SPECIALTY LINES MARKETS
Protecting our greatest assets
Opportunities for agents in the dynamic world of private schools
By Dave Willis
"Schools have the care, custody and control of America's greatest assets." This statement from Steven Sims, president of WRM America Indemnity Company, accentuates the role agents and brokers play in helping schools carry out their mission.
Many private schools face challenges these days. "They're struggling with student counts," notes Shirl Hedges, underwriting manager with Philadelphia Insurance Companies, "as many people can't afford private school."
According to Sims, downsizing is geographic-dependent. "We've seen drops in the New England market, New York and California," he says. "In some Midwestern states, we've seen no change. Sunbelt states enrollments are up. You can almost follow state bond ratings to get a good picture."
"Where enrollment is down, budgetary constraints affect risk management," notes Deb Denker, educational institutions industry director for Travelers Commercial Accounts. "Many schools become reactive, not proactive, on such issues. Failure to manage exposures, such as tagging fire extinguishers or testing fire pumps, can result in increased claims or losses, which may end up costing them in the long run."
Even as downsizing occurs, risks remain. "Winter storms, snow and ice, hurricanes, hail, tornadoes—they're impacting schools countrywide," Hedges explains. Other exposures are on the rise. "Special events, such as trips abroad, are increasing," she adds.
Mark Nichols, managing director, Markel Accident & Health, sees changes, too. "Private schools are offering more hazardous activities, including a variety of sports and adventures," Nichols says. "This increases exposures and the need for higher limits and tailored coverages."
Schools are also trying to maximize use of halls and campuses for outside activities, "They rent out spaces for revenue to support themselves and enhance the student environment," Sims explains. "This increases exposures."
Trends carry with them insurance implications. Employment practices is one area. "EPLI traditionally responds to wrongful terminations," Sims notes. "Today, when schools go to rehire, EPLI comes into play, too. There's a process and procedure to follow when hiring back staff. In some jurisdictions, this is a significant issue."
Denker sees changes in how some private schools address or manage exposures. "They're looking to insure exposures they previously addressed through emergency funds or self-insurance," she says. Examples include crisis management expenses and defense expenses for staff wrongfully accused of abuse or molestation.
Amid the downturn, carriers are still interested in the market. "As in many industries, the insurance marketplace continues to be very competitive for private schools," explains Christi Hatcher, managing director, Markel Property & Casualty. Adds Denker, "Many national, regional and specialty carriers target this segment, which is typically profitable despite numerous loss exposures. The market is attractive, in large part, because schools take risk management seriously.
"Insureds have many choices in terms of carriers, coverage and program structure," she adds, and pricing is favorable, which is an added benefit." Agents benefit, too. "They have a lot of choices when it comes to carriers," Denker notes, "but they must understand customer coverage needs and make sure they address them. This can be quite a task, since many carriers have unique endorsements and coverage enhancements."
Some rate tightening has started. "Property rates are increasing, especially for coastal areas," explains Hedges. "Some casualty rates are up, and deductibles are increasing. Sims is seeing signs of firming on the property side, too. "It's more prevalent in CAT-prone areas than elsewhere," he says.
Geographic differences are affecting agent revenue. "Because the state of private schools varies based on location and local economies, some insureds are experiencing a detrimental impact on enrollment, while others are not," notes Mark McCrary, president, Glatfelter Public Practice. "For agents, positive or negative growth affects their commissions."
There is a bright spot: retention. "The most important impact we see is insureds aren't as likely to move or remarket business," Sims explains. "As long as they can renew flat or with a slight decrease, they want to put it to bed and address other issues."
Cyberliability is an increasing issue for schools. "You just have to watch the news to see the household names being victims of cyberliability," says McCrary. "Schools have personally identifiable information and need to ensure they consider coverage."
Hedges concurs. "Online and virtual activity is definitely more pronounced for schools," she says. "Many are venturing into the online world. This is an emerging trend, so coverage is in question."
Hatcher sees a growing need to protect against all Internet exposures and unsupervised access by staff and students. "Cyberliability and data breach coverages are still in various development stages," she says. "Without standard industry forms, producers and policyholders must understand what's included in policies and what's not."
Cyberliability insurance isn't always easy to get. "Carriers have been less willing to offer it, due to the significant exposures and unique operating environments schools present," Denker explains. "However, carriers are more willing to offer it to schools and colleges willing to implement controls that minimize the risk of cyber-attack or data breach."
According to Sims, some schools decline coverage despite need.
"We've seen a major shift of concern, but as people go through the application process and see all the checks and balances are in place, they're less likely to buy because of cost," he says.
A related concern is cyberbullying. "That's another emerging issue," says Hedges. "The schools' responsibility varies per state. Are they responsible if one student threatens another with their own cell phone while away from school? What if they use school computers?"
"Cyberbullying has been a huge issue," adds Sims, "With an effective risk management program, you can do a very good job at what we call pre-loss cost containment."
Another trend-based concern that agents and brokers can help schools address is violent events, notes McCrary. "Coverage is available," he notes, "and it's a prudent investment, since you can't predict where it may occur."
Other important concerns, according to Hedges, include: abuse; risks associated with leasing space to outside parties; increased use of security officers; and student transportation. "This is especially important for smaller private schools," she notes. "It's not the best idea to have parents driving students without MVR, proper insurance or background checks."
According to Denker, agents and brokers need to be aware of new coverages. "Specifically, they need to understand cyberliability, crisis management expense reimbursement and defense expenses for wrongfully accused/innocent parties," she says. "They also need to carefully review terms and conditions of whatever policy they use. Where there aren't standard forms, especially, it's very important to analyze coverage relative to price."
"With increasing tuitions and an uncertain economy, tuition refund is becoming increasingly important," Nichols notes. "It's actually being used as a recruiting tool."
Hatcher suggests that agents and brokers make sure private schools "evaluate the need for coverages like management liability and/or educators liability, including professional, directors and officers, and employment practices liability coverage. Also, it's important to be aware that abuse and molestation coverage and limits offered may vary greatly between companies."
McCrary encourages private schools and agents to pay particular attention to properly insuring their buildings. "Often, property schedules are smaller than large public school districts," he says. "Failure to insure to value can be an issue with co-insurance penalties and margin clauses."
The most important component of a school program in Sims's mind is what he calls "a seamless or no-gap product offering, where all of the needed coverages are seamless from the ground up, to limits as high as $20 million to $25 million."
Agent and broker role
Opportunities for agents and brokers to help insureds navigate options are great, Denker says. "However, they need to understand unique exposures each school presents and work with carriers to tailor an insurance program for that specific school or college. Coverage varies by carrier, so brokers need to analyze policy features and exclusions to get the best coverage at the best price."
Hedges encourages agents to understand different coverages. "Be aware of cyber, pollution, student accident, violent event," she notes, "and know how to incorporate them into a school's insurance program."
Nichols has similar counsel. "Producers can help customers and grow their business by offering data breach expense coverage, tuition refund, employer stop loss, management liability and educators liability," he says. "Specialty coverages such as child abduction and key employee replacement are also valuable additions to traditional programs."
"With recent events such as swine flu and e-coli outbreaks, business income losses resulting from communicable disease and food contamination should be considered for every school account," Hatcher says.
Hedges says agents and brokers can also deliver value by working with partners to deliver loss control and risk management services. "Make sure schools have an 'acceptable use' statement on the use of Internet, chat rooms, e-mail and such, so students and teachers know what's acceptable and what's not," she notes.
"Review building values and ensure they're accurate, and review hiring procedures and make sure proper controls are in place," she adds. "Don't forget special events. You wouldn't believe what some schools get involved in. A trip to the zoo is commonplace compared to a parent sending a private jet to pick up students for a day trip to D.C."
Participation beyond insurance is also important, McCrary notes. "Getting involved with fundraisers and other school activities lets agents maximize their exposure and connections and can bring big rewards. It's a way to keep connected to an account or prospect. If it's a prospect, of course, ask for the opportunity to quote the account."
Sims concurs. "Participate with schools in several areas," he says. "Schools need to know that agents and brokers not only know their business but are committed to their industry and their cause."