As the year began, school administrators and their risk managers faced a financial challenge they had not seen for more than a decade. Insurance costs were spiraling upward, especially for workers' compensation and casualty coverage. Similar cost increases are taking effect in property insurance and health care programs.
In this climate, schools need to structure insurance programs with greater emphasis on loss control and present their risk exposures more favorably to carriers. A proactive approach to risk-management strategy will maximize coverage.
Now that the stock markets have cooled, insurers have to underwrite risks with more discipline to remain solvent. Carriers cannot recover by simply raising rates. Higher premiums have arrived, but the carriers that will be most successful will be those that can identify organizations representing the most attractive risks, and price coverage for them competitively.
Schools, with the guidance of their consultants and brokers, will play a critical role in defining the value of their business for carriers.
Unique concerns for schools
Carriers that derive most of their business from commercial clients do not always understand the unique risks and risk-management techniques prevalent in schools and universities. Indeed, some insurance companies try to stay out of schools altogether. Other carriers consider schools as less-than-ideal customers and charge them higher rates. Once insurers understand the value of the school market, they can offer favorable rates and terms.
Before schools can convince insurers of the value of their business, they must address concerns particular to schools. Public and private institutions have a number of considerations that are distinct from commercial risks:
Significant liability exposure from public access to facilities.
Extensive physical plants to protect, including specialized assets such as laboratory equipment and library collections.
A full range of occupational hazards.
Public schools face additional challenges:
Regulatory requirements that differ from those of corporations.
Employment liability risk management and nondiscrimination standards applicable to governmental agencies.
Requirements (see sidebar, p. 337) to disclose capital assets, physical condition and maintenance, and retiree benefit liabilities.
What is critical in obtaining the best coverage for a school is portraying these differences to carriers as strengths and not weaknesses.
Strategies that work
Schools need to strategically position their risk exposures to avoid unmanageable insurance costs and unacceptable coverage gaps.
Risk retention: Higher self-insured risk retention reduces insurance expense because it reduces the carrier's exposure. By holding on to the risk of smaller, more frequently occurring losses, a policyholder is buying only coverage against more severe, less frequent losses. Other risk-retention strategies may involve higher layers of coverage because of the low probability of a claim at that level.
This kind of risk retention should be evaluated carefully with the assistance of a professional. Strategic risk retention can help make a policyholder more desirable to a carrier. Since the policyholder maintains a greater stake in the potential liability, the policyholder is more likely to avoid exposure to unnecessary risk and encourage compliance with loss-control measures.
Loss control: Loss control is a proven method to decrease exposure. Carrying out loss control in schools involves evaluation of property and personnel by engineering and industrial safety experts to identify potential risks. Next, a comprehensive plan is put into place to correct hazardous conditions, educate personnel in safe work conduct and ensure government compliance. As situations change, reassessment of a loss-control program will help maintain its effectiveness.
Procedural documentation: Having procedures and results documented will reduce liability exposure. A carrier that sees a quality loss-control program with policies that are clearly and completely documented will consider an employer as a superior risk.
Pooled resources: Public school districts may find it advantageous to join with neighboring districts to share risk-management resources. Using group purchasing power and economies of scale, schools can acquire specialized assessment and loss-control services that smaller districts may not be able to afford on their own. In some jurisdictions, private educational institutions are allowed to participate with public entities in sharing resources.
Effective presentation: Have a clear, positive story to tell about your institution's exposures, experience and claims-management programs.
Regular communication: Maintain a dialogue with carriers. If yours is a proactive, conscientious and loss-sensitive organization, carriers will view your district more positively.
Smith is president and CEO of Keenan & Associates, a California-based insurance brokerage and consulting firm that provides insurance services to more than 750 school districts.
Reporting your assets
New Government Accounting Standards Board Statements 34 and 35 accounting requirements for public entities are being phased in through 2004. The standards include detailed assessments of a school's capital assets, along with disclosure of physical conditions and maintenance. The main purpose of this disclosure is for financial statements, but the information also is useful in communicating exposures and infrastructure values to insurance carriers.
Under the new accounting standards, public educational institutions will need to assess their capital assets every three years and disclose the results in their accounting statements. Although this places a new burden on public educational agencies, the GASB requirements also can be viewed as an opportunity to present an accurate picture of property and liability exposures and can put your institution in a favorable light.