Self-Insurance: The Lion, Dr. Palmer, and the Cost of Reputational Risk

Could self-insurance be the ticket to avoiding reputational risk? We can answer the question by taking a critical look at the story that captured the attention of everyone with a pulse and sparked debate all over the world—the story of Dr. Walter Palmer.

The collective uproar on social media was deafening, with scathing commentary. Dr. Walter Palmer’s reputation succumbed quickly to the weight of social scrutiny as his hunting exploits, including the killing of Cecil, a beloved and environmentally-protected lion, proved irrevocably damaging. Reviewers on popular business-review websites such as Yelp and Google called for consumers to reject Dr. Palmer and his dental practice, essentially blurring the lines between his dentistry expertise and his personal recreational endeavors. Some reviewers linked the high cost of his dental services to the steep $50,000 price tag of the rendezvous with Zimbabwean game-hunting guides to seek out an exotic animal.

As the ramifications of the hunt continue to unfold, it remains unclear how Dr. Palmer could recover from the reputational fallout. His dental practice could be severely damaged. The truth of the matter is that a commercial business insurance policy might have been able to plug some of the holes, but it is difficult to conceive that a complete recovery is at all possible without some alternative plan…a sound reputational risk management strategy. Self-insurance by way of a captive insurance company could have funded the business interruption losses (and/or demise), in conjunction with the dentist’s conventional insurance.  To be clear, “self-insurance” as it is commonly understood may only refer to funds set aside as a means of covering losses. A captive however is a bona fide insurance company, whereby the insured (the operating company) pays premiums to the captive on a tax-advantageous basis.

We have yet to see what Dr. Palmer has planned for the future. As the negative reviews mount on social media and rallies for the dentist to be held legally accountable for his actions become louder, the fate of Dr. Palmer’s business and livelihood hangs in the balance.

Self InsuranceSelf-Insurance Through a Captive

Professionals in the private healthcare sector have significant risks, such as the costs of an administrative hearing, breaches of medical records, and others that could taint their reputation. Self-insurance through a captive insurance company could help combat those risks for closely-held medical practices classified under the “midmarket” umbrella. These businesses have the opportunity to cover their risks and take advantage of the ancillary benefits that come from captive ownership.

Due to exclusions, commercial coverages do not address many of the risks experienced by professionals in the private sector. Or, it could be that coverages are too expensive or unavailable in the marketplace. Underinsurance could prove devastating, as a reputational blow to a business could halt operations and its revenue stream.

Detailed in a Deloitte Touche/Forbes survey published in early 2015, reputational risk is the leading concern among companies based in the U.S. 81 percent of the company executives who took the survey expressed concern over the risks that could cause negative impact to their reputations and consequent revenue loss.  The survey also detailed the underlying drivers of reputation risk. The top concerns of respondents were issues related to ethics and integrity such as fraud, bribery and corruption, security risks (physical and cyber) and product and service risks. These drivers will remain top of mind through 2015 and beyond (Source: Forbes, Reputation Risk Leading Company Concern in 2015).

With a captive providing comprehensive insurance, business owners can take a proactive approach to mitigating and funding losses stemming from reputational risks. Tailored coverages plug insurance gaps and provide for a more comprehensive risk management plan. For example, a plastic surgeon may opt for medical malpractice gap, which protects against liability arising out of any professional incident that could be considered outrageous, reckless, or puts the patient at risk. Other medical professionals may opt for coverage that protects against the loss of a major business-to-business relationship. Many privately-held medical organizations depend on third party providers for supplies and other services—if these partnerships were to end, the business would be put at risk. Companies currently relying on self-insurance can cover these potential losses through a captive insurance program.

Other coverages could include:

  • Intellectual Property Package – Protects the insured for a broad set of both first party and/or third party intellectual property-related risk exposures including, but not limited to copyright, trademark, and patent infringement; unfair competition, libel and slander, misappropriation, unauthorized use, theft, loss, or other damage to intellectual property.
  • Breach of Medical Records – Coverage to protect the insured from additional expense from claims that patient privacy requirements were not maintained. Claim could be the result of a violation of federal HIPAA requirements, state regulations, or civil lawsuits.
  • Breach of Medical Standards - Coverage to protect the insured from additional expense from claims that medical standards were not maintained. Claim could be the result of a medical review board, or government entity.
  • Pollution Liability – Covers a broad set of pollution-related exposures, such as bodily injury, property damage, investigation costs, clean-up costs, fines, business interruption, and more. Third party claims from transportation of a product or waste; exposures at the insured’s location, exposures emanating from that location, etc.
  • Unauthorized Treatments – Coverage to protect the insured for legal liability associated with any medical procedures performed by medical assistants, interns and residents without the insured's knowledge, consent, or supervision.

Some business risks are predictable, but Dr. Palmer’s story serves as a reminder that business owners still have an obligation to plan for unforeseen events as best they can. By opting for an alternative risk management strategy such as self-insurance, or better yet, captive insurance, businesses might have a chance at survival when these events come to fruition. It is the silver lining we can use to build stronger, better, more resilient organizations.

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