The past few Financial Fridays have focused on developing a process to use financial statements and practice management reports to identify expenses that just seem to be too high (or too low). Today, Financial Friday will give you a starting point regarding ‘what to do’ when you identify a questionable category.
Let’s use “Insurance Expense” as our class project today. You have studied your P&L and it appears that you are spending ‘too much’ money. The first step in managing your insurance expense is first to understand what coverage you have and second, what coverage you need.
You should be receiving an annual review of your coverage from your business insurance provider. It is a report that usually intimidates business owners because of the complexity and the insurance specific language. Make an appointment to meet with your provider to review your coverage. Explain that you are making an effort to better understand insurance as it relates to a veterinary business. Take notes as you go through the policy. Ask questions when it seems that the insurance doesn’t apply to your business, for example, are you insuring equipment or vehicles that you no longer have? How soon do you have to tell the insurance company when you purchase new equipment? What part of the policy covers the ultrasound machine when it’s in my vehicle being transported to a house call? Once you begin thinking of the questions, there may be quite a few. Not all insurance policies provide the same coverage for the same claim. Be sure that in potentially devastating claim categories you may not be paying enough to get the coverage required to protect yourself against personal financial disastrous judgements.
Veterinarians tend to be as loyal to vendors as we wish our clients were loyal to us. Insurance coverage is often provided by a local friend, someone we know from yoga, kids’ activities, college or even from High School. Your veterinary business may be the only one she insures. Insurance coverage is often parked with a local provider, never negotiated, for years and sometimes decades. Because most veterinarians hate to talk about money, we usually nod knowingly and sign the annual contract without asking if there is a way to lower the premium without adding risk.
After your agent reviews what coverage you have and what additional coverage you may need, my suggestion is to take your current insurance coverage report without prices and ask for proposals from two or three providers. One of those should be your current provider.
Here is how the conversation might go. Explain to all three providers that since the financial crisis, veterinarians are working in a new normal economic environment. We don’t have the control over top line revenue (prices) that we used to have and we are forced to manage our costs downward to keep our doors open. In addition to lowest price you expect excellent service. Excellent service used to be an advantage. Now it is an expectation. Without excellent service, you are out of the game. Tell the providers that you are not going to use one proposal to beat up another vendor. Your commitment is to ask all three for the exact same coverage and you are going to give the business to the one with the lowest price and commitment to excellent service.
I realize that this is a very uncomfortable conversation for most of us. It’s not your fault. For decades, Veterinary College admissions committees have been very consistent in selecting for one trait in particular. They admit people who are uncomfortable talking about money. Now all you have to do is develop the confidence necessary to talk about money with vendors. I asked you to start with an expensive category because the coverage is so well documented that it is actually easier to renegotiate than other less structured services.