From Construction Costs to Cyber Crime, Educational Organizations Face Multiple Insurance Challenges

As the costs and consequences of education escalate, educational institutions at all levels face a rapidly growing slate of property and liability risks, including increasing sports liabilities and coverage for “trauma loss.”

Lines such as property, general liability, professional liability, and directors and officers (D&O) have been hardening, and schools and educational institutions, from daycare centers to colleges and universities, have been hit hard, according to Joseph Harrington, an independent business researcher and writer specializing in property/casualty coverages and operations.

“A limited number of companies will insure educational institutions,” Harrington said while an instructor in the Insurance Journal Insurance Academy online course, Risk and Insurance for Educational Institutions. “Several high- profile insurers that used to handle this type of business have exited the market. So, this is what school administrators, college administrators, managers of education, risk pools and everybody else invested in education are dealing with.”

Insuring Buildings, Purpose

Harrington said there are two not-always-compatible imperatives for stakeholders when it comes to insuring and protecting educational operations.

The first is the physical property and facilities. “They want to sustain the school itself, sustain the physical location, and keep it up and running properly,” Harrington said. “This, of course, will lead to an emphasis on loss mitigation and property coverage and devoting sufficient resources to that end.”

Schools are vital for education but are also community centers. For example, communities often use schools as shelters for people displaced by disasters. Having schools open for children and the space available for recovery efforts can be critical to a community’s ability to rebound after a disaster.

When schools shut down during the pandemic, it showed people what a vital role they play, he said. “So, the community value of schools, the physical locations, if anything, the importance of them has gotten more recognition in the recent past and creates an outlook toward risk management.”

The second imperative is sustaining the educational process, Harrington said. “It may seem like the same thing, but not necessarily.”

“So, there is really a growing demand for both reliability of schools as ongoing institutions, things that will be there when times get tough for everybody so that they can rely upon them,” Harrington said. “Not only to teach subjects but to actually be communal resources for managing young people, in particular.”

School services extend beyond education to include recreation, food service, basic health-care services, and in some cases, a full range of services and support that is growing over time, Harrington said.

While the pandemic showed that education, by its strictest definition, could continue outside the bounds of a physical school, it also showed the value of the various services schools provide and how critical they are for families, employers, and the community.

Older Schools, More Challenges

“There are many older buildings, particularly in poor, aging communities, susceptible to damage both from external perils, as well as internal hazards,” Harrington said.

Rising construction costs have stymied efforts to maintain and rebuild schools in ways that would align their coverage rates with budgets.

Costs are further increased by the need for accessibility, flexible spaces and updates that support educational needs and help keep students competitive and aligned with educational standards. Costs are even higher during the typical demand surge following a natural disaster.

“Some of the school public education risk pools have undertaken to line up contractors to be able to, basically, reserve them for the work in the event of a disaster,” Harrington said. “That’s one of the advantages to being in a risk pool, is that you can, given that a number of schools or a number of districts may be in the pool, you can have a steady stream of work for your contractors, and perhaps reserve that.”

However, he added, if you’re in a risk pool and it’s a regional pool, and everyone is affected by the same natural disaster, it can strain resources. It may even result in an additional assessment.

Trauma Losses: A New Exposure

Schools are also facing a relatively new insurance challenge due to “trauma losses,” Harrington said.

These losses result from a traumatic event such as a school shooting. Even if physical damage to the facilities is minimal and the spaces may be restored and functional, “given what has happened there, no one wants to send their child there,” Harrington said.

Some schools choose to move forward with a total demolition and rebuild, such as Robb Elementary School in Uvalde, Texas, the site of a mass shooting in May 2022, and Sandy Hook Elementary in Newtown, Connecticut, which was the site of a shooting in December 2012.

“Sadly, school shootings have become common enough that any school board will have to consider, ‘What would we do if a tragic event happened in one of our schools?'” Harrington said.

“We all know the reality today,” he said. When it comes to exposure for a violent attack on a school by an outside assailant, there is a “whole host of of questions about what is sufficient action to address the risk. Locking doors, requiring only permitted passage, a host of things like that.”

As a result, “the new thing butting its way in is the school shooter active assailant coverage,” Harrington said. “This is an insurance that has emerged in the past ten years or so.”

The coverage can include security consulting to help schools stay safer, access to resources and negotiation resources during an event, for example. It can also cover public relations and counseling services in the aftermath of an event, helping a school and its community to respond and recover.

In some areas, there is a call to arm teachers, which would raise many other insurance issues, Harrington added. If a teacher wants to be armed, should a school district allow it? “What liability might they assume if they prohibit someone from being armed and that person is not armed in the case of an attack?” Harrington said. “These are tough questions that add to the ‘damned if you do, damned if you don’t’ dynamic that falls upon schools.”

Buses

One of educational institutions’ biggest insurance challenges is covering the transportation that brings students to and from school every day.

“While school bus accidents are thankfully very rare, they are tragic events,” Harrington said. “And one can just only contemplate the size of a major claim if a bus full of children is struck (whether) the bus driver was negligent or not. So, getting the excess coverage is a problem for everybody anywhere.”

Directly or indirectly, schools “are going to be exposed to the stress conditions for commercial auto liability,” he said. “That market is struggling to achieve and maintain stability.”

Steps like stricter traffic laws surrounding school buses and onboard safety measures like seatbelts may help prevent injuries and death. Still, all commercial auto liability coverage buyers are now affected by the nuclear verdicts lodged against major commercial carriers.

“Also, compounding that market is the persistent shortage of qualified drivers, which is tough enough for commercial trucking to get people adequately trained, prepared, you know, for a CDL license,” Harrington said. “A bus driver, though, has to not only be a good driver, but also a good steward of children, or young people. And that makes the stakes even higher.”

Sports

“In the big picture, at least one of the things that continues to be an area of safety for schools is school sports,” Harrington said. As more sports are added “and as women’s sports expand, there are more participants and more injuries, including a growing number of injuries resulting from sports specialization.”

In the traditional history of school sports, students would participate in a few different activities throughout the year. Today, however, students are more likely to specialize in a single activity at a younger age, which increases the risk of repetitive, long-term injuries in even younger students.

“How do we want to allocate the risk for injury and related damage and loss between the individual participants and their parents and the school?” Harrington said. “Who is going to bear that risk? And where’s the lion’s share of it going to fall? And how do we cover that?”

These are growing exposures that deserve “serious consideration at the local level,” he added.

Cyber Insurance

“Cyber coverage is now required. Okay?” Harrington said. “You cannot run a respectable educational institution without having some coverage, cyber coverage, at the very least for the personal information that you have collected on your students and their families and their finances.”

Schools also need coverage for third-party exposures that may happen due to students using school computer labs, computers and networks.

“Schools are vulnerable to ransomware and demands,” Harrington said. “If your educational program is so heavily networked that a hacker could actually freeze the education process, I think you’re going to want a backup plan for that, for sure.”

The above article was based on transcripts from “Risk and Insurance for Educational Institutions – An Insurance Academy Online Course with Joseph Harrington. This course, and others, are available on demand with Insurance Academy membership at www.ijacademy.com.

Topics Cyber Fraud Construction