What you need to know before you add medical spa services at your spa

If my spa expanded their service menu to add aesthetic medical services like IPL (intense pulsed light) treatments, laser hair removal, or Botox what do I need to be aware of?

In addition to following the guidelines of state boards of medicine and cosmetology,  spa owners need to modify their insurance policies.  Given the very specific insurance needs of medical spas,  there are not a lot of  medical spa insurance providers.   One such provider is ISU Insurance, and their rep Sandy Elliot has been a wealth of information to me about in the ins and outs of spa insurance.

I got to know Sandy after receiving her "Sandy's Spotlight" newsletter -- a regular newsletter she mails out to her contacts.  She gives great information and it smartly fits the marketing philosophy I support of "serve first, sell second."  So I told her that and we got to talking about our respective insights to the spa industry.  I learned a lot!  I sat down with her for a more detailed interview so that I could share it with you here.

Q: I’m seeing a trend in day spas to add medically supervised esthetic treatments by either contracting or partnering with a doctor. What does the non-medical spa need to know about the risks and unique insurance needs of a medical spa?
This depends on the relationship between the day spa & the medical spa. I often see day spas or salons leasing out space to a medspa. This should be clearly defined as a landlord/tenant relationship with a mutually agreeable contract (preferably executed by an attorney) & there should be no intermingling between the entities, the business operations nor the ownership. There should be a clear line of demarcation between the 2 businesses. For example, for the protection of the spa/salon, the medspa should provide proof of General Liability & Professional Liability coverage to the spa/salon sublessor; the medspa patients sign the medspa’s consent forms, the medspa’s protocols are followed & the patient is invoiced by/through the medspa.

However, if the day spa or salon adds a medspa entity (which would consist of different ownership in physician-owned states such as CA, as a physician would have to be majority owner of this entity) & medspa business operations to their existing business & are now offering medical procedures, they are now subject to the laws & require the same insurance as a medspa. If the ownership & business operations are different from the day spa, a separate policy would need to be written. Their existing ‘beauty parlor’ policy will no longer suffice – they are now offering medical procedures & would need a Malpractice Policy. It is the medspa owners’ responsibility to educate themselves in the laws, rules & regulations which govern medspas in their State. If you don’t have the time to devote to this, utilize the resources of a specialized attorney or hire a consultant or medspa coach. No insurance policy is going to cover a claim if the spa was not operating within the laws of their State.

Q: What are some of the new trends that you are seeing in the insurance industry that spas should be aware of?   
Many carriers are now accepting of the inclusion of wellness centers with spas. This can include coverage for acupuncture, nutritional therapy, weight loss, hormone therapy, Reiki, even full walk-in clinics. Many carriers are also now agreeable to covering procedures such as lipodissolve, liposculpture, Smart Lipo, certain dermatological procedures – procedures which were never before acceptable under a medspa Malpractice Policy.

The best news is that because of low frequency & severity of claims in the medspa arena and the addition of more insurance carriers quoting this genre, premiums continue to fall. This is the most competitively priced marketplace I have witnessed in the years in which I’ve specialized in medspa insurance coverages. If your renewal premium isn’t as competitive as you had hoped, perhaps your current agent isn’t a specialist in this field & is not doing the most thorough marketing job for your business.

Q: What is the one thing that most spas don’t think about when they think about insurance?
One of the most important things an insured needs to remember about medspa Malpractice Policies is the fact that these are written on Claims-Made & Reporting policy forms (as opposed to Occurrence forms). This means that it is of the utmost importance to retain your Retroactive Date (the original date the policy was written). Even if you change insurance carriers at renewal every year & even if you change agents, this Retro Date must remain intact, in order to provide coverage for any late reported claims.   Insureds often don’t realize that when they are late with a payment to the finance company, they are putting their policy in jeopardy of cancellation. Should the policy cancel, the Retroactive Date is lost. It would now not only be difficult to find a carrier agreeable to writing a spa’s coverage once a policy has been canceled for non-payment, but the Retroactive Date would now become the effective date of the new policy & would not pick up any late reported claims (back to the original Retroactive Date).

Q: Are there any risks that spas might inadvertently expose themselves to in their marketing or websites?
Make certain that your website & advertising are consistent with the procedures which you indicated on your completed insurance applications. Should you add any procedures mid-term, be sure to contact your agent in advance, to obtain approval from the insurance carrier & to determine if these additional procedures may result in any additional premium.

Another pitfall in advertising is overstating or overpromising what your spa can deliver. If your services don’t meet a client’s expectations based on your advertising, that client is more apt to file suit or seek refund for services rendered.

Q: What services do you provide for medical spas to help manage their risk and how do you typically work with a client?
I publish an informative newsletter, Sandy’s SideLight (available for viewing on my website) & I send out educational emails including statistics & claim examples & addressing potential hazards, risks, loopholes & coverage gaps. I personally assist all my insureds over the phone with the application completion process when first writing the insured and at their renewal. I do not delegate this task to a lesser experienced assistant, because I feel the time spent on the phone with the insured learning about their spa model, not only assists me in properly evaluating their coverage needs, but at the same time, educates the client about potential pitfalls. For example, I recently wrote a medspa whose physician owner wanted to expand to offsite Botox parties. She had been inappropriately placed by another agent with an insurance carrier who would not agree to cover this exposure, since the other agent had not taken the time to learn about the insured’s expansion plans. I was able to move her coverage to a different carrier who could provide coverage for this additional exposure. However, if the policy had been placed correctly from the onset, the client would have avoided some additional expense & a great deal of unnecessary frustration.
In discussing my insureds’ spa models, business plans & projections, it is of vital importance to ascertain the insureds’ anticipated growth over the forthcoming 12 month policy term, to determine any potential gaps in coverage:

• Do you intend to participate in any offsite events involving demonstrations & to which your equipment will be transported?
• Do you intend to add any cutting-edge procedures during the policy’s annual term?
• Do you intend to expand our current spa’s model to include a wellness center, walk-in clinic, etc.?
• Do you intend to contract out staff & services to other spas?

Every insurance carrier has different parameters. An experienced medspa insurance specialist will be quickly able to identify which carrier(s) would be the most appropriate for the spa’s model & be able to recognize any serious coverage gaps or possible double coverage situations.

Sandy Elliott is a 27 year insurance veteran & has more recently specialized in writing insurance coverages specifically for the medspa & wellness center industry. She has established strong relationships with & has taken the time to educate the insurance markets in this unique industry. Sandy holds the designation of Certified Insurance Service Representative & is a Phi Beta Kappa graduate of U. C. Irvine.  She can be reached at sandye@professional-ins.com or (714) 394-9471.

Comments

[Lori Hoyt]

It is also important to correctly answer the questions when filling out the applications for medspa insurance policies. Many owners/administrators think that if they answer "yes" to all the procedures listed - then they are covered. In reality - you want to be covered for services you do perform - but not for those (that may be higher risk therefore increasing your premiums) In reviewing these policies, often premiums are on average 30% too high.