Think about the complicated issues we face today. The lingering effects of the global pandemic, the continued impact of climate change, economic uncertainty and other issues combine to create a complex, fraught environment.
Now consider this: These factors are all prevalent in the education industry, with deep ramifications in the realm of property and casualty insurance. In addition to these troubling issues, educational institutions — ranging from corner daycare centers to world-class universities — must also deal with problems such as sexual abuse and molestation, workplace safety and the growing risk of cybercrimes.
Add to these factors a rise in so-called “nuclear verdicts,” and it’s understandable why the education industry is having issues finding liability insurance coverage.
Thankfully, there has been a recent trend toward rate adequacy, and increases have moderated to a certain extent. Nevertheless, the overall movement indicates a difficult future for educational institutions’ ability to obtain certain types of insurance.
Myriad Issues Facing Education
Over the past few years, educational institutions have found themselves increasingly vulnerable to large judgements. A recent report found 69 publicly reported major damage awards and settlements of at least $1 million against K-12 schools, colleges and universities in 2022. By comparison, that same figure was just 38 in 2021 — an increase of 82% in just one year.
Let’s look at some of the reasons for this stratospheric rise, and its ensuing effects on schools’ ability to obtain insurance.
Educational institutions had to walk the finest of lines during the COVID-19 pandemic. Parents of younger students wanted their children to stay safe but felt overwhelmed running a household while also overseeing remote learning. Meanwhile, colleges had to try to provide an education while dealing with the stark realities of a highly transmissible virus. In the end, schools essentially faced rancor from all sides.
“School districts have faced lawsuits on a wide variety of issues during the pandemic: for requiring masks, for failing to require masks, for mandating vaccines,” reported Education Week in an article November 2021 titled “Schools in Most States Are Shielded From COVID Lawsuits. It May Not Help.” Among the examples cited in the story: a district in West Virginia facing a lawsuit for permanently closing several school buildings, thus increasing bus time and potential COVID exposure for some students.
Climate Change/Property Issues
Most educational institutions ― or the entities that run them ― are also property owners, which means they are as vulnerable as any to the devastating effects of climate change. This has deep ramifications for the ability to obtain Property Insurance, as carriers are concerned by the size of environmental calamities, as well as their unpredictability.
“Climate change is expected to worsen the frequency, intensity and impacts of some types of extreme weather events,” noted the Center for Climate and Energy Solutions. And given the already-high numbers of floods, hurricanes and wildfires across the United States, it’s becoming an increasingly hard market for Property Insurance, as Alera Group noted in its March Commercial Property Update.
The uncertainty brought on by this new normal is exacerbated by higher construction outlays, supply chain issues and other economic factors. “Most institutions will see rate increases due to inflation and rebuilding costs,” reports Alera Group’s 2023 Property and Casualty Market Outlook, which provides a comprehensive examination of the factors behind market conditions and a forecast of the P&C landscape. “The rate of increase will depend on exposure to catastrophe-prone areas, facility quality and the accuracy of current building values.”
Sexual Abuse and Molestation
There are myriad examples of educational institutions and school districts being sued for allowing sexual abuse or failing to prevent it. “Claims data published by United Educators, a leading insurer of schools, indicates that sexual misconduct losses have grown three times faster than all other claim types over the past 15 years,” Alera Group’s Market Outlook states.
In 2023 alone, such claims include:
- The University of California system agreeing to pay nearly $700 million to hundreds of patients who were sexually abused by former UCLA gynecologist-oncologist Dr. James Heaps. (Notably, the UC system declared an intention to issue medical facility bonds because its available insurance coverage has been exhausted.)
- Union School District in San Jose, Calif., agreeing to pay $102.5 million to two women who accused administrators of failing to stop a music teacher from sexually exploiting them when they were minors.
- The Tonawanda Union Free School District in Buffalo, N.Y., agreeing to pay $17.5 million to settle 35 lawsuits filed against it due to sexual abuse by a former teacher who last worked for the district about 30 years ago.
In addition to the rising prices of awards and settlements, “reviver statutes” have dramatically increased the long-term impact of sexual assault claims, allowing adult survivors of childhood sexual abuse to bring civil claims after the statute of limitations has passed.
These suits are a vexing issue for schools and their liability risk. Now, schools must seek out insurance policies to help them defend lawsuits based on actions that may have occurred decades ago, and insurance carriers must decide how to structure such policies and charge a fair premium. Given this complex dynamic, it’s understandable why most insurance carriers are hesitant to engage in this type of coverage.
Schools typically store a great deal of personally identifiable information (PPI) — in some cases holding this valuable data for decades. This is just one reason educational institutions are prime targets for cyberattacks. Indeed, the education sector saw a 44% increase in cybercrimes compared to 2021, according to one study.
Additionally, while schools have increased their focus on cybersecurity, many still have a lot to learn when it comes to building firewalls and creating the right practices and procedures. Often, the style of management at an educational institution is less stringent than at, say, a financial organization. Larger businesses typically have strict, more rigorous cyber security and education systems in place, while educational institutions tend to be laxer about these issues.
Other Problematic Issues
United Educators found that claims against schools include discrimination and wrongful termination for educators legal liability coverage and slips, trips, and falls; accidents; civil assaults; and athletic activity for general liability coverage.
Here are other notable factors, as discussed in the Alera Group’s Market Outlook report:
- “In the last decade, there’s been a dramatic increase in the number of violent events occurring in school buildings and on campuses, with the 2021-2022 school year earning notoriety as the deadliest year in history for U.S. schools. The good news is, many of these types of violent incidents could be avoided with effective risk assessment. The Comprehensive School Threat Assessment Guidelines (CSTAG) have a high success rate. Studies show that when these guidelines are implemented, 99% of threats are not carried out.
- “There also appears to be an increase in threats to teachers’ emotional and physical safety. According to an American Psychological Association study published in 2022, one-third of surveyed teachers reported experiencing verbal harassment or threat of violence from students. Fourteen percent said they had been victims of physical violence from students. Nearly half of teachers reported they desire or plan to quit or transfer their jobs due to concerns about school climate and safety.
- “The education sector is not immune from employee suits. Common causes for concern are wrongful termination, discrimination and retaliation. These suits are increasingly common, and jury verdicts can stretch into the millions. Insurers will look closely at the policies and practices schools have in place to manage this risk.”
As we move into 2023, we see positive and negative signs for the education industry. “Price increases are moderating, resulting in more stability in the marketplace,” Alera Group’s Market Outlook notes. “Some lines of business will remain close to flat, and others will remain strained.”
The risks, however, particularly in the area of sexual abuse and molestation, remain high. Education institutions should consult with brokers who have high-level expertise in both insurance and the education industry, along with a deep understanding of the relevant institution or school district.
A qualified agent or broker will work to present schools to an insurance underwriter in the best possible light — with thorough, clear documentation of risk management programs, claim histories and financials.
For a more in-depth look at strategies for navigating P&C market conditions in general and for the education industry in particular, read Alera Group’s 2023 Property and Casualty Market Outlook. The report provides valuable information on factors driving the current P&C market, along with analysis categorized by industry and lines of coverage.
With more than 180 offices around the country, Alera Group combines local service with national reach and provides individualized, carefully crafted coverage programs that fit each client’s unique needs. To contact an Alera Group agent or broker, click on the link below.
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About the Author
Michael Brooks, CSRM
President, Property and Casualty
Austin & Co., Inc, An Alera Group Company
Michael Brooks has been an insurance executive in Alera Group’s Austin & Co. office for almost 25 years, with responsibilities including product management and carrier relationships.