Risk Management 101

Michael McHughArea Executive Vice President

Arthur J. Gallagher Risk Management Services, Inc.

Presented by:

Presented at:

Illinois ASBO 61st Annual ConferenceMay 16, 2012

31+ Years Insurance and Brokerage Experience

National Pooling Niche Principal

National K-12 Principal-Arthur J. Gallagher Public Entity & Scholastic Division

ASBO International Member

Illinois ASBO Member for 25 years

Experience working with over 575 districts on various risk & insurance topics

Introductions

1. Define Risk Management2. Explore basic components of a

typical Risk Management Program

Objectives

Risk Management covers all the processes involved in identifying, assessing and judging risks, assigning ownership, taking actions to mitigate or anticipate them, and monitoring and reviewing progress.

Risk Management Defined

Planning for the negative consequences of any decision process or action by using whatever means feasible to control the chance of financial loss.Public Sector Risk Management Manual

Risk Management Defined

Trying to stop losses from happening (through avoidance, risk control, loss control or loss prevention)

Paying for the losses that do occur (through reduction, insurance or risk transfer)

Risk Management Involves

Strategic Risk – strategic objectives and political, economic and global market conditions

Financial Risk – currencies, interest rates, credit and liquidity risks

Operational Risk – risks related to systems, processes, technology and people

Compliance Risk – regulatory and legal Reputational Risk – damage to “brand” Hazard Risk – property, liability, workers

comp

Risk Categories

School Districts = “Institutions of Learning” Education of Students Athletics & Extracurricular Activities

Employees & Volunteers Transportation Food Service/Cafeteria PTO/PTA/Booster Clubs Buildings/Contents including Materials and Mobile

Equipment Playgrounds and Athletic Facilities Educational Foundations

Risks for Public Schools

The Evolution of Risk Management

1978• Insurance Procurement

•Policy Administration

1988•Risk Financing•Loss Control•Organizational RM Focus

•Claims Management

•Regulatory Compliance

•Public Safety RM•Employee Benefits

1998•Risk Financing•Cost Allocation•Loss Control•Contractual Risk Transfer

•Claims/Litigation Management

•Outcome Orientation & Benchmarking

• Integrated Disability Management

2008•Chief Risk Officer

•Enterprise Risk Management

•Consultancy•Risk Financing•Multi-Jurisdictional Integration

•Loss Control•Claims/Litigation Management

•Cost Allocation•Bus./Government Partnerships

From PRIMA

Risk Management Toolkit

Risk

Avoid

Sub-contract

Exit

ControlPeople

Plant

FinanceFund

Insurance

Transfer Contract

STANDARD PUBLIC SCHOOL INSURANCE COVERAGES

A contractual relationship that exists when one party (the insurer) for a consideration (premium) agrees to reimburse another party (the insured) for loss to a specified subject (the risk) caused by designated contingencies (hazards or perils).

Insurance

Definition of Insured Needs to be broad so that it covers

the following: District and its employees / student teachers Elected / appointed officials Sponsored / endorsed organizations Volunteers who do work at your

direction on behalf of the District

Insurance Program Coverages

Buildings Contents Inland Marine

EDP Equipment EDP Extra Expense EDP Media AV Equipment

Valuable Papers Fine Arts Musical Instruments

Builder’s Risk Needed for new

construction and renovations at your district

Extra Expense Increased Cost of

Construction / Demolition Coverage

Auto Physical Damage

Property Coverage

Employee Dishonesty Loss of Money - inside / outside

premises Depositor’s Forgery Bonds

i.e. working cash / treasurer’s / life safety

Crime Coverage

Fired / Unfired Pressure Vessels MEA coverage Refrigeration coverage Air Conditioning Units Extra Expense Water Damage Joint Loss Endorsement

Boiler and Machinery Coverage

Coverage for autos, trucks, bus fleet Auto Liability Auto Physical Damage Hired / Non-owned Coverage

Automobile Coverage

Limits usually $1M per occurrence / $3M aggregate

Fire Damage (Legal Liability) $500K limit

Employee Benefits Liability - $1M Claims-Made coverage

Broad form General Liability coverage form, which includes: Bodily Injury /

Property Damage Personal Injury and

Contractual coverage

Sexual Abuse / Misconduct coverage

Athletic Participation coverage

General Liability Coverage

This is you, your boss, and your Board

Get a broad definition of named insured

Can be written on an “occurrence” basis or on a “Claims-Made” basis

Make sure it covers: Employment Practices Liability –

failure to employ/promote Discrimination Harassment Wrongful Termination / Discipline IDEA coverage Back Wages coverage Non-Monetary coverage Failure to grant tenure Retaliation (Including Lockouts) Wrongful demotion or negligent

employee evaluation

School Board Liability Coverage

Medical Indemnity Statutory Employers Liability Other States Endorsement Voluntary Compensation

Endorsement

Workers’ Compensation

Provides $5M of coverage for ALL students in the district for ALL school sponsored and school supervised activities

Covers 100% of any out of pocket cost incurred by parent/guardian for medical expenses

In case of no primary medical insurance, becomes primary medical insurance for injured student

Provides option for 24-hour coverage to be purchased by parent/guardian

Reduces General Liability Premiums

Student Accident Program

Reduces litigation against district Reduces administrative burden on

district administration Good-Will gesture towards

community Reduces claim costs Easy for parents to get reimbursed

Student Accident Insurance Benefits

Pollution Liability Foreign Liability Special Events Professional Liability

Nurses Educational Foundations Fiduciary Liability – including 403(b)

exposure

Specialty Coverages

Separate Board of Directors creates exposure

Provides up to $5M for fiduciary liability arising out of funds managed by Foundation

Educational Foundation Directors’ & Officers’ Liability Coverage

Covers liability arising from trips overseas

Provides coverage in case of bodily injury or property damage to a third party while traveling abroad

VERY INEXPENSIVE COVERAGE

Foreign Liability Program

Pros and Cons of Available Options

First Dollar

Insurance Program

Safety Dividend Program

Large Deductible Retro-Plan

All Lines Aggregate Stop Loss

Specific Excess

Insurance Placements

by Line

Rent-a-Captive

Captive or Risk

Purchasing Group

Pure Self-Insurance

Less ControlLess Risk

Greater ControlGreater Risk

Stand Alone / Individual District Purchase

Cooperative Purchasing Pools Risk Retention Groups Captives

Pros and Cons of Available Options

Cooperative Purchasing Mission Eligible Members Size Lines of Coverage Program Structure Financial Condition Accessibility Governing Body

Pros and Cons of Available Options

Know the Group’s

Mindset!!!

Loss Control Activities Vendor Capabilities and Resources Claim Settlement Policy Member Requirements

Financial Contractual

Cooperative Purchasing

CONCLUSION

Michael McHugh - Area Executive Vice President

Public Entity & Scholastic DivisionArthur J. Gallagher Risk Management Services

Direct: (630) 285-4373Email: michael_mchugh@ajg.com

Contact Information

QUESTIONS?