1,600 Colleges and Universities Joined Together to Manage Risk. They Built Their Company in Vermont
Risks plaguing different niche markets make navigating insurance coverage tough for any organization. A farmer and a start-up tech company may both begin as small businesses, but they won’t be covering the same risks, so why settle for the same liability coverage?
The 1950s saw the emergence of captive insurance for niche markets. By the 1970s product liability claims were soaring, adding pressure to find alternative risk transfer options.
The Product Liability Risk Retention Act was passed in 1981, permitting organizations with similar liability to form “risk retention groups,” a form of self-insurance for product liability.
“Back in 1986, there were a number of industries having difficulty getting their liability covered, so several industries came together and worked with Congress on some critical and innovative legislation,” said Joe Carter, vice president of business development and marketing, United Educators.
“They wrote the Liability Risk Retention Act of 1986, giving specific industries the ability to raise capital and form their own risk retention groups.”
The legislation allowed risk retention groups to apply for all types of liability insurance except for workers’ compensation.
All Members Are Owners, All Owners Are Members
Unlike a captive, which is owned by a single organization but can cover multiple entities, risk retention groups (RRGs) are controlled and owned by their members. Simply put: All members are owners and all owners are members.
While domiciled and regulated by a single state’s legislation, RRGs can conduct business in any U.S. territory.
They may not work for the same organization, but all RRG members operate within the same industry; usually industries with unique liability exposures such as nonprofits, churches, public housing and education.
When the Liability Risk Retention Act of 1986 was first pitched to Congress, organizations had to raise their own money to illustrate their RRG could be successful.
Enter United Educators.
Based in Bethesda, Maryland and with its RRG domiciled in Vermont, United Educators is an unincorporated reciprocal risk retention group.
It has been supplying liability insurance and risk management services to educational institutions such as schools, colleges and universities since 1987.
The Story of United Educators
Despite members assuming risks for all member organizations, RRGs are benefited by relative rate stability, program control and dividends for good loss experience.
These characteristics are what made United Educators an attractive organization when Carter assumed his role 15 years ago, and why its total premium has grown to more than $235 million with a 98% retention rate and 1,600 members.
“We’re in a market cycle where many carriers are pulling back on the critical coverages that education needs, and if they’re going to offer the coverage, they’re offering it at a very high price,” Carter explained. “We’re a company that, at our core principle, charges for the true cost of claims, whether competitors are active or not.”
That being said, UE does adjust premium rates as necessary to remain financially healthy and strong.
“We’re increasing our premiums commensurate with where the claims are coming in today and where we think they’re going based on current trends. And with the emergence of the COVID-19 spread, we’ll surely be looking for further shifts and liability impacts”.
As the director of risk management and transportation for the past nine out of 33 years with a private K-12 institution, Bob Rule of the Chadwick School has seen tough markets. But as a UE member, he knows his rates won’t overreact to trends.
“Since I have been doing this, what I’ve seen over the market cycles is that being part of that retention group and being a member owned facility is that it levels them out,” Rule said of his RRG’s ability to combat rising premiums.
“It starts by flattening the peaks, and obviously UE has to respond to the market craziness, but they’ve managed to not have the huge spikes and keep an even hand on things.”
Protecting Students, Protecting Trustees
Having a dominant share of the education risk transfer market requires a certain sense of urgency and creativity that UE delivers for its members with its product offerings.
While one of the downsides of a risk retention group is that rates may be a little higher than the average during soft markets, UE members always know they will have their claims paid out.
Offering five different liability coverage packages, UE addresses core and specialized coverage needs while constantly assessing the market for new exposures.
The packages currently offered include: general liability, educator’s legal liability, public school liability, internships and professional services, and independent school coverage.
Coverage that Reads Between the Lines
A shining reputation for fairly resolving claims and a retaining an edge in a competitive market does not come from creating policies with lots of exclusions. UE distinguishes itself by providing coverage for things such as sexual assault and athletic injuries that other markets might shy away from. However, it is very important that schools are active in managing risks, as well.
“Many of your commercial markets have very limited interest in covering athletics and the protection of minors,” explained Carter.
“Our job is to know and understand our members. When you think about the business of education, where schools, colleges, and universities have populations of younger people living on or visiting the campus daily, and a variety of learning activities on the campus simultaneously, that can be problematic for commercial markets. Our general liability considers the consolidated risks from all of these.”
Advertised as “Education’s Answer” to the market’s lack of stability, UE’s coverage contemplates coverage needs for discrimination, employment practice, retaliation, sexual harassment, tenure denial and Title IX claims.
When it comes to E&O claims, Carter proudly speaks of UE’s Educators Legal Liability coverage as the organization’s “flagship product and a key differentiator.”
“It’s written with the specific needs of educational institutions in mind,” said Carter, highlighting the underwriting focus that is possible from an RRG: Tailoring policies to the specific needs of organizations is always better for the buyer than trying to fit a complex need into a general industry policy form.
“I have found that it’s often the E&O coverage that educational institutions and their teachers might not be thinking about, which is a failure to properly educate your students,” said Carter.
“Our Educators Legal Liability form includes D&O as part of this package, and it is focused on education trustees. It’s not a corporate D&O form, however it does recognize the governance and fiduciary responsibilities that trustees have in their roles.”
“If an institution has a reputation for attracting and educating the best and the brightest, you could imagine that when things go wrong — if for whatever reason, they don’t feel that they were prepared well enough, or they feel that the types of training that they went through in a curriculum didn’t set them up for success — that’s your E&O exposure.”
Going Beyond the Classroom
UE understands preparing students for a modern workforce must go beyond the classroom and offers offers internships and professional services liability coverage.
“Not all internships are insurable, however we attempt to make that coverage process easier for a variety of learning programs. And if you’re thinking about scenarios where students are giving services to the public, it’s pretty easy to see where the difficult and sometimes uninsurable liability can come in,” said Carter.
For this particular package, coverage is delegated to those participating in the programs instead of an entire institution. Coverage expands to students participating in internships, faculty overseeing those internship programs and faculty performing services within a mobile education facility.
“We’re always considering enhancements and sometimes coverage expansion, over time as needs arrive … We’ll typically cover those arising needs via endorsement, depending on where the particular risk fits. Is it around bodily injury or property damage? Is it around workplace or employment practices? Or is it around internships or learning programs?” explained Carter.
Thanks to innovative policies aligning with emerging technology, UE has also been able to create opportunities for innovative learning that traditional insurance coverage wouldn’t necessarily allow for, such as the use of drones and perhaps research activities for human subjects.
United Educators serves organizations all over the United States. Some of its members have campuses that operate overseas, such as the Chadwick School with campuses in California and South Korea. So why a Vermont domicile?
Vermont was the first state to allow captive formation legislation and offer those captives a home. Now with over 1,100 captives, Vermont has a highly responsive legislature when it comes to supporting its domiciled businesses and meeting captive needs.
For Carter, one of the greatest benefits of a Vermont domicile is in the ability to communicate with his regulators in a transparent way.
“When you approach them, Vermont really does ask good questions about what you are trying to do, so that you can give a better and more complete answer. If the answer is no, there’s often a nuanced reason that allows you to plan your business more effectively.” UE members sense the same transparency from their RRG.
“Much like most corporations and businesses, our insurance runs across a lot of different carriers, but the one word I use when I think about our relationship with UE is that it’s a partnership, not just a business relationship,” said Rule.
“Especially at that K-12 level, those benefits, the broad determinations of their coverages and the training and the risk group that can provide information for all of us, that’s just really what it’s about. That partnership is the added value for us.”
Simply put, in the words of Carter, Vermont is the gold standard for RRG regulation and UE has been able to interact, understand, and flourish in that environment to better serve its members.
“We haven’t had many bumps,” he said.
“As executives, we talk about enterprise risk management all the time. Much of what we’re focused on is maintaining our financial strength to be there for our owners. For the 21st year, we’re rated A, excellent, from AMBest, and as a risk retention group, that’s unique there. And with the long tail types of liability we deal with, I think that sophistication speaks volumes.” &