Epic Exposures

Interviews by Leah Thayer 

This article originally appeared in the July/August 2015 Net Assets. 

Virtually anyone on the staff or board of an independent school, and especially chief business officers, can be answerable to a school’s risk exposures. For a broad overview of emerging issues in risk management, we reached out to four authorities who work closely with independent schools. All are valued members of the community and frequent contributors to NBOA programs. Their responses have been edited for publication.

1. What do you see as the top risk management issues facing independent day schools?

Janice Abraham: There are four perennial risks: bullying, sexual assault/molestation, athletic and transportation. In emerging risks, we see the general category of cyber (cyber bullying, privacy, security), international and otherwise far-ranging global studies and travel, and, specific to athletic injuries, for traumatic brain injuries (TBIs) through concussions.

Cheryl McDowell and Ron Wanglin: International trips really came to the forefront when a jury awarded in excess of $40 million to a student who contracted a tick-borne illness on a school trip to China that left her unable to speak and with brain damage. There are so many risks for all trip participants, including but not limited to: health related issues (illness, injury, emotional/mental problems), natural disaster, travel-related accidents, political risk, crime, etc. The school must exercise a high level of due diligence to ensure that these exposures are planned for and that everyone knows what to do if an emergency arises.

With regard to TBI/concussion management, we believe the amount of money and research that the NFL has put into this issue has underscored how little we previously understood about these types of injuries. There was a time when a coach or parent would tell the player to “shake it off” and get back into the game. We are now learning just how serious the complications can be from these injuries, including long-term cognitive issues and even death.

Lastly, and protected personal information (PPI) is huge, and I don’t think many schools realize their exposure. In addition to the obvious liability for allowing someone’s information to become compromised, most state laws are starting to require that businesses (including schools) notify all potential victims and possibly monitor their credit for a specified period of time.

Marcy Bauers: We also see environmental and pollution risk as an emerging factor—essentially, potential hazards to students, staff and the community involving issues such as the storage, usage and removal/disposal of chemicals (science labs, maintenance, etc.); leakage or spills from storage tanks (above-ground as well as underground); mold exposure; and turf fields (reports have questioned the safety of rubber crumbs and more, particularly for soccer goalies).

2. What additional issues face independent boarding schools?

Bauers: Although the issues are very similar, sexual abuse and molestation is a bigger issue with boarding schools, especially “legacy” cases that are sometimes decades old. This type of claim can involve faculty or staff who are no longer employed by the or are even deceased, making defense difficult at best. Oftentimes, schools have not kept records of their insurance policies and have difficulty confirming coverage. Compounding the issue of identifying the applicable carrier is that some insurance companies have merged and/or gone out of business.

Abraham: It is always a challenge to meet parental expectations for a safe 24/7 environment, so schools must pay diligent attention to living arrangements to protect all students, and particularly the most vulnerable, from bullying and molestation.

McDowell/Wanglin: In 2012 NBOA and United Educators did a quantitative survey of independent schools that showed 71 percent of all claims brought by students were filed against boarding schools. Besides their 24/7 exposure to risk, boarding school campuses are often spread out over more acreage with residential exposures for both students and faculty. Often, they will have some unique exposures as well, such as equestrian programs and farm animals. Another unique risk exposure is the fact that many boarding school faculty contracts include housing, so when someone loses a job they also lose their home. This increases the potential for late-reported workers compensation claims, employment practice liability claims and breach of contract lawsuits.

3. Based on your experience, what are the most important steps to mitigate these risks?

Abraham: Creating a risk culture is paramount. The business officer should devote time to building a culture where everyone—students, faculty, families, staff—is attuned to identifying risks and reporting unusual activities to individuals who are in a position to respond. An example is a teacher who is observed spending a lot of “private time” with a student. Another example: If one student sees a fellow student getting hit in the head in a sports game, the first student should encourage the injured student to be comfortable reporting the injury to a coach or other adult. The saying, “If you see something, say something” holds true in our schools as well as public spaces.

McDowell/Wanglin: Our society has become much more litigious. Accordingly, it is imperative that schools take a very proactive approach in managing risk in every aspect of their operations. We encourage schools to have a risk management committee at two levels: at the board level for oversight, and governance, and at the operational level to implement the plan.

The risk management process has five steps:

1. Identify exposures.
2. Analyze the frequency and severity.
3. Develop a strategy to control risk avoidance, retention, reduction, non-insurance transfer, or the transfer of risk to an insurance company.
4. Implement.
5. Monitor.

The first step is the most because a school can’t treat an exposure it hasn’t identified. Once a school has identified an exposure, it must: 1) determine what kind of financial impact the exposure could have on the school, either in terms of frequency or severity; 2) decide on a strategy to implement to treat it; and 3) continually monitor to ensure the program is working the way the school intended, adjust where needed and, obviously, be attentive to any new exposures.

4. What potential “blind spots” should schools monitor?

Bauers: Summer camps and outsiders’ use of school facilities.

Abraham: Sacred cows are the biggest blind spots. Traditions, and events that “we’ve always done this way”—and that no one wants to question—are an important and overlooked driver of mishaps and risks. How students are dropped off, overnight special events, field trips, etc.: They all become such a part of our routines and history that we fail to look at them afresh for risks and better ways of accomplishing the same goals with less risk.

McDowell/Wanglin: When we audit a school’s insurance program we tend to see several major gaps again and again. One is the absence of a business continuity plan. All schools have some form of emergency plan in place to deal with the immediate issue. However, most schools do not have a formal plan to get back up and running once the immediate crisis . Another problem involves using annual tuition income (or less) as the “loss of business income” limit under a property policy. Schools should put serious thought into setting this amount. We always recommend completing a school-specific business income worksheet as part of the annual renewal process. In addition, schools should consider their enrollment contract and determine whether the policies currently in place will coordinate appropriately with the insurance they purchase.

5. What are the best ways for any individual school to assess its unique risks?

Bauers: Implement an enterprise risk management program. Designate an ERM team and have members meet with all departments and constituencies. Develop a risk roster and prioritize addressing a small number of risks (fewer than 10). Determine what actions will be taken to mitigate risk, and implement strategies to do so. Revisit efforts at least biannually, reprioritize the list at least annually, implement additional mitigation action and monitor progress.

Abraham: For high-level risks, we suggest starting with a “risk register” and tailoring it to your school. It might include:

• Abuse of students/interactions with adults
• Crisis management
• Curriculum redesign
• Employment practices
• Facilities: deferred maintenance
• Health center
• IT infrastructure/
• International students
• School security
• Shifting demographics
• Study abroad programs

Using this risk register as a starting point, a school’s management team can pick the most relevant items and begin to develop strategies to reduce risks in each area. Our new “Best Practices Checkup for K–12 Schools” is a good tool for seeing how your school compares to others.

McDowell/Wanglin: An assessment should consist of two parts. The first is a physical campus inspection that addresses property, liability, fleet, workers compensation and activities/exposures specific to the school. The second part is a risk management and insurance audit, which takes the information in the physical assessment and combines it with other components that identify where there may be additional exposure to risk. This would include, but not necessarily be limited to, insurance policies, lease/rental agreements, waiver and release agreements/permission slips, claims history, financials, bylaws, parent/student handbooks, employee handbooks, enrollment contracts, employment contracts, emergency preparedness plans (including business continuity, if any) and procedures for handling certificates of insurance (from vendors, service providers, contractors, etc.).

6. How often should schools “refresh” this assessment?

Abraham: We suggest annually assessing risks and sharing the risk register with the board.

Bauers: Risks will continue to emerge, so this should be viewed as a business process and not a project. At the very least it should be refreshed at the trustee level annually.

McDowell/Wanglin: Unless there are significant changes in exposures, such as new buildings, a school can do this physical assessment once and update it on an as-needed basis. The insurance and risk management portion of the assessment should be ongoing to ensure that new exposures are identified and the program is continuing to perform as it was designed to—or, if not, accordingly.

7. Who at the school should “own” this process?

Abraham: The senior administration should identify the risks and develop the risk management plan. This means the head of school, chief business officer and whoever else constitutes the senior leadership team. Board members can weigh in with their views on the top 10 or so risks for the school, but senior administrators should own and lead risk management.

Bauers: We feel that trustees own the responsibility of starting the process and keeping informed of progress. The head of school and chief business officer own the implementation process. It is essential to clearly outline areas of purview and responsibility. Each member (including senior administrators) must know which areas they own and which areas they do not own.

McDowell/Wanglin: Without overstating it, everyone owns the process. Ideally, it starts with the board of trustees formally taking responsibility for leading risk management efforts. This can fall within the finance or audit committees, or as now is becoming more common, via a dedicated risk management committee—not surprisingly, with a focus on ERM. At the administrative level, a separate risk management committee should address the operational aspects of identifying and managing exposure. This committee needs the support of the head of school and usually falls within the oversight of the business office. Finally, a school should also include its insurance broker, legal advisors and outside consultants (as appropriate) to support this process. Schools that lack internal administrative resources tend to be more dependent upon these outside advisers to help develop and move their program forward.

8. How can a school ensure these individuals have the requisite skills to provide effective risk oversight?

Bauers: Leadership is key. The risk management team must be skilled not only in developing the framework for the but also in teaching and others. Great resources can help: NBOA programs and publications, training from companies like United Educators, tools like Google’s risk registers, etc. There is no need to reinvent the wheel, which would be time-consuming and bog down the process.

McDowell/Wanglin: Few of us are born “risk managers.” In forming a risk management committee, we suggest including many of the major operations of the school: for instance, the director of finance or the business officer, dean of students, athletics, food services, transportation, etc. Members should also embrace the importance of this mission and be able to work on a collaborative basis. The committee should go through a training process to better understand what risk management/ERM means; this can usually be accomplished with the support of the school’s insurance broker or an outside consultant.

Schools are busy environments, and from a practical it may not make sense to have more than three or four committee meetings over the course of a year. The committee should also not try to take on too many tasks at one time. Only after checking off priority items should they move on to additional projects.

A good first step is to survey faculty and staff to determine what “keeps them up at night” from a risk/hazard point of view. This process can reveal issues that may otherwise go undetected until an accident or loss occurs.

9. What insurance policies and coverages should every school have—or at least evaluate?

Respondents generally agreed on this list:

• Liability (general liability, trustee liability, employment practices, sexual abuse and molestation, educators legal liability, employee benefits liability, fiduciary liability, excess/umbrella)
• Commercial property (buildings and equipment)
• Loss of tuition and extra expense coverage
• Commercial automobile (liability and physical damage involving owned, leased and non-owned/hired vehicles)
• (liability and property losses that may result from business conducted over the web or data collected internally)
• Workers compensation
• Disaster (earthquake, flood, windstorm, etc., depending risk exposure)
• Commercial crime (can include employee dishonesty, fraud, etc.)
• Global/foreign (for staff and students or studying abroad; can include international general liability, employers liability, kidnap and ransom, etc.)
• Student accident coverage (covers students while participating in school-sponsored activities)
• Professional liability coverage
  (if the school employs a nurse or other medical staff)

One respondent also suggested that schools consider a forensic audit to identify whether their existing insurance and risk management programs are responsive to relevant exposures, and to benchmark their programs against peer institutions.

10. What questions should a school ask its insurance broker and other vendors to minimize risk exposure?

Bauers: How does my school’s coverage compare to other like schools? Benchmark! What risk management services, and resources are available, including training? We feel that tabletop exercises are terrific tools for identifying areas that need attention.

Abrahams: Where are my school’s gaps in insurance coverages? What new forms of risk transfer exist, and should we purchase this coverage? Are our limits appropriate? Should we take on more risk, e.g., raise our deductibles? Can you provide a contract review protocol to help us shift risk to vendors, where appropriate?

McDowell/Wanglin: Does our broker have the knowledge and experience to support the insurance and risk management needs of the independent school world? This means not only assessing risk exposure and recommending appropriate coverage and risk mitigation but also providing the necessary resources to support the school’s day-to-day needs (contract review, loss control and engineering services, risk analysis support, claims support, compliance, emerging exposures, etc.).