Shirl Hedges quickly ticks off the top three coverage problemsfaced by risk managers at private elementary, secondary andhigher-education institutions.

“It's property, property, property,” says Hedges, underwritingmanager 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, withnothing else even a close second.

Indeed, for some schools, the tighteningproperty market has impacted more than risk management; it alreadyhas restricted the amount of resources they will be able to devoteto 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 goingto drive rates,” says Hedges.

Through the first half of the year, catastrophes caused $70billion of insured property damage, more than twice as much asduring 2010's first half, according to a September SwissReinsurance Co. report. Those losses already make 2011 thesecond-worst year for insured losses and put it on track to eclipse2005's record of $120 billion, Swiss Re notes.

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

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

“We see property rates firming up across the board foreducational institutions,” which is no different than for any ownerof real estate, says Deb Denker, the Hartford, Conn.-basededucational-institutions industry director in the commercialaccounts division at Travelers Cos.

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

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

Also figuring into the pricing picture are risk-modelingrevisions. For example, Hedges says Philadelphia Insurance isalready updating its modeling of risks along all the coasts. “Ourcosts to reinsurers have already gone up dramatically,” she says.“It costs us more to write cover on some property than the premiumsthat 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 propertycapacity for schools and does not anticipate that other insurerswill pull back the amount of limits they will write.

“There's no shortage on our end,” adds Hedges. “But there aresome areas, depending on their location, where wind and hailcapacity would become an issue very quickly” and might have to beunderwritten separately, Hedges said.

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

A crucial test for capacity will come at the end of year, asinsurers' reinsurance treaties renew Jan. 1, Turkalo says. “Whatthat 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 materialrate 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 marketexecutives.

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

Large schools with 2,000 students or more, with on-campusdormitories 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 Icolleges and universities—many insurers are attempting to tightengeneral-liability coverage by imposing sub limits for lossesarising from athletic competition, Turkalo says.

If schools agree to those sub limits, then they risk losingadditional coverage for those losses under their umbrella or excesscoverages, he says.

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

Market executives are closely monitoring a few other areas whererecent trends in claim frequency, severity or both aretroubling.

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

Continuing losses in that area could tighten the institutions'employment-practices-liabilitymarket, says Tennis, who advises colleges and universities toconsult attorneys before—rather than after—denying tenure to ensurethe 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 thoseclaims—as well as harassment, wrongful termination, “failure toeducate” and “failure to place in a job” claims—“rate increasescould be expected” for educators' legal liability by both K-12schools and institutions of higher education, says Travelers'Denker.

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

Other Trends, In Brief

• The educators' legal liability market for colleges anduniversities has been hit with increasing numbers ofintellectual-property theft claims by faculty, students and otherschools, Tennis says. These claims are a function of an increasingeffort by schools to license or sell what the institutions considerto be their own intellectual property. Some faculty and studentscontend that intellectual property is theirs. Other schools contendthat former professors at their institutions improperly took thatproperty to other institutions.
• Philadelphia Insurance is troubled by unsettled case lawover a school's liability when school employees, parents andstudents are driving students to or from school-relatedevents.
• Cyber liability is another growing risk for schools on twofronts, insurance market executives note. First, schools maintain atremendous amount of student and employee personal informationonline on sites that are designed to allow access, albeit only byindividuals needing to review their own information. Second, theliability 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 therisk associated with football look “blasé,” says Hedges. Inelementary and secondary schools, kids these days are doing thingssuch as going on “survival weekends,” rock climbing, bronco bullriding and flying to a field-trip destination in a parent's privateairplane. “Is this covered” under any school insurance policy?Hedges asks. “It really needs to be on a special policy—a specialevents policy with separate limits and a separate premium.”

Loyola U Looks to London

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

But the university opted to shoulder higher coverage costs threeyears ago, when it left the U.S. property insurance market andbegan purchasing the coverage in the London market, Bellexplains.

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

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

In addition, he considered the rates that some U.S. propertyinsurers 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 failedduring the policy's term, Bell notes.

“Loyola is really risk-averse,” and the London market providedLoyola 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 substantiallyhigher than they were three years ago—although that is part due togreater 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 renewalin January. While the coverage had not been bound before thedevastating earthquake and tsunami losses in Japan, the coveragenegotiations had been completed, and Loyola's property-insurancemarkets honored the agreement. If Loyola and its insurers had nothave reached that early agreement, the renewal “would have been alittle different story.”
• Loyola continues to implement measures designed to mitigatebusiness- interruption losses—the major part of its $22 millionHurricane Katrina claim—if a storm forces the school to close downfor an extended period. For example, the school and its instructorscan switch any course to an online format within 48 hours of acampus 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 forBell?

• Employment practices risks involving tenure anddiscrimination.
• Cyber-liability risk involving both privacy issues if theuniversity's computer system were hacked, as well as various risksstemming from students and employees' use of social media todisparage the university, violate its trademarks or postinappropriate material.