Insuring Students' Property: A Wise Bet?
Risk management personnel at institutions don't think twice about insuring school buildings and inventory like computers. Catastrophic events like Hurricane Katrina make an even bigger case for insurance policies that can replace these assets, despite the costs involved.
But what about protecting the property of students? Covering the "personal property of others" in an insurance policy may not be a priority for higher ed officials--particularly those who have priced out this extra coverage.
Perhaps it should be. Larry Modlin, chief financial officer of Warren Wilson College in Asheville, N.C., [www.warren-wilson.edu/main/], was sure glad his institution had chosen to insure the personal property losses of students after a January 2004 fire nearly destroyed an 188-bed residence hall complex. Its four buildings suffered significant damage from the blaze, which occurred the weekend before spring semester classes would begin.
An insurance adjustor was dispatched to the scene shortly after the incident, and the tallying began. The average loss per student was more than $15,000, reports Modlin, who says he saw one check to a student for $35,000. "It's hard to imagine what a collection of 1,000 CDs is worth," he notes, adding that music made up a significant chunk of the total losses.
Modlin's impression is that not a lot of schools' policies cover losses of students' personal property. In the experience of Chris Schwyter, a senior vice president in the Philadelphia office of the national insurance brokerage firm Hilb, Rogal, and Hobbs [www.hrh.com], that impression is true.
"Generally speaking, the colleges and universities that I either work with personally or know of do not have a policy where they are responsible for the personal property of their students," says Schwyter, who has had more than two dozen institutional clients while overseeing the firm's Philly-area higher education practice.
When fire, weather-related, or other type of crisis surrounds a residence hall, officials may well want to make the calculations work. "I just spoke with a college who suffered extensive water damage in one of their residence halls," Schwyter says. "Among other life/safety issues and temporary housing priorities, responsibility for student's personal effects are now on that list."
Meeting family expectations is another reason schools may want this type of coverage. When student property is lost or damaged, administrators have to think in terms of what they owe to students versus what students and parents perceive they are owed--and then make a decision about what to do, Schwyter says. "I think each college will do what is in the best interest of the student, regardless of the insurance situation. ... The issue that comes about is entitlement--what are students entitled to when they come to campus?" Families today may feel that if they're shelling out $40,000 a year for their child's education, then the college should be covering any losses--despite the fact that many homeowners' policies provide the coverage they need.
Of course, fault or perceived fault comes into play in these cases. "Schools that decide not to insure students' property may face legal action after a loss on the basis that the college's negligence caused the loss," says Scott Simmonds of Insurance Consultants of Maine, Inc., [www.insurancefixer.com] a fee-only risk and insurance advisory firm.
Peace of mind has been known to come with a price. Insuring students' property is no exception.
Simmonds, who has experience in the K-12 education sector, estimates that institutions of higher ed could be looking at premiums costing up to 40 percent more. "Contents insurance is more expensive than building insurance, as a general rule," he explains, since replacement amounts can vary widely by the individual.
Schwyter has a more conservative, yet still hard to swallow, estimate: "An insurance premium might be somewhere north of a 20 to 25 percent increase" for this type of policy, he says, adding that deductible amounts certainly play a role. "A smaller institution may have a $5,000 to $10,000 deductible. A larger one may have $25,000 up to a quarter million."
For buildings like frat houses, insurance may exclude personal effects coverage altogether--or charge even more. "A few specialty markets out there are willing to take on this type of product. It's very expensive," says Schwyter, whose firm's Kirklin [www.kirklin.com] division concentrates on this area.
Then there are the costs associated with having to process claims after a catastrophe. Say there is a dorm with 300 students, all who have had their belongings destroyed, Simmonds offers. "The college is going through the loss adjustment process on the building and on their contents--but you've got 300 students. That's going to be a different loss adjustment for each student." In other words, anticipate a pounding paperwork headache.
And just when that headache subsides, the institution may wind up without or with less coverage for personal property of students in the future. "Now we have a $2,500 limit on personal property," Modlin reports.
"Insurance companies are always very happy to take care of coverage, until something bad happens and they realize what's involved," Simmonds reminds. Besides the task of having to work with the individual students to determine their losses, there are likely to be a certain percentage of fraudulent claims. "You know somebody's going to put in for a $1,000 stereo when they only had a $100 stereo," he says.
Schwyter concludes that extra coverage for student property loss is probably not within an institution's best interest. "I don't think economically it makes sense. From an administrative standpoint, it is a daunting task."
With all of these pitfalls in mind, what's a college or university to do?
As with any insurance, raising the policy's deductible can help the numbers look better. Simmonds also suggests taking theft out of the equation. "Theft is an important part of the rate. If you remove theft from the coverage you change its structure dramatically," he says.
But luckily, a relatively simple answer to the problem exists. "My approach to this kind of stuff is to move the responsibility and the insurance coverage onto other parties when it's reasonable to do that," Simmonds says. "I can't think of a landlord I've done business with that insured their tenants' property. This isn't done-so why would you?"
Besides, what most families don't realize is that their homeowners' policies extend to a dorm, within limits. "My homeowners' insurance didn't increase a penny when my daughters went to college," Simmonds explains. Families can contact their agent for information on coverage that applies to "other residences."
Institutions can--and should--remind families to do so, Simmonds and Schwyter agree. Information sharing is part of that responsibility.
"Should the college decide not to insure students' property, prudent practice would dictate that some notification be made to avoid misunderstandings at the time of loss," Simmonds says.
A lease agreement containing a "hold harmless" is the perfect vehicle. A student housing contract, like any standard apartment lease, probably states the college's obligations--including anything the college provides for students, Schwyter says.
Schwyter has found that institutions are generally providing clear communication about what they are responsible for in advance. Besides a housing contract, this information sharing can be part of college orientation and the student handbook, as well as posted on the web.
He points to the statement on student personal property website www.villanova.edu/studentlife/reslife/residencehalls/ref_rentals.htm] posted on Villanova University's website as a noteworthy model. Besides a note about the school having "no legal obligation to pay for loss of or damage to items of student's personal property occurring on campus or in its buildings or storage areas," the web page provides links and phone numbers for some insurance companies that offer renters/tenants insurance to college students.
Remind students that your priority is to provide a safe environment and to help meet their education goals, Schwyter advises. "Insurance is just another way of establishing some responsibility, personal business responsibility. Colleges recognize that and I think at the end of the day most students and parents do, as well."
Melissa Ezarik, who is managing editor of University Business, can be reached at firstname.lastname@example.org.
Educational and Institutional Insurance Administrators, www.eiia.org
Hilb, Rogal and Hobbs, www.hrh.com
Insurance Consultants of Maine, Inc., www.insurancefixer.com
University Risk Management and Insurance Association, www.urmia.org
Read more about the aftermath of Warren Wilson College's dorm fire in the April 2006 issue of University Business, which will cover how administrators have handled problems and challenges that cropped up during construction of new student housing.