WANT TO SAVE BIG MONEY ON INSURANCE?

• By Ellen Kollie
• 02/01/05

Back in 1989, Palatine Township (Illinois) High School District 211 administrators joined with three other districts to begin a self-insurance program called SSCRMP: Secondary School Cooperative Risk Management Pool. The program includes property insurance, general liability insurance, auto (transportation) insurance, school board legal insurance, crime insurance, boiler insurance and foreign travel insurance, notes Christopher J. Kontney, the district’s director of Business Services.

“It’s a pretty unique pool, I think,” says Kontney.“The key for us is that we’re with like school districts. And there is an actuary formula that comes into play as to how the exact premiums are determined — how everything is divided up for each school district. It makes it fair. For example, we are a larger district (13,200 students in five high schools), with more buses than the other three districts, so we pay the highest auto premiums.”

But the program was built with a twist — a safety-first approach.

“The most important reason the districts got together, according to the forefathers of the pool,” says Mike Nugent, ARM, president of Chicago-based Nugent Consulting, which manages District 211’s insurance pool,“was they thought they had enough similarities in how they operated that, together, they could come up with safety ideas to lower their insurance costs.”

When you self insure, insurance costs are lowered because you’re not spending money on claims. The administrators of these districts felt that safety in their schools would lower their costs. Says Nugent, “The motivation was always, ‘We want to have a safe environment. We want to protect our kids. We want to have a safe place for our employees to work. We have a lot of guests coming in and out of the facilities, and we want to make sure that they are visiting safe facilities.’

“So, whenever we are presented with an issue, we look at it first from the perspective of how can we do it safely for those three user groups? And if we can’t do it safely for those three groups, then we tend to not do it. We don’t necessarily look at it from ‘What’s the potential costs in claims?’”

Kontney observes that the self insurance program has its advantages in that they have more control of their programs and the direction in which they move. He also finds real value in joining other districts in the search for safety. “There are a lot of resources, and there is a lot of brainstorming that goes on,” he says. “People come to meetings with questions and research, and we have legal means to get answers to our questions when needed.”

“I can tell you that the results of this approach have been hugely successful,” says Nugent. “A byproduct of trying to do things safely is that the overall costs for this group went down significantly, especially between about 1993 and 2001.”

Most of the cost reductions during that period were the result of lower claims costs, and part of the cost reduction was a soft market, also known as a buyer’s market, “where buyers were in a position to practically name their terms for insurance coverage,” says Nugent. He compares that to a hard market, also known as a seller’s market, where insurance costs are high and coverage is restricted.

In a hard market, which occurred after 9/11 and is just now beginning to soften, “alarms and other safety features that are in a school may be the only things that help you get coverage,” says Nugent. “Forget about whether it saves you money; it’s more of the ability to secure coverage.”

This means that the question of adding safety features to reduce insurance premiums is a moving target. “The answer could be ‘yes’ today and ‘no’ tomorrow,” says Nugent.

A secondary issue is calculating payback. “Let’s say you’re going to put a million dollars in your buildings to improve safety. And you’re thinking, ‘I wonder if I could save a million dollars in insurance costs through a time period.’ The answer is you probably can, but I have no idea how to measure that because of all of the factors that change an insurance market. So some years, maybe you save a couple hundred thousand dollars, and other years you don’t save anything. It’s hard to say with certainty that you will save enough through 10 years to finance your project.”

Which brings us back to the reason for implementing safety features.

At District 211 — and with the other SSCRMP members — it’s to improve safety, with cost savings being a secondary benefit.

For example, a number of years ago, the district had a high number of foul balls leaving the fields and landing on cars that were passing by on the street next to the fields. Nugent explains, “The way this group looked at the situation was, ‘We have people who just happen to be driving down the road, who we put at risk when baseballs fly out of the field. We need to fix that.’ So we have gone to great lengths to change how our baseball fields are designed. The result is we are paying out less in property damage claims to people who are driving down the street than we were before.”

One benefit of combining the safety-first ideology with self insurance is a financial surplus. “The pool has, through the years, accumulated surplus above and beyond what we think is necessary to pay all of our outstanding and unknown claims,” Nugent says. That surplus is periodically used to finance additional safety measures.

“For example, right now, there is new legislation in Illinois that requires AEDs in each recreational facility within a school,” Nugent continues. The schools in the SSCRMP pool have a fairly large amount of recreational facilities, and each gymnasium, tennis court and swimming pool is probably going to be judged an individual recreational facility requiring an AED, along with having appropriate parties trained to use them.

“This is a significant investment for any of our members,” says Nugent. “Fortunately, we believe that we have the surplus to handle that expense through the pool. Plus, bulk purchasing can have an impact in pricing. I believe that there are two AED providers and, of course, we would use our pull with both of them to try to drive down the cost.”

In addition to addressing safety issues through regular meetings, the administrators in the SSCRMP pool rely on outside help to improve safety. Nugent explains, “One thing we’ve done since 1989 — at least every other year and sometimes more frequently — is we pay an outside firm to come into each of our facilities and evaluate our safety from a potential for a property loss, like a fire, as well as the safety of our employees, students and guests.” The consultant’s report is used to address safety initiatives that tend to be facilities improvements. “This is something that we do voluntarily,” he stresses.

Outside consultants are also called in if the pool sees a specific issue that needs to be addressed. “For example,” says Nugent, “several years ago, one of the members had a football player seriously injured in a practice. He collided with a fence post that had been previously understood to be far enough away from the sideline to be safe. No one ever expected that a football player in practice could make contact with this particular post. But, because of this injury — and it was a severe injury and a horrible tragedy for the student and the family — we decided to look at each of our athletic facilities and make sure that we didn’t have other posts in the same proximity to our football fields.”

For administrators at Palatine Township (Illinois) High School District 211, a self-insurance program has been a strong tool in saving money. But Nugent is ever mindful of SSCRMP’s safety goal. “Saving money on insurance costs is not why you implement security measures,” he says. “Saving money is a secondary benefit. The better reason to implement upgrades is always the safety of employees, students and guests.”