Insurance in Higher Education

University insurance is changing to keep pace with an increasingly unpredictable environment. Sophie Gale examines why terrorism cover is now standard and how universities have combined to command better terms from the global market.

The insurance industry is worth about £1,000billion in Europe alone. Life insurance in the UK, including pensions, runs to £100billion a year, while general insurance clocks up £40billion. It's very big business and the prodigious figures possibly obscure the meaning that good cover has for the individual policyholder. But, as the recent floods illustrate, a robust insurance policy is vital should catastrophe strike.

The principle is no different when scaled up to apply to HE colleges and universities. In fact, most universities came through the recent flooding unscathed. Susan Wilkinson, Executive Director of the mutual company for the HE sector, UMAL, says the organisation has only received flooding claims from two institutions. "And even those are mainly related to problems incurred due to proximity to flooding," she explains.
Nevertheless, as universities increase in size, and in the breadth of business and research they are involved in, so do the risks. HEFCE figures show that the total value of insurance for HE properties was £18billion when last apprised in 1997, split between £14billion for non-residential and £4billion for residential provision.

There are also emerging areas of concern, such as hazards facing academics on foreign placements, problems in clinical trials requiring protection against medical malpractice and, sadly, terrorism. The HE sector is not considered a target for terrorism, but Susan Wilkinson says UM Special Risks (UMSR) did have some small claims arising out of July 7 attacks in London. And she adds that, "The world has become evidently more hostile in many places, which increasingly affects institutions with postings and research interests in far-flung places." UMAL offers support such as finding safe havens and assistance with repatriation for those affected.

SPECIALIST COVER
Fortunately, the provision of specialist cover geared towards universities has been changing with the times. UMAL, a mutual organisation that is formed of universities themselves, exemplifies this development. It covers material damage and business interruption policies, while its sister organisation UMSR specialises in terrorism cover. The HE sector members contribute a fee that reflects their particular risk, claims profile and value of assets. That covers payouts, admin and the purchase of catastrophe insurance from the global insurance market. Studies are carried out using 'Stochastic modelling' a database of losses is used to predict where future requirements will be. With its main insurance market partner QBE Insurance Europe, UMAL has placed £15billion into the market for general insurance. It works with a total of 20 insurers in all and has 54 member institutions. UM Special Risks has 114 members and is responsible for the largest placement of terrorism cover into the market. The combined annual turnover of the two companies is £24million. According to Susan, this is a very cost-effective model. "If it's a good year, and we don't spend all the money, then the surplus is available to improve services, retain more risk or to return money to members. Over the life of the mutuals, they have created £40million of such savings. And over the life of UMAL, we have returned in excess of £8.5million to members.
She believes that the creation of UMAL has benefited the sector in a number of ways. It has forced commercial insurers to sharpen their act. It's good for the sector as a whole because it has depressed prices and improved quality. UMSR was created in 1993, when the cost of premiums was rising and many traditional providers weren't willing to provide cover in certain areas for the HE sector.

MUTUAL RISK MANAGEMENT
Buying cover is only ever one part of a risk reduction strategy. UMAL employs a technical risk manager to advise on projects, conduct post-loss reviews recounting the experiences of universities that have suffered a catastrophe such as severe fires or flooding and offer individual risk management reports and audits. It also provides health and safety reports for members, then benchmarks them against other institutions and pinpoints areas of concern where they need to focus. "We work to ensure much of the risk is managed out," says Susan.

"To be honest there is very little legislation that doesn't impact on the HE sector. Universities' business profiles are now so extensive. They're often at the forefront offering distance learning and teaching through the web. It's more crucial than ever for them to have an insurance portfolio that moves with them."