Shirl Hedges quickly ticks off the top three coverage problems faced by risk managers at private elementary, secondary and higher-education institutions.

“It's property, property, property,” says Hedges, underwriting manager for schools at Philadelphia Insurance Cos. of Bala Cynwyd, Pa.

Other insurance executives dealing with private schools concur: Property coverage tops everyone's list of concerns, with nothing else even a close second.

Angela Tennis Indeed, for some schools, the tightening property market has impacted more than risk management; it already has restricted the amount of resources they will be able to devote to programs for students.

What's behind this tightening trend, of course, is catastrophes. “You're just seeing a lot more cat claims, which are totally going to drive rates,” says Hedges.

Through the first half of the year, catastrophes caused $70 billion of insured property damage, more than twice as much as during 2010's first half, according to a September Swiss Reinsurance Co. report. Those losses already make 2011 the second-worst year for insured losses and put it on track to eclipse 2005's record of $120 billion, Swiss Re notes.

“Some carriers were looking for 10-percent increases at renewal for all property” after the first quarter following the earthquake and tsunami losses in Japan, says Angela Tennis, a Hershey, Pa.-based vice president and the COO for the Higher Education Alliance at Aon Risk Solutions, a unit of Aon Corp.

But flood and earthquake risks typically are covered by separate policies, including difference-in-conditions coverage, “so we'll be seeing a tightening of that market, too,” Tennis predicts.

“We see property rates firming up across the board for educational institutions,” which is no different than for any owner of real estate, says Deb Denker, the Hartford, Conn.-based educational-institutions industry director in the commercial accounts division at Travelers Cos.

Deb Denker But some educational institutions, just like other real estate owners, might not face a substantial rate hike, Denker points out.

A school's exposure to catastrophic events, its experience and its expiring rate will all be big factors in their rates at renewal, explains Mark Turkalo, a New York-based senior vice president and the national education practice leader at Marsh Inc.

Also figuring into the pricing picture are risk-modeling revisions. For example, Hedges says Philadelphia Insurance is already updating its modeling of risks along all the coasts. “Our costs to reinsurers have already gone up dramatically,” she says. “It costs us more to write cover on some property than the premiums that are being paid.”

The Capacity Picture

Market executives are not seeing any drop in capacity, however.

For example, Denker says Travelers is not reducing its property capacity for schools and does not anticipate that other insurers will pull back the amount of limits they will write.

“There's no shortage on our end,” adds Hedges. “But there are some areas, depending on their location, where wind and hail capacity would become an issue very quickly” and might have to be underwritten separately, Hedges said.

Turkalo estimates that colleges and universities could line up $300 million of limits—and that even small school districts that purchase coverage through a consortium comprised of at least 10 entities could find $200 million or more of limits.

A crucial test for capacity will come at the end of year, as insurers' reinsurance treaties renew Jan. 1, Turkalo says. “What that means, we honestly don't know yet.”

Non-Property Coverage

Other lines of coverage for schools, in general, are stable, market executives say. So schools should not expect any material rate increases or reductions in capacity in areas such as general liability, excess liability, commercial automobile, workers' compensation and educators' legal liability.

But there are a couple trouble spots that concern some market executives.

Mark Turkulo The casualty-insurance market for schools is somewhat competitive, “but it's not great,” says Marsh's Turkalo. The problem is that “few markets know and want this business,” he said.

Large schools with 2,000 students or more, with on-campus dormitories and with sports stadiums can purchase $75 million to $200 million of general-liability limits, Turkalo says.

Still, there can be trouble spots within some coverages, according to Turkalo.

For example, for K-12 schools—but especially for Division I colleges and universities—many insurers are attempting to tighten general-liability coverage by imposing sub limits for losses arising from athletic competition, Turkalo says.

If schools agree to those sub limits, then they risk losing additional coverage for those losses under their umbrella or excess coverages, he says.

And auto liability is beginning to concern Philadelphia Insurance because of the increase in multi-claimant accidents involving school buses and under-insured and uninsured motorists, Hedges says.

Market executives are closely monitoring a few other areas where recent trends in claim frequency, severity or both are troubling.

For example, colleges and universities face an increasing number of age-discrimination claims in denying tenure, as those institutions work on slashing their budgets, said Aon's Tennis.

Continuing losses in that area could tighten the institutions' employment-practices-liability market, says Tennis, who advises colleges and universities to consult attorneys before—rather than after—denying tenure to ensure the institutions are complying with their own employee handbooks, as well as to make certain the handbooks are up to date.

Because of the increase in frequency and severity of those claims—as well as harassment, wrongful termination, “failure to educate” and “failure to place in a job” claims—“rate increases could be expected” for educators' legal liability by both K-12 schools and institutions of higher education, says Travelers' Denker.

But Marsh's Turkalo isn't so sure rates will be headed up any time soon. “It appears so far that most [of the losses] are contained within the retention,” he says.

Other Trends, In Brief

The educators' legal liability market for colleges and universities has been hit with increasing numbers of intellectual-property theft claims by faculty, students and other schools, Tennis says. These claims are a function of an increasing effort by schools to license or sell what the institutions consider to be their own intellectual property. Some faculty and students contend that intellectual property is theirs. Other schools contend that former professors at their institutions improperly took that property to other institutions.
Philadelphia Insurance is troubled by unsettled case law over a school's liability when school employees, parents and students are driving students to or from school-related events.
Cyber liability is another growing risk for schools on two fronts, insurance market executives note. First, schools maintain a tremendous amount of student and employee personal information online on sites that are designed to allow access, albeit only by individuals needing to review their own information. Second, the liability of schools when students bully online remains uncertain, especially when personal computers are used off campus, Travelers' Denker says.
Special activities that put students in harm's way make the risk associated with football look “blasé,” says Hedges. In elementary and secondary schools, kids these days are doing things such as going on “survival weekends,” rock climbing, bronco bull riding and flying to a field-trip destination in a parent's private airplane. “Is this covered” under any school insurance policy? Hedges asks. “It really needs to be on a special policy—a special events policy with separate limits and a separate premium.”

Loyola U Looks to London

Loyola University New Orleans, a Catholic institution, pays materially more for its property coverage now than it did three years ago, according to Ric Bell, director of risk management.

But the university opted to shoulder higher coverage costs three years ago, when it left the U.S. property insurance market and began purchasing the coverage in the London market, Bell explains.

At that time, Bell sought out London underwriters for a couple reasons that made a much-higher rate a palatable tradeoff.

For one, the university's windstorm coverage had been reduced to a fraction of the limits he has been able to purchase from the London market.

In addition, he considered the rates that some U.S. property insurers were offering “ridiculously low.” That concerned him, because early in his career he purchased extremely cheap workers' compensation coverage from a highly rated insurer that failed during the policy's term, Bell notes.

“Loyola is really risk-averse,” and the London market provided Loyola the “stability” in windstorm limits and underwriters' financial strength that university officials wanted, Bell said. “That's why we sacrificed the extra dollars.”

But while Loyola's property insurance costs are substantially higher than they were three years ago—although that is part due to greater property valuations today—the university negotiated a 10% rate reduction for its April renewal, according to Bell.

He ascribes the rate cut to a few factors:

Risk management began negotiating its property-coverage renewal in January. While the coverage had not been bound before the devastating earthquake and tsunami losses in Japan, the coverage negotiations had been completed, and Loyola's property-insurance markets honored the agreement. If Loyola and its insurers had not have reached that early agreement, the renewal “would have been a little different story.”
Loyola continues to implement measures designed to mitigate business- interruption losses—the major part of its $22 million Hurricane Katrina claim—if a storm forces the school to close down for an extended period. For example, the school and its instructors can switch any course to an online format within 48 hours of a campus evacuation.
Because of the higher rates Loyola has been paying a few years, the London market “had some room to give a little back.

And what are some of the other top-of-mind concerns for Bell?

Employment practices risks involving tenure and discrimination.
Cyber-liability risk involving both privacy issues if the university's computer system were hacked, as well as various risks stemming from students and employees' use of social media to disparage the university, violate its trademarks or post inappropriate material.

Special Reports /

Private Schools and Universities Face Increase In Rates For Property Coverage

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