April 18, 2016
How Colleges Can Work With Insurers
Unfortunately, the passion that leaders have for a college's vision and its future does not always translate into the insurance process.
If you sit down with just about any college administrators and ask about the vision of their university, you may witness a dramatic change as their voices fill with passion, reserve disappears and the entire tone of the conversation shifts away from being transactional. As an insurance broker specializing in higher education, I have witnessed this transformative moment many times. Unfortunately, the passion for the institution, its vision and its future does not always translate into the insurance submission and renewal process.
Many people, including some insurance brokers, view buying and selling insurance as a passionless transaction. Information about the college—such as financial statements, property values and loss experience—is gathered, tabulated into Excel spreadsheets and forwarded on to the underwriting arm of seemingly interchangeable insurance carriers. Underwriters review volumes of data about the college to decide whether the insurance company can comfortably provide a college with a certain level of insurance coverage in exchange for a fixed annual premium.
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The information provided to an underwriter creates a story about the college. Depending on how the information is received and presented, the story can be positive or negative. To the underwriter, sometimes the insurance submission can be as horror-filled as a Stephen King epic or as romantic as a Nicholas Sparks novel. Of course, the insurance submission is not a work of fiction.
One of the first things that statistics students learn is that the same information (data set) can be used to draw multiple and sometimes competing conclusions. Where one person may see positive potential, another may see an organization in decline. The conclusions drawn from the data set by different insurers and underwriters reviewing the same information may vary significantly.
Though the information contained in a submission or application may be objective—meaning the information has not been altered or manipulated—the conclusions drawn from the information are less so. The underwriting process involves both subjective and objective analysis. And how the data is interpreted may have a significant impact on the underwriting decision and, ultimately, on the total premium an organization pays.
According to a Harvard Business Review article, data can be used as a visual mechanism to direct the narrative surrounding a particular situation. The key is to:
- Identify the narrative or the core message the audience should walk away with;
- Identify your target audience and figure out what they are interested in—is the presentation to an underwriter, claims adjuster, insurance company executive, etc.?;
- Remain objective and offer a balanced viewpoint—your credibility will suffer if what is being said cannot be supported by the facts;
- Not censor the data—do not exclude unfavorable information, and this is especially important in an insurance setting as failure to disclose information can constitute insurance fraud; and
- Take the time to edit—not the data itself, but how the information is presented.
There are many different methods for presenting the narrative of an institution in the most positive light possible while still providing objective information. The first step to understand both the positive and negative elements. This allows the institution to showcase itself in the best light possible. A failure to fully engage in this process may leave the narrative open to misinterpretation, create questions about unexamined negatives and result in overlooking one or more positive elements.
Communicating the story of an institution involves a deep understanding of the goals and vision of the institution, and there is no one better to communicate that story than a passionate college administrator. However, understanding what drives your institution is not enough—and that is where administrators need to leverage key professional relationships. Selecting the right broker is a key step in driving the narrative forward. A professional partner brings market knowledge and the ability to help transform the narrative from numbers into a story that honors the vision of the administration.
Developing Key Relationships
The majority of colleges and universities work with one or more insurance brokers to engage with the insurance marketplace. At minimum, a broker working with an institutional client assists in (1) identifying insurable exposures, (2) preparing recommendations for coverage types and limits, (3) identifying potential insurers to approach, (4) developing the insurance submission, (5) negotiating pricing and coverage terms and conditions with the markets and (6) presenting the carrier quotes to the institution.
Institutions at every level can rely quite heavily on the services and recommendations of their insurance brokers. The broker can play a critical role between having a well-structured insurance program and having a potential mess of overlapping coverage, gaps in coverage, inconsistent coverage terms, out-of-balance limits and potential claims issues. The broker can also act as a key resource in communicating the organizational narrative to the underwriters.
There are four key elements a broker adds to narrative development:
- Market Knowledge: Insurance brokers keep abreast of developments in the marketplace, including insurer appetites: Like any company, insurers have target or preferred customers. Being in an insurer’s target class can provide premium discounts and coverage enhancements. Insurers typically understand the risk exposures associated with their target customers and are comfortable underwriting these risks and adjusting claims. For the insurance client, this means (1) access to expertise from an insurer that understands your institutional risk and (2) comfort in knowing the insurer has an understanding of institutional risk and will be unlikely to cancel or withdraw coverage in the event of a claim. Ultimately, it does not make sense to send an application to an insurer that does not understand or have a comfort level with higher education risks. Insurance brokers also keep abreast of market conditions. For the past few years, insureds have enjoyed relatively stable insurance rates and coverage offerings. It is currently the norm to see flat program renewals and even rate decreases in several key insurance coverage lines. However, it is unlikely that this trend will continue long -term, and it may be significantly affected by: 1) Mergers: The insurance market is changing as insurers look to increase market share and underwriting profit while minimizing exposure to catastrophic losses and unprofitable lines of business. 2) New Market Entrants: There has been an influx of third-party capital into both the insurance and reinsurance markets, resulting in lower insurance prices in the short term. The question is whether these new entrants are here to stay and whether capital levels have peaked.
- Underwriting Guidelines/Expectations: Understanding how underwriters use information is a key element of the narrative development. Different insurance carriers use underwriting information differently. Customizing the insurance submission to highlight critical (or essential) information that will be viewed favorably by the underwriters make a big difference.
- Risk Analytics: Analytical services provide a more complete picture of organizational risks, claims trends and opportunities for improvement. These services may include claims dashboards, benchmarking analytics, property valuation and catastrophic loss exposure analysis. This is really where brokers can distinguish themselves. Effective use of analytics allows the institution to home in on key risk and loss drivers and develop a risk management plan to address problem areas early. Early identification processes and plans can be communicated to underwriters as part of the application process. This can be critical for institutions with past losses, as it demonstrates steps to control future loss and an awareness of university exposures.
- Alternative Program Structures/Alternative Risk Transfer Options: Not every risk can be transferred, and not all risks are adequately covered by buying off-the-shelf insurance products and services. Taking control of the insurance conversation may require a needs-based assessment of academic, administrative and financial processes to determine optimal (1) coverage types/limits and deductibles/retentions, (2) feasibility of self-insured or captive programs, (3) needed coverage enhancements and (4) key contributors to loss/potential losses.
Tips for constructing and delivering your narrative
Start early. Waiting until a couple of months before program renewal does not provide a great deal of time to develop a cohesive narrative or to allow underwriters the time needed to develop a real understanding of the institution. In fact, it can be beneficial to begin the conversation with a prospective insurer years before moving coverage from a current insurer. This is important even if there is a comfort level with the current program structure and insurance providers. Organizational risks are not static, and insurance programs change over time. Engaging in regular dialogue with underwriters at different insurance companies allows multiple carriers to develop an understanding of the college/university’s operations and risks. Developing alternative carrier relationships provides a backup plan.
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Know and understand your institutional risks and objectives. This includes both the positive and negative aspects. It can be easy to focus on the positives, but, as with an ostrich hiding its head in the sand, that may result in overlooking key dangers to the continuity of the college itself. You should:
- Create an internal risk review team made up of a diverse group of institutional stakeholders, such as human resources staff, facilities/housekeeping, faculty, administrative staff, board of trustees, alumni and students.
- Engage an objective third party, such as a risk consulting firm, or use the institution’s insurance broker’s analytical team.
- Participate in peer-review activities by engaging with administrative and risk management personnel at other institutions. Participating in risk management round-tables and discussions such as those provided by United Educators, URMIA and other educational insurers/associations can assist in planning for common areas of concern.
Use the data as a guide. As much as insurance brokers may wish otherwise, underwriters are pretty savvy people and will usually catch on to most omissions. It is very hard to recover from a situation where the underwriter feels misled about the organization—there is a loss of trust, respect and partnership that is impossible to get back. Be open and objective about the current position of the college/university. But do not allow the negative information to be all the underwriter sees—provide mitigating information such as steps the college is taking to: (1) improve loss experience, (2) attract higher enrollments or (3) renovate aging infrastructures. Underwriters want to write business, and most of them are looking for a reason to say “yes.”
Do not rely solely on the insurance application. The application gathers the minimum amount of information that an insurance company needs to underwrite a risk. If the institution is working with an insurance broker (as most do), it is important to collaborate with the broker rather than just cede the submission development process entirely to the broker. A broker (regardless of how good she is) is never going to be as passionate about your institution as you are. Get to know your underwriters—go to lunch, meet them at conferences, attend a carrier networking event or even schedule periodic conference calls. If all your organization is to an underwriter is a few sheets of paper submitted 90, 60 or even 30 days prior to a renewal, you will not get the underwriter’s full attention or consideration. Engage your underwriters.