Resilience, Schools and Insurance

• By Eric Brossy de Dios
• 11/01/14

Of the many seemingly intractable expenses that school districts struggle with in their budgeting process every year, insurance costs are one of the most enigmatic. With insurance and risk management administration costs ranging from eight to 15 percent of a district’s annual budget, they are, perhaps, the one significant budgetary expense that does not directly contribute to supporting or improving education.

Instead, insurance provides financial resilience that enables a district to persevere in its mission to educate when faced with a spectrum of potential disruptions, ranging from staff health and absentee rates to recovering from disasters or legal challenges. Although practical and advisable — imagine how classes would possibly be managed if teachers had no health insurance and if substitutes were not in the budget — insurance coverage is often dictated by state law. In some states, mandated forms of coverage are provided through a state-run program. But in most cases, insurance premiums are not a variable that can be negotiated, and they always seem to be on the rise.

It seems like school districts and their risk management staffs have less control over insurance costs than they have over the events they are insuring against. Yet there is growing attention on how insured entities might be rewarded by being recognized for the steps they take in reducing risk.

Most school insurance is purchased through a third-party agent, but larger districts often find it most feasible to self-insure. Although insurance companies do sometimes provide risk prevention consultation or premium reductions for implemented best practices, premium rates are generally driven by the insurability risk statistics of the market being served. There is often little that a district can do of its own volition to reduce premium costs. Increasingly frequent major disasters — epitomized by such tragedies as Hurricanes Katrina and Sandy — and increasing health care costs are two factors steadily driving insurance costs up.

Why shouldn’t a district’s action to reduce risks and improve its ability to respond effectively during emergencies translate into insurance premium savings? Actuarial statistics, are, after all, an aggregation of many individual occurrences. Much like a “good driver discount” or the protocols used in commercial real estate assessments, a new resilience rating system is emerging as a potential tool for certifying to insurance companies that an organization has taken concrete steps in improving their ability to prevent, resist or quickly recover from disasters or other disruptive events.

This rating system checklist and strategic planning tool will soon be integrated into the Green Property Underwriting Standards, an industry-based consensus document and an American National Standards Institute (ANSI)-Accredited Standard (MTS CMP-2008), which governs the calculation of value of green buildings for real estate and insurance underwriting.

Efforts such as the “Safe and Resilient Rating System” are focused on recognizing concrete steps that companies and school districts take to make their facilities safer and more sustainable over the short and long terms. Parallel initiatives undertaken by organizations such as the California Department of Education, the US Resiliency Council and the National Institute of Standards and Technology (NIST) have focused on hazard avoidance, facility strengthening and emergency planning in anticipation of natural and technological disasters.

Like these efforts, the Safe and Resilient Rating System addresses risks associated with acute disaster events, but it also expands its scope to address chronic, long-term risks, environmental health and social resiliency. Many of the efforts recognized by this rating system are congruous with schools’ missions and function to keep children safe, to educate students in both self-reliance and cooperative behavior, and to serve as centers of community both in the day-to-day and during times of crisis. In recognizing good resilience planning and program execution, there is potential not only for less damage and fewer injuries during disaster events, but also for cost savings related to improved staff and student health resulting in higher ADA’s, lower substitute costs and health insurance claims. And that can only mean more room in the budget for educating, rather than hedging against future unknowns.

By improving their resilience, school districts gain to improve the costs of disaster-related risk abatement (premiums, pay-outs, maintenance of service), absentee costs and employee health insurance costs, community resiliency, and to expand their support of the school district’s mission to educate and protect the wellbeing of their students.

This article originally appeared in the issue of .