MANAGING THE HIGH RISKS
OF HIGHER EDUCATION

AIG’s approach to the increasingly complex risks of colleges and universities

By Elisabeth Boone, CPCU

AIG Higher Education Risk Solutions’ new unit leader Mike Foley (left) and Tim McAuliffe, unit leader at the time of this new division’s launch.

Fire in a dormitory ... food poisoning in the cafeteria ... an injured football player ... For decades, these have been among the risks commonly associated with colleges and universities. In today’s world, however, the list of exposures facing institutions of higher learning is far more daunting: terrorism, sexual harassment, and Internet liability, to name a few. Even the smallest schools are vulnerable. These and other challenging exposures underline the necessity for colleges and universities to take a comprehensive, focused approach to risk management.

That’s the idea behind AIG Higher Education Risk SolutionsSM, a recently formed division of the property and casualty insurance subsidiaries of American International Group. The unit’s Educators EliteSM product line offers a range of coverages to address both the traditional and emerging risks of public and private colleges, universities, junior colleges, and trade schools. The unit also provides comprehensive risk management and claims services.

Although AIG Higher Education Risk Solutions was formed in February of this year, says Tim McAuliffe, unit leader at the time of the launch, “AIG has written higher education accounts for numerous years. We started Higher Education Risk Solutions to take a different approach to marketing all of AIG’s capabilities. We wanted to make sure that the marketplace, in terms of both brokerage firms and clients, understood what we could offer to address the risks that a college or university might have.” McAuliffe recently was succeeded as unit leader by Mike Foley.

Asked to characterize this unit’s target market, McAuliffe responds, “I think we have products and services that could be applied to any college or university. For example, within our WorldSource Group in AIG, we cover student travel, so even if a very small college or university has a group of students going overseas, we have products and services to cover that exposure. From there we can go all the way up to very large universities with multiple campuses and large property risks.”

What are some of the most challenging risks confronting institutions of higher learning today? “Recently I saw a survey of the risks that colleges and universities are most concerned about,” McAuliffe says. “The top three were employment practices liability, student travel, and property risks. For many colleges and universities, their biggest physical asset is their properties. Often the library is the highest value property,” he comments. “Some of the colleges we insure have museums as well. In terms of physical assets, these facilities get the most attention with respect to risk management.” As for intangible assets, “Students and faculty obviously are of greatest concern, particularly when international travel is involved,” McAuliffe says.

Underwriting approach

Member companies of AIG are known for their adherence to high underwriting standards. What are some of the underwriting criteria applied by AIG Higher Education Risk Solutions? “It depends on the particular line we’re looking at, but we certainly want a college or university to have a strong risk management approach, whether it’s through the institution’s risk manager or through its business officers,” McAuliffe responds. “They should have policies and procedures in place to minimize or mitigate their risks. For educators legal liability, which includes D&O, EPLI, fiduciary, and crime coverage, we want to see programs in place for employment practices training to minimize those risks, which often are significant for a college or university. We also want to see the institution’s three-to-five-year record of EPL claims,” he says.

“On the international travel side,” McAuliffe continues, “we need to know where the institution is sending people and what kinds of precautions are in place to make sure students are in a safe environment.” The availability of terrorism coverage, he explains, depends on the country where students will be living or traveling. “A lot of overseas study programs go to places where there is a higher risk of terrorism. For example, archaeological or anthropological study groups may visit parts of Africa, where the risk is higher than in, say, western European countries. We look very closely at the countries that people will be going to, and we adjust terms and conditions depending on the country.” Kidnap and ransom coverage also can be built into AIG’s international package, McAuliffe notes.

The lead carrier for AIG Higher Education Risk Solutions is the Lexington Insurance Company. “Through Lexington, we can write property and casualty risks,” McAuliffe says. “Through National Union we can underwrite directors and officers, educators legal liability, and employment practices risks. AIG WorldSource handles international travel risks.” Other key coverage providers include AIG’s Domestic Accident and Health Division and AIG Environmental. To meet the coverage and service needs of institutions of higher learning, he says, “We draw from all the different companies within AIG. In each of the major cities where AIG has an office, we have teams of underwriters who, when they get a submission, can analyze the whole account and ideally provide as many lines of coverage as possible.”

AIG’s Educators Elite coverages are available to retail producers on an open brokerage basis. AIG Higher Education Risk Solutions provides service and support to brokers in a number of ways, McAuliffe says. “Because for the most part we’re local, we’re able to attend client meetings with agents and brokers, and we’re certainly respectful of the broker and his or her relationship with the insured,” he comments. “We try to assist the agent with whatever he or she needs, whether it’s attending a meeting with the prospect or bringing in additional resources and expertise on a line that the broker might not be comfortable with.”

Gaining an edge

The loss exposures that face colleges and universities make this a highly specialized class of business. How does McAuliffe view current conditions in this market with respect to capacity, competition, and pricing? “These factors vary depending on the line of business,” he observes. “A number of carriers that were active in this business are no longer around, in part because of consolidation in the industry. The fact that there are fewer players has had an impact on the level of competition, but I think the marketplace still has enough capacity to take care of any risk.”

Given that scenario, how does AIG Higher Education Risk Solutions seek to position itself in the marketplace? “I think a key element of our competitive advantage is our regional distribution system,” McAuliffe says. “In each region, we know the colleges and universities, and we know the brokers. Our underwriting teams know their local marketplace and the local issues and are able to respond with effective solutions. Another competitive advantage is AIG’s financial strength and the fact that we’ll be here to make good on our promise to pay claims. Another advantage is our responsiveness and flexibility, within Lexington and within each of the companies in the unit. We adjust policy forms and terms and conditions to meet the needs of the broker and client the best way we can, while still working to maintain a profitable venture,” McAuliffe says.

Challenges ahead

Providing insurance and risk management to colleges and universities, whatever their size, has never been an easy proposition. The 21st century has ushered in a daunting array of new exposures, like terrorism, that pose a threat whose magnitude is almost beyond calculation. Another new exposure is Internet liability for damage done by students who might hack into academic or health care records, McAuliffe says. In the area of cyber-risk, he notes, a whole host of new exposures has been created by the growing trend toward online learning.

“The online university concept has exploded over the past four or five years,” he observes. “Providing courses via the Internet exposes the college or university to a whole set of risks that didn’t exist before online learning. For example, a lawsuit was filed by a student who took an online course from a different state. When he applied for a professional license in his own state, he found that his state’s licensing authority didn’t recognize the online university as a credentialed institution,” McAuliffe says. “There are risks like this that we haven’t seen before, and our biggest challenge is trying to keep on top of them and address them with coverages and services.”

The recently introduced Educators Elite Network Security and Liability policy provides coverage for an array of cyber risks; see the sidebar below for details.

In addition to terrorism and cyber exposures, McAuliffe notes, students and parents are now placing greater demands on their schools in a number of areas. “I recently saw an article in The Wall Street Journal about a law that would require colleges and universities to provide significantly more disclosure of graduation rates, career placement rates, and other data,” he remarks. “This highlights the fact that the public in general is demanding much more from the college experience. The expansion of the college experience, and the expansion of services that people expect from colleges and universities, require risk managers and business officers to deal with exposures they haven’t seen before.”

In this challenging environment, new approaches to handling risk are emerging. “I’m seeing a lot of colleges and universities enter into consortia to buy insurance as a group,” McAuliffe says. “This is an area where we’re able to help, and we’ve written a number of the larger groups on this basis.”
Higher expectations, an array of emerging exposures, and the need for meticulous risk management and loss prevention are significantly upping the ante for institutions of higher learning. Addressing those issues effectively is the mission of AIG Higher Education Risk Solutions. *

For more information:
AIG Higher Education Risk Solutions
Web site: www.AIGHigherEd.com

Educators Elite Coverages

The Educators Elite line features coverages that address a wide array of exposures faced by institutions of higher learning. Product offerings are:
• General property insurance with up to $100 million in capacity for property risks on campus and around the world, including California earthquake and coastal flooding; difference in conditions and terrorism protection options; optional boiler and machinery and equipment breakdown coverage
• Property terrorism insurance that goes beyond the federally mandated terrorism coverage and responds to losses that arise from terrorist acts worldwide
• Primary general liability and excess/umbrella capacity up to $100 million; includes 24-hour student accidental death and dismemberment, sudden and accidental pollution, watercraft liability for owned and non-owned boats and rowing shells and sculls, host liquor liability; occurrence and claims-made forms available
• Excess casualty insurance with follow form limits up to $150 million
• Employment practices liability insurance for wrongful termination, sexual harassment, and discrimination claims; coverage also can include discrimination claims brought by outside third parties
• Educators legal liability insurance for claims alleging breach of duty or negligence related to curriculum, employment practices, and fiduciary responsibilities against trustees, faculty, administrators, and volunteers; includes directors and officers liability
• Medical malpractice insurance for employees, students in training programs, volunteers, and physicians (by endorsement) for claims arising from medical-related professional services; coverage includes an institution’s medical center, university health clinics for students or non-students, and student health centers; claims-made and occurrence forms available
• Network security and liability insurance with limits up to $25 million providing coverage for Internet media liability, Internet professional services liability, network security liability, cyber extortion, information assets, network business interruption, and cyber-terrorism (by endorsement)
• International insurance for students traveling or studying abroad and employers liability connected to faculty on assignments overseas; coverage is provided for general liability, commercial auto, property, foreign voluntary workers compensation, and kidnap/ransom and extortion; coverage can be added for marine cargo and war risks, foreign comprehensive crime/employee dishonesty, and political risks
• Accident and health coverages for students, employees, and faculty on school premises, at school-sponsored events, or when traveling to or from school-sponsored events; customizable programs can include AIG Assist® travel assistance services, which give students immediate access to emergency, medical, legal, and information services worldwide