners covered by a life insurance policy is also recommended as it may pay out the owners if something unforeseen were to happen, such as a doctor or partner unexpectedly passing away. 

In some circumstances, Life Insurance Policies can be partially paid for by the practice. Having that insurance as a risk-mitigating measure may be worthwhile, especially if your client has a highly leveraged practice. 

We also recommend having something called a ‘Buy Sell Agreement’ which links to the life insurance policy. A Buy Sell Agreement details what is to happen with the funds, in the event that the life insurance policy needs to be claimed. This agreement is separate from a Shareholder’s Agreement.

Insurance relating to the practice

Public Liability Insurance is one of the cheaper insurances that your clients must have. One example of a public liability claim that one of our clients had, was when a patient sat on one of the chairs in the waiting room. The patient was quite overweight, and the chairs in the waiting room weren’t made to support someone of that size. The chair collapsed and the patient was injured. Public Liability Insurance would cover a risk of that kind. 

Your clients may also need to consider Building Insurance. Some landlords pay for this, however, sometimes the practice owner is required to pay for it. Often, practice owners also own the property they run the practice out of, so they must wear two hats - that of the business owner, and that of the landlord. For this reason, they need to take into account all the risks to the property, as well as all the potential risks to the business.

An insurance that we often discover not enough medical practice owners have is Cyber Insurance. The data that medical practices hold for their patients is significant. This presents as an incentive for people to hack into the systems of healthcare practices. This risk is heightened, especially with the impact of the pandemic, and as more practices have moved online with Telehealth and team members working remotely. Patient records are highly sought after on the dark web. Recently, we came across a statistic that says 23% of data breaches that are reported are from the healthcare industry.

In some cases, cyber insurance can be incorporated as part of a broader liability policy. It can include defamation, order insurance and other business-related risks that other insurances do not cover.

We recently had a practice owner come to us for advice after their systems were hacked. As a result, they couldn’t operate their practice for three to four weeks. They discovered they were underinsured for cyber insurance. This, understandably, had a huge impact on their business and when one of our insurance lawyers questioned who recommended the amount of cover they had, it was discovered that they had a potential claim against the broker.

Equally problematic is when a broker doesn’t have enough awareness about what degree of cover is required for the practice and their people. They can overcompensate, and the practice ends up overpaying for coverage they do not need, or already have.

There is also Business Contents Insurance. Your client’s practice manager can likely quantify how much your client may have spent on their plant and equipment, and what it might cost to replace carpets and blinds if they were burnt or damaged in a flood. It is often easier to work this out for standalone practices. However, when it comes to practices that are located in a shopping centre or a complex, it becomes even more important that they ensure they are covered for a realistic amount. A practice that is located, for example, above a restaurant or cafe, may be more at risk. In the event that there is a fire in the restaurant, patient records could be lost.

In the event you have a client who is deciding on a new location for a practice, suggest they carefully consider the additional risk that can come with the intended location and take into account a solid Business Contents Insurance Policy. 

Benefits of an audit

Many insurances offer a range of cover, and it can be difficult for your clients to identify what is covered and what is not. For this reason, an Insurance Audit is highly beneficial for all medical practices.

We start our audits with a conversation with each of the partners and the Practice Manager to learn about all the risks, specific to their practice. We also get an understanding of the risk appetite of each of the owners. We get copies of and read and review all the existing insurance policies and from there, identify where any risk might exist. Then, we determine if all risks are sufficiently covered, or if there are overlapping policies.

An example of overlapping policies might be that your client has a General Insurance Policy that covers Contents Insurance. They may not have realised this was the case, and in an effort to ensure they are covered, purchased a separate Contents Insurance Policy. This is not uncommon for us to discover in our audits.

Having an audit undertaken separately from a broker is beneficial as we are independent. We are not getting a commission trail. Instead, we are paid a fixed fee. This means we can identify where there are potential gaps in their policies and what other measures could be put into place to minimise risk, and potentially save them from overpaying. 

What results is one agreement that is drafted properly, covers specific risks, and could be used for a long period of time. This is as opposed to paying for a broader policy that covers unnecessary cover, year in and year out.

As a trusted advisor, we encourage you to recommend your clients and their practice managers to consider an audit and have regular discussions about insurance and transfer of risk. They need to be having open discussions about it, to become familiar with one another’s risk tolerance, and to establish clear guidelines for what is an acceptable and unacceptable risk.

Encouraging your clients to consider an Insurance Audit will assist them in ensuring they are not overpaying or underpaying and that they only have policies in place that they really need to. 

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If you would like to enquire how we might work together to assist your clients, connect with us. We look forward to being able to support your clients, to minimise their risk and mutually assist them through their practice ownership journey.