Insuring home medical equipment

VGM Insurance works with local agents to protect HME providers and related risks

By Elisabeth Boone, CPCU

If you’re like a lot of people, the word that comes to mind when you think about home medical equipment is “old.” Wheelchairs, walkers, bedrails, and grab bars all tend to conjure up images of aging and frailty.

It’s true that seniors account for a large proportion of the market for home medical equipment (HME). At the same time, HME providers also serve people of any age who need to use equipment while recovering from an injury or surgery, as well as persons with permanent disabilities.

The key exposure that arises from the sale or rental of home medical equipment is liability—both for products and for installation of permanent equipment like stair lifts. HME providers also must address the bread and butter risks associated with running a business: general liability, property, and auto.

A leader in meeting the needs of the highly specialized home medical equipment dealer market is VGM Insurance, a managing general agency that was established in 1990 as a unit of VGM Group, Inc., based in Waterloo, Iowa. VGM also writes coverage for HME manufacturers and distributors and has a separate program for orthotic and prosthetic practitioners.

VGM Group founder Van G. Miller, an experienced home medical equipment provider, in 1986 created Van G. Miller & Associates as a membership organization for HME dealers to help them compete with national chains.

“I started VGM as a purchasing group for home medical equipment dealers,” Miller says. “I asked equipment manufacturers if they would give our members a quantity discount, and they agreed.”

That was just the beginning. Today VGM Group consists of 14 divisions and has about 425 employees. In addition to VGM Insurance, these units include a home medical equipment leasing company; a home care providers group; a department that supplies home care equipment to people who have traveled for an extensive vacation or who are relocating; a managed care unit; a telecommunications unit; an Internet group; a financing unit; and an in-house creative department that handles advertising and graphic design.

The insurance piece

Always seeking new ways to serve the VGM Group membership, Miller identified his next venture: offering insurance to home medical equipment providers.

“I was the principal of Miller Medical Equipment from 1978 to 1986,” Miller explains. “During that time, we grew to 26 stores, 16 of which were franchised stores and 10 were company owned. I was familiar with home medical equipment, and I understood all of the exposures that needed to be insured.”

That’s where independent agent John Spragle came in.

“Our agency handled Van’s personal auto insurance, and he approached us about arranging product liability insurance for home medical equipment providers,” Spragle says. “We were able to find a company that would write the business. Over time, that company changed its mind several times about the direction it was going.

“Van thought he would like to have his own insurance company,” Spragle continues. “Knowing how difficult that would be, we decided to take another route. We were able to find a carrier that would allow us to do most of its work because we knew the equipment and we knew the policy forms and the claims. We were able to use their paper and their reinsurance until we got established.”

Spragle joined VGM Insurance in 1990 and since 1997 has served as president of the unit, which operates as a division of VGM Group.

Today VGM Insurance is an MGA that operates nationwide, offering coverage through three A rated insurers that serve as fronting companies. Reinsurance is provided by VGM Insurance Company of America, a Bermuda-based captive facility. About 70% of VGM Insurance’s business is written through independent agents; the remainder is placed on a direct basis.

Strong growth

In the 17 years since it was established, VGM Insurance has experienced strong, steady growth. Today the MGA has premium volume in excess of $20 million and provides insurance to about 2,800 home medical equipment providers, manufacturers, distributors, and orthotics and prosthetics companies.

“When the hard market hit in 2001, there were probably 20 companies writing this business, and it went down to about four,” Spragle comments. “As a result, we experienced rapid growth over the next few years, and we’re now the largest home medical equipment insurer in the country. Being connected with the service groups of VGM—the finance group, the buying group, and others—has helped us grow considerably because we do a lot of cross-selling.”

“Stability has been a key part of our growth story,” observes Michael Mallaro, chief financial officer. “In the 17 years that we’ve been in this marketplace, we’ve been in it continuously; and very few, if any, of the other carriers that write this product line have been in the market continuously. A lot of people have been in and out.

Another key to the success of VGM Insurance is its commitment to providing top-notch claims service. The claims department is headed by attorney Jim Walsh, who, after a 20-year legal career, joined the MGA when it was established in 1990 and now holds an ownership interest.

“I’ve been with VGM Insurance from the start,” Walsh says. “Before coming on board, my practice was primarily insurance defense work for insurance companies, doctors, and product liability cases.”

Program features

VGM Insurance serves a highly defined niche market that consists of three segments: home medical equipment providers, HME manufacturers and distributors, and companies that build and fit orthotics and prosthetics. It’s a market with which the VGM team is thoroughly familiar.

“One of the advantages we have in the marketplace is that we are very much involved in the businesses we like to insure,” Walsh says. “Through VGM Group, we offer them a lot of other services that aren’t even related to insurance, such as discounts on equipment purchases, financing, and networking opportunities. These services can be our entrée to writing the insurance.”

The Home Medical Equipment Insurance Program written by VGM Insurance provides products and completed operations liability coverage for all home medical equipment the insured rents or sells. The program also provides professional liability coverage for licensed professionals such as pharmacists or respiratory therapists and for business operations that are incidental to the sale or rental of home medical equipment. Liability limits begin at $300,000 per occurrence/$300,000 aggregate and go up to $5 million.

The program also includes general liability coverage for both on- and off-premises exposures (slip and fall, damage to a patient’s home during delivery). Optional coverages are available for hired auto, non-owned auto, permanent installation of equipment, and independent representatives.

Optional property insurance can be purchased; it automatically covers property off premises, property in transit, property at exhibitions and trade shows, and other exposures.

VGM also offers the O&P Insurance Program for the approximately 1,300 members of the Orthotic and Prosthetic Group of America (OPGA), a unit of VGM Group. Limits are available from $500,000 per occurrence/$500,000 aggregate to $5 million.

All policies are written on a full occurrence basis, and coverage can be tailored to meet the requirements of insureds who are certified by either the American Board for Certification in Orthotics and Prosthetics (ABC) or the Board for Orthotist/Prosthetist Certification (BOC).

The program provides product liability coverage on any product an orthotic and prosthetic company sells, as well as professional liability for any licensed professional performing duties incidental to the sale of orthotic and prosthetic devices. The policy also includes general liability coverage. Like the home medical equipment program, the O&P program offers optional hired auto, non-owned auto, and property coverages.

A third VGM program provides product liability coverage for the manufacturers and distributors of home medical equipment. Coverage is written on a claims-made basis with limits available to $3 million.

Agent partners

VGM Insurance is firmly committed to increasing the distribution of its products through independent agents and brokers. Although initially most of its business was written on a direct basis, some 70% of VGM’s premium volume is now generated through independent retailers.

“John decided a couple of years ago to build more relationships with independent agents,” Walsh says. “That side of our business has grown more than the direct side to the point where it now represents the majority of our book.’

The hard market that began early in this decade was a key factor in the growth of VGM’s business with independent agents, Walsh observes.

“When the hard market hit, many agents had clients who had been with carriers that withdrew from the home medical equipment market,” he says. “We launched an ad campaign and were able to acquire a substantial amount of new business by filling a need in the market.”

Notes Spragle: “The local agent can write the auto, property, and workers comp, if need be, and we’ll write the liability coverage. We work with the agent to help him keep his customer so the customer can deal with someone he trusts locally.”

Today VGM Insurance works with some 1,100 retail independent agents nationwide. “A lot of times an agent will have just one customer in the home medical equipment business, and that’s why he has trouble finding a market,” Spragle says. “That’s when the agent comes to us.”

Writing business direct unquestionably is less expensive than placing it through independent agents. That said, Spragle comments, “We prefer to work with independent agents. The cost is worth it if we find agents who are willing to stay with us and not shop the business every year. We try to price our products attractively, pay commissions promptly, and encourage agents to be part of our team.”

Challenges ahead

With the oldest Baby Boomers beginning to retire, and given the impressive advances in the design of home medical equipment, orthotics, and prosthetics, it’s clear that the demand side of this market segment is strong and growing.

Other, less positive factors also are having an impact on the market, Walsh notes.

“Like many health care providers, the home medical equipment industry is under tremendous pressure today because of declining reimbursements,” he says. “Medicare is extremely stretched, and all the other major payors are also having problems as a result of increasing costs.”

With a team of dedicated professionals and intimate knowledge of the markets it serves, VGM Insurance is well positioned to help its insureds meet these and other challenges. *

For more information:
VGM Insurance
Web site: www.vgminsurance.com