By Wolfgang Friedel, CEO StratEX

Protecting Your Dental Practice

Hurricanes Katrina and Rita have devastated hundreds of dental practices in the Gulf Coast area and put thousands of dentists and their employees out of work for months. Since December 2005 Sullivan-Schein has been providing recovery services to many of the affected dentists assisting them in their efforts to achieve a fair settlement with their insurers as well as providing services to enable an efficient rebuilding of their practices. As the recovery team works through complex insurance issues, it has become evident that many of the dentists were not properly protected to cover their assets or their practice interruption needs. The question being asked by many dentists is: “What could I have done to better protect myself against such a disaster?”

The obvious answer is, of course, to buy the proper insurance coverage from the right insurance company with the broadest coverage and sufficient limits. But how does one know what coverage to buy and from whom? Is one well protected if the proper and available insurance policy is purchased? How much risk should one retain and how much should be transferred to an insurer?

The best way is to start with a proper analysis of the exposures and risks. Obviously risks to a dental practice vary widely and include malpractice risks, general liability risks, employee-related risks, and much more. For the purpose of this review, the focus is on exposures and risks to the facility itself and the consequential damage to the operations of the business. The basic question one needs to ask is what can happen to my facility? The answer depends on many factors, including the location of the office, the type of building structure, whether the building is owned or leased, neighbors, and proximity to emergency response teams (e.g., location of fire department).

 Assessing Exposures

The decision of choosing a location for a dental practice is usually made by considering the potential for patients, the driving distance for the doctor to the dental facility, general appeal of the geographic area, architecture, cosmetics, and curb appeal. Very few dentists consider risk factors when determining their practice location, even though selecting the location; neighborhood, building construction, and loss prevention amenities can be the most important decision one makes in assuring a safe environment.

 One could view two entirely different scenarios in the aftermath of Katrina—total destruction with complete inability to provide any type of services and within only a few miles the ability to provide virtually uninterrupted services to patients.

The reason why location selection is so important is the fact that even though the best insurance coverage might be purchased covering every aspect of a loss, not having had the loss is still the much preferred option. Aside from the fact that only very few losses are ever completely "covered," the hassle of dealing with adjusters, insurers, accountants, and other experts can be a very tiresome "exercise." The best loss is the one you can avoid.

Tips in choosing a location

• Outside any known flood area and away from bodies of water
• Away from coastlines (wind storm and storm surge exposure)
• Underground power supplies (less susceptible to power outages)
• Outside of known earthquake zones
• Proximity to a fire department
• Automatic sprinkler protected facility
• Single tenant location (no neighbor exposure)

Of course, in some parts of the country it is impossible to escape natural disaster exposures completely. In those cases, facilities should be chosen that are built in accordance with the latest building codes regarding these exposures.

•  In earthquake prone areas, choose a building constructed to withstand quakes of a reasonably expected intensity.
•  In flood exposure areas, select a building on higher grounds or chose a second or third floor location in a professional building.
• Windstorm exposures can be managed by choosing a building designed to withstand high-velocity winds.onsidering the potential for patients, the driving distance for the doctor to the dental facility, general appeal of the geographic area, architecture, cosmetics, and curb appeal. Very few dentists consider risk factors when determining their practice
• Winter storms might pose a collapse exposure in the northern parts of the country, especially for buildings with flat roofs (snow load) and extremes in temperature might cause freezing of pipes leading to water damage.

Next and equally important is the construction of the facility, especially in a multi-tenant building. A noncombustible structure or a facility protected by an automatic sprinkler system is preferred. Consider the age of the structure and facilities (water leakage, electrical hazards, lack of heat, freezing of pipes, etc.)

Assure that the other tenants in the building and neighbors in adjacent areas don’t pose a potential exposure and hazard to your facility; avoid restaurants, storage facilities, gas stations, facilities that handle flammable liquids, and businesses that routinely handling open flames.

Protecting Your Assets

 Despite the best plans and the most cautious selection of location and structure, losses or accidents do happen. The selection of an insurer is most critical. One should very carefully review both the agent’s (broker’s) and the insurer’s reputations. A.M. Best evaluates insurers’ financial strength and claims paying capability on an annual basis. It is strongly recommended to only deal with insurers with a rating of “A” or better. The insurance agent should be able to provide this information. In addition, the office of the Commissioner of Insurance for your state and the Better Business Bureau provide detailed feedback upon request. Additionally, it is wise to speak to several agents to find out about insurers and their reputations in the marketplace.

Unfortunately many agents and insurers chose to compete primarily on price—as a result quality of service and claims handling is often directly proportionate to what is being paid for the policy. Paying a little more when free cash flow is readily available to get the best coverage is much preferred over saving a few dollars but ending up in a bad situation when you expected a fair claims settlement. The purchase of insurance is a price–value consideration, accordingly the decision should be made on best coverage first and pricing second.

Of course, pricing is important—but should not be the reason to buy insurance. A few extra dollars can buy you the best coverage from a top-rated insurer. Insurance policy pricing is determined by the insured amount, the broadness of coverage and limits, and, obviously, the risk factors and the deductible. If saving money on premiums is important, it is strongly recommended to increase the deductible rather than to reduce the coverage.

During the past few weeks of reviewing dental practitioners’ policies, the Sullivan-Schein recovery-service team has encountered a very wide array of coverages and limits. Some policies were reasonably well written, limits were adequate, and coverage well-defined while others lacked the most basic coverage extensions, and had inadequate limits and poorly defined policy wording. In many cases, the dentist just took the agent’s advice looking at the lowest price without a serious review of the differences in coverage. The insurance policy should be designed to respond favorably to the most likely loss scenarios identified. Ask yourself the following question: What if a fire happened overnight and the entire facility is gone in the morning. How much money would you need to replace what you had (building, equipment, supplies) with new equipment? How long would it take under normal circumstances to rebuild the facility and how much in practice interruption should you be able to recover to make up for your lost revenues? The answer to the question is the minimum amount of limit one should purchase.

The insurance contract is an indemnity contract, which essentially means that the insurer will reimburse the insured for the cost of the loss or damage once a proper proof-of-loss and complete claim has been presented. The amount to which the insured is entitled is defined by the policy terms and limits. Most policy limits and sublimits can be increased for additional premiums. The following is an outline of coverage considerations critical to protect the business:

Limits of Liability– These are determined by the values reported for premium calculations. As rule of thumb, equipment values are estimated at $50,000 per operatory, supplies average $25,000, in addition computer equipment, telephone systems, personal property of employees, artwork, and other furnishings need to be added. The average four-operatory practice should be insured for approximately $300,000 in content value. Building and/or improvements and betterments should be insured for replacement value; not the market value of the building.

Sub-limits–These are identified in most policies to limit recovery for certain types of losses and coverages. A careful analysis is needed to assure that the limits are adequate. For example, many policies carry a $10,000 sub-limit for valuable papers. To reconstruct destroyed patient charts, X- rays, and other patient records could be a multiple of this amount.

All Risk coverage–All is covered unless specifically excluded.

 Repair or Replacement–This means endorsement to pay for the cost of the actual loss without depreciation for age or wear and tear.

Practice Interruption–Coverage for actual loss sustained; including broad service interruption coverage with a minimum of 12 months of coverage and at least a 3-month of extended period of indemnity to cover reduced revenues during ramp up after the practice is reopened.

Utility Services–Services to cover physical damage to equipment and resultant business interruption because of interrupted utility services subject to policy limits.

Extra Expense–Allows for expenses incurred reducing practiceinterruption expenses.

Terrorism Coverage–This can be added for a relatively small additional premium in most locations.

Flood coverage–This might require the purchase of a separate Federal Flood insurance policy. Note: The Federal Flood policy does not insure practice interruption caused by flood.

Windstorm–Many coastal areas have separate wind coverage available to protect with adequate limits.

Earthquake–Maximum available limits should be purchased in exposed areas.

Debris Removal–Limits should be at least $25,000.

Demolition and Increased Cost of Construction–This should cover code-related required upgrades to undamaged portions of the facility.

Fine Arts–Include for additional limits as needed.

Inventory and Appraisal–$10,000 limit to allow for the cost of engaging experts to help you prepare your claim.

Personal Property of Employees and Others–This should have a sub-limit of at least $10,000.

Civil Authority/Ingress-Egress–Extensions to cover possible practice interruption as a result of restricted access to the facility.

Accounts Receivables–Set limits at about 25% of three months of billed amounts to pay for uncollectible receivables caused by physical damage to accounting documents.

Electronic Data Processing Equipment and Media–Often has inadequate sub-limits, especially if your patient records are stored electronically.

Valuable Papers–Limit should be adequate to pay for the reconstruction of all active patient charts. In addition, it is strongly recommended to maintain duplicate records off-site.

 Employee Dishonesty–This is a form of theft coverage specifically to cover the possibility of theft by an employee (normally excluded).

Of course, there are many more specific situations requiring coverage consideration based on the exposures. A careful review of coverages with the agent or broker is suggested. It is strongly recommended to request the broadest coverage available, and to have the agent or broker recommend available coverage extensions and limit increases to best protect the facility.

Facing the dilemma of being underinsured because the values were not properly assessed or reported is an insured’s worst nightmare. The impact of a major loss is devastating to the individuals affected, and having to deal with the issue of underinsurance or lack of sufficient coverage worsens the situation. At the time of a major loss, the insured should be able to feel adequately cared for by the agent and the insurer. The foundation for this appropriation is created when the decision on agent, insurer, and coverage is made. Rely on the people with expertise and knowledge in the insurance field to advise you, and, talk to your financial and legal advisers.