Why Schools Must Reset and Reboot When it Comes to Insurance

Public entities have unique challenges when it comes to mitigating risks and insuring exposures. They serve their communities through education, public utilities and first responder services, and must do so often with limited resources. Today that effort is even more challenging, insurance experts say.

It’s normal for public entities like schools and other government organizations to be asked to do more with less, says Greg McKenna, National Practice leader, Public Sector, at Gallagher Bassett based in Illinois.

“That’s a normal type of arrangement,” he said. But those entities, especially in the educational world, are seeing added pressure thanks to tough economic conditions, workforce challenges and growing concerns over safety. Now, their “ordinary” challenges are compounding with not so ordinary ones, he added.

As a result, public entities are having to rethink their approach to insurance, says Daniel Howell, managing director, public entity, Alliant, based in Seattle. From property to cyber to liability — public entities and schools continue to see a rising cost to insuring their risks.

The property market is likely the toughest risk for schools right now, experts say. “We had $100,000 deductibles for two decades … that might have seemed like a lot in the year 2000 but $100,000 just isn’t what it used to be, especially when it comes to property,” Howell said.

“This is definitely the hardest market I’ve ever seen as far as property insurance,” said Rep Plasencia, area executive vice president at Risk Placement Services, based in Florida. And while the property insurance challenge is not limited to public entities, there are some factors unique to schools that make property in some regions more challenging, he added.

School districts are unique because they involve tight concentrations of property located in one geographic area, he said. That means there is a large concentration of property risk for some school districts, worth billions of dollars, in one geographic region and in one county. When that county is located off the southern Florida coast, as an example, that makes things even more difficult, he said.

The cost to insure school districts in catastrophe-prone regions has pushed some districts to cut limits and self-insure some portions of their portfolio, Plasencia added. “We’ve seen a number of our municipalities have to cut limits off the top of their program,” he said. “We’ve also seen some municipalities take quarter-share participations through their programs. Some have had to take higher deductibles, and some have done a combination of all of the above,” he said.

The cost to insure has taken many municipalities off-guard, he added. “I would say not one of our insureds in the book had properly budgeted for what their insurance renewal was going to look like — nobody could have planned for it.”

It’s not only general market pressure from catastrophe losses, Plasencia added. “There has been this intense pressure on (property) valuations as well — ITV, or insurance to value,” he said. Higher property rates and added pressure on valuation have forced significant coverage changes. “I had one insured that totally dropped their named wind and flood coverage because they couldn’t afford it.”

Workforce Challenges

Another critical issue adding to budget shortfalls in many school districts is labor shortages. While labor shortages have been a concern in other industries, public entities and public education face additional headwinds when trying to recruit and retain employees, as they must compete against wages/salaries offered in private sector industries.

In the fourth quarter of 2021, for example, private-sector wage growth was 5%, nearly double the pace of government wages. The good news is that U.S. local-government education payrolls moved closer to their pre-pandemic peak in March 2023, according to Bureau of Labor Statistics data. However, total employment continues to remain 1.6% below those reported in February 2020. Meanwhile, private-sector payrolls have surpassed their pre-pandemic mark by 2.7%.

So, while the educational sector is seeing some of those lost jobs return, they are not seeing the comeback of the broader private market. “I think you could begin to extrapolate some of those talent issues with overall risk management concerns,” noted McKenna. One concern is safety, he said.

Overall, throughout the last decade, several crime and safety issues have become less prevalent at elementary and secondary schools, according to a report by the Institute of Education Sciences released in 2022. Regarding safety issues on campuses of postsecondary institutions, between 2009 and 2019, the rate of crime decreased from 23.0 to 18.7 incidents per 10,000 full-time equivalent students, the report said.

Despite the general downward trend over this period, however, the rate of reported forcible sex offenses on campus increased from 1.7 incidents per 10,000 students in 2009 to 8.0 incidents per 10,000 students in 2019. Another exception is mass shootings. The report showed there were a total of 93 school shootings with casualties — the highest number since 2000-01.

Schools are under pressure to develop response plans and “de-escalation” training whether for staff or teachers handing difficult situations, Howell said.

“What the underwriters are looking for is that the schools, colleges and universities have a process and a plan to respond when there are signs of mental health, whether it’s with a student or a coworker because ignoring the problem isn’t going to work,” Howell said.

He noted seeing more and more questions from underwriters on how the entity responds to safety issues on campus.

School Pooling

One approach to today’s difficult market for schools is pooling, Howell said.

“It’s a moment for school pooling, they have become more relevant than they have been probably since the mid-1980s,” he said. “I think that the current market, whether you call it a crisis or not, or just a very firm to hard market for schools, would be absolutely much worse if the pooling organizations didn’t exist to help,” he said. Without the existence of pools such as the School Program Alliance (SPA), Howell said the market would have already seen a lot more disruption. “So it’s a real opportunity for these pools to reengage in especially meaningful ways with their membership and to show their value,” he said.

First formed in 2020, SPA helps to provide cost-effective programs and services to manage property, liability, and workers’ compensation for its six K-12 school district members in California.

Howell said some pools are taking a look at developing captives, or if they already have a captive, they might have been using it for something else and are broadening that use to different activities.

“They may be retaining a quota share in layers they never would’ve thought to retain in years past because the cost of coverage has gone up so much,” he said. “It’s an opportunity for risk managers and, and the current generation of risk management professionals to think creatively and use these vehicles that they may have already had but rethink how they’re using them and adapt to the current environment and current realities.”