Monthly Archives: October 2013

Is Dental Nurse Indemnity the next PPI? P4

Talking about selling your practice for a million, the NHS practices continue to attract more, in terms of money, and I think in a way this is related because someone who’s a corporate, he’s going to want a practice with a contract attached because there’s some certainty about that.  There’s some guarantee of income, providing you can negotiate the transfer of the contract, of course, but you’re far more like, let’s say if a surgery has a turnover of £1 million or something.  If you buy it, you’re far more likely to realize a similar turnover if it’s contract-based rather than if it’s a private practice, and all of the turnover was associated with the former boss who may want to work for you or may not.  He may take his million and a half somewhere else, and you’re left trying to build up what is literally a practice where the private practitioner’s gone AWOL.

Chris Ritchie:      Yeah.  Going back to Oasis, they can’t have a monopoly, can they?  You’re not allowed to have a monopoly so it could end up that we have more corporates popping up, smaller corporates.  I think you’re going to give Oasis and IDH, being the big ones.  A supermarket may well launch its own branch chain.  I think that’s definitely the way it’s going, isn’t it?

Derek Watson:   Well, when you say you can’t have a monopoly, I think you’re right in that you can’t prevent other companies coming in and stocking up, but you can get into a situation where you’re dominant in the market.  When you look at the spectacle sector, for example, you can count on the fingers in one hand, the major players in the spectacle sector in the main division, Division Express, Optical Express, SpecSavers, Dollan’s, perhaps.  I don’t know if you could think of any others. Then, you’ve got the really, really small guys, but the big ones are dominant.

I think they all continue the same way in dentistry.  I think they’re expecting it to go the same way in dentistry.  I think Oasis and IDH don’t expect to cancel each other out, but I think they do expect to be two of the three or four major players.  They’ll dominate because they’ll pick up 80% of the market, and 80% of £7 billion, for them, is a lot of Dutch.  Perhaps, it’s worth investing in Stuart Rose to get 80% of that particular pie.  That’s a lot of money, isn’t it?

Chris Ritchie:      Yeah.  It’s a good time to be buying shares in any of the corporates, but that thing you do currently have close to big ones in dentistry.  So, there’s room for two or three more, and it’d be interesting to see where they come from.

Derek Watson:   Now, winding up, the last story I’ve got here on the schedule to have a chat about is the Dental Defense Union, and for those people that are not familiar with the insurance and so on, this is medical indemnity insurance we’re talking about now, which is compulsory insurance in case you do something that is later decided to be negligent and which causes harm, which then causes a loss.  That loss is then paid for by your indemnity insurance.  For example, if you dropped your [36:38] down someone’s throat.  That always used to be a good example, although there’s no excuse for that now.  They probably wouldn’t pay for that because you’re not supposed to be working in a way that would allow that to happen.

There are three major players that are UK or London-based.  I think there’s two in London:  The Dental Protection and Medical Defense Unit in London.  Then there’s Medical and Dental Defense Unit in Scotland.  So, there are three.  There are others.

They all used to be mutual.  In other words, the members paid into a central fund, and then, they would, if they needed to, put a claim in and claim against the fund, and providing it got agreed, it would be paid.  All the expenses for the lawyers and everything would be paid out of the fund.

Then, a years ago, around year 2000 or so, the Dental Defense Union suddenly said, “No, we’re going to an insurance policy-based approach.  So, there’s going to be no mutual fund anymore.  We are going to pay at premium to Lloyds, and Lloyds is going to underwrite everybody.  It’s a marvelous scheme because you all have a policy.  So, you know exactly what is covered and what isn’t covered, and there’ll be none of these ambiguities there is with mutual associations.”

Are you going to be covered or not?  It’s discretionary.  So, it’s discretion, and they banged on about this for years and years.  It turned into a massive band fight between Rupert Hoppenbrouwers, the Dental Defense Union, and Kevin Lewis of Dental Protection with MDD on their side about what was the best way of doing things.

I think the answer is that they were both reasonably good ways of doing things, possibly.  The problem with the insurance-based model is that more of the members’ money leaked out into the shareholders, and the insurance people who underwrote the insurance then the mutual where, obviously, all stayed in hell.

As far as the insurance went, they cost about the same, and they did about the same job, but then, two years, this guy called Finlay Scott was asked to review the requirement to have indemnity insurance because there was a debate. New dentists need to be indemnified.  New doctors need to be indemnified, but then, there was a worry that, possibly, nurses need to be indemnified as well.

He came up, and I’m a bit cynical about the way these things happen.  He came up with this recommendation, which is that no nurses were find, especially if they’re working in the health service.  They’ll be covered by the health service insurance, and if they’re working as employees, then, basically, they’re pretty unlikely to be sued anyway because employees benefit from something called vicarious liability, which means that if they do something negligent, it’s assumed that it’s their boss’s fault.  Their bosses either didn’t train them properly or didn’t supervise them properly or didn’t give them the right equipment.  So, the boss is in trouble.

Finlay Scott came up with this dependent policy review, and he said, basically, nurses don’t need it.  Nobody who’s employed needs it.  Nobody who’s working for the health service needs it.  Now, one offshoot of that is he was asked to look at this question of whether mutual insurance or insurance policy-based insurance is better.  Is one of them better than the other?  He said, “Look, I’ve had chat with officials by which we presume.  We don’t care.  It’s the same.  It doesn’t make any difference to us,” because that that point, there was still dots and dinges.  One was bought.  It wasn’t compulsory.  It’s only been recently compulsory, and it still causes a problem if the dentist moves abroad.

Chris Dean from Dental Old Partnernership is leading a campaign to try and force these indemnifiers to face up to their responsibilities when the dentist goes abroad and leaves and effectively leaves the patient without any recourse to indemnity even though they may be indemnified and there might be a policy that may pay out.  But the patient can’t find out from the dentist who the insurer is.  So, no liability arises.

Finlay Scott decided that there was pretty much no difference, and then, Dental Defense said, “That’s it.  He was our last best hope.”  Dental Defense was hoping that the government would turn around to the discretionary insurers and say, “No, this needs to be insurance based,” and it would have been a leveled playing field.  Seeing that they couldn’t play on a leveled playing field anymore, I think the Dental Defense Union said, “We give in, and we’re going to go back to discretionary occurrence basis,” funded by us.  So, now, it’s all gone back in the house.

Chris Ritchie:      But it doesn’t ultimately make any difference if you were customer, does it?

Derek Watson:   No, I don’t think so because at the end of the day, you still pay your money and make a choice.  You know, you got the cover.  The cover’s pretty similar.  The premium’s pretty similar.  I’m a great fan of the DFO, a mutual organization.  I’m a great fan of mutual associations whether it’s for pension provision or investments or providence societies, friendly societies.

Certainly, income protection would say to any young dentist out there, if you’ve got a commercial firm where you’re paying premium and you’re going to get a certain amount of income protection versus paying to a mutual, you may find that the commercial firms pay more, and they pay it quickly.  They probably won’t pay it for long, but they’ll pay it quicker and probably give you slightly more.

That’s pretty attractive, but in fact, if you pay into a mutual, then you may have to wait longer for the money.  You may get slightly less, but you do, when you’re 50-something, get a great massive lump sum, which is equivalent to getting all your premiums back, pretty much.  I can say this because I’m not an independent financial advisor. You know, I’m not getting paid for this advice.

I mean, if I’m completely wrong, it’s a shame Chris is not here because he would tell me.  I mean, but I always relied on mutual for my income protection because I knew that I was only lending them the money.  With a commercial organization, you’re giving them the money, but for mutual, you’re lending them.