A Foreign Education
As more and more American colleges and universities broaden their international footprints, their risk profiles also change. Many are expanding to the developing world, where risks are greater. To keep up, a small but growing number of institutions are hiring full-time international risk managers, according to industry leaders.
Of the 4,500-odd American colleges and universities, about 600 employ dedicated risk managers, and 29 employ full-time international risk managers.
“It’s a new trend, and it’s taking root,” said Jean Demchak, the Global Education and Public Entity practice leader for Marsh. Most were hired in the past three years, and their ranks are growing at about 10 per year.
That trend is most visible in large universities with very mature international programs. However, small schools, including many community and junior colleges, also have international programs that require risk management.
Gone are the days when mere undergraduate study-abroad programs defined an institution’s international presence, said Joan Rupar, division president, Foreign Casualty, AIG.
The traditional health and safety risks to undergraduates remain, but are now complicated by increasingly commercialized enterprises involving faculty and local nationals that raise issues of local and international law, employment and environmental regulations. Trips to remote, undeveloped, and politically unstable locations introduce yet a new set of medical access, kidnap and crime risks.
“When institutions contract with commercial entities for clinical trials or to use their engineering or agriculture expertise in the market, their scope of liability opens considerably,” said Rupar.
“Institutions plan to bring the litigation back to the U.S. if anything happens, but that doesn’t always happen.”
Yet institutions take on the risks with zeal, since foreign programs prepare students for a globalized workplace and political environment, and commercial opportunities compensate for diminishing public education funds as tuition soars, said Paul Pousson, associate director of risk management at The University of Texas System. “Every university president wants to expand the institution’s foreign footprint.”
Compliance With Local Laws
Mike Liebowitz, senior director of enterprise risk management and insurance, New York University — who is one of the 29 full-time international risk managers — said institutions must protect themselves with broad coverage that complies with local regulations.
Domestic insurance policies may be useless for overseas claims because many countries require a licensed insurer, Liebowitz said. U.S. coverage might not be valid in another country because the local coverage is often taxed.
“It’s a revenue source for the country,” Liebowitz said.
Although most exposures for foreign campuses are not much different from those in the United States, employment exposures are a notable exception. When institutions hire from the local population, as foreign campuses and research facilities inevitably will do, risk managers should examine the full battery of employment issues, said Pousson. Those questions include:
• What’s the position to be filled?
• How are employees paid?
• What are the tax issues?
• What are the fringe benefits?
• What are the banking and cash management issues?
• Will the institution open a local bank account?
• Who will have access to the account?
• Who will reconcile it?
Institutions must also comply with local building and construction codes when they buy or renovate property, said Harsh Dutia, vice president, Multinational practice, Marsh USA. “They’re concerned about being good corporate citizens in these countries.”
When setting up the foreign program, Pousson said, most institutions need to tap legal and accounting consultants external to the school. In some cases, those may be professionals in the host country.
Mitigating Health and Safety Risks
Although commercial exposures account for a large and growing part of universities’ international risk, the traditional one — students studying abroad — remains Temple University’s single greatest international risk, said Lisa Zimmaro, assistant vice president for risk management and treasury, Temple University.
“You have a population of 18- to 24-year-olds who think they’re immortal,” she said. “They’re not old enough to drink legally at home, and suddenly they can order a drink. They take risks.”
Some trips are risky simply by virtue of their purpose and location. For example, said Bill Hoye, executive vice president and chief operating officer, IES Abroad, which manages 100 study-abroad programs in 36 global locations, a service-learning trip to an AIDS clinic or a construction site in Africa may carry a range of developing world risks: illness and injury, remoteness and access to medical care.
“You have a population of 18- to 24-year-olds who think they’re immortal.”
– Lisa Zimmaro, assistant vice president, Temple University
“Before you go, have a plan in place,” Hoye said. That may mean bringing a sophisticated medical kit as well as trained and certified first responders.
“You identify the foreseeable risks in that environment and then tailor a plan that spells out how you respond to each risk.”
Safe educational travel is itself a topic of academic research as well as a cottage industry. UCLA’s Center for Global Education provides an exhaustive clearinghouse of best practices and information, including checklists, to help institutions plan for conditions around the world, such as the lack of smoke detectors in France, penalties in Singapore for chewing gum, which way to look before crossing the street in Auckland and evacuations from war zones.
The University of Pennsylvania emphasizes pre-departure preparation and training of its students, establishing contingency plans for “every imaginable” situation, including kidnap, ransom and war, said Jaime Molyneux, director of international risk management, University of Pennsylvania. Where some institutions use commercial travel tracking systems to broadcast alerts and establish a head count in emergencies, Penn requires students to use its homegrown travel tracking system.
Many risk managers and insurance brokers advocate for site visits and assessments when possible. Liebowitz of NYU — a “risk-conservative” school — has visited many of its campuses on every continent except Antarctica. Zimmaro of Temple University credited her site visits with being able to evacuate students from Japan without undue incident after the 2011 earthquake and tsunami. “It was the first time I chartered a plane,” she said.
If they can’t make site assessments, said Rupar of AIG, risk managers at least should learn “an awful lot” about building codes, safety and security in locations of repeat travel, and facilities used as classrooms. That information will transfer to the students and faculty in pre-trip training. Some institutions that can’t make site visits choose to contract with vetted and established assistance providers, such as International SOS, a medical and travel security services company, or the travel tracking service company Terra Dotta Software, which pushes out alerts, about say, a dengue fever outbreak in Ecuador, to affected travelers, per their itineraries.
The most effective mitigation, Pousson said, involves internal cross-collaboration between risk managers, international studies, faculty and athletics to hash out the full scale of the foreign undertaking. Some institutions tackle this through international oversight committees, said Rupar. “They gather all the stakeholders at the table to say, ‘This is the program we want, and these are the risks. How do we protect the university’s assets?’ ”
One of the potentially best training programs seldom takes place in the United States, said Gary Rhodes, director, UCLA Center for Global Education: foreign language instruction in the early grades, when the child’s neural pathways for language are still elastic. “It’s harder to learn a language at the college level,” he said.
Many colleges and universities belong to self-insured consortia, and more want to belong, said Jan Trionfi, risk management, environmental health & safety, Central Michigan University (CMU), which belongs to the Michigan Universities Self-Insurance Corp. (MUSIC), a consortium of 11 Michigan public universities.
CMU buys its “very good, very broad” foreign liability insurance through the consortium at about a 15 percent savings, thanks to the volume purchase. Coverage includes general liability, property, auto liability, workers’ compensation, and the once exotic but now routine kidnap, ransom, emergency evacuation and repatriation coverage. Some but not all MUSIC members buy the policy, which isn’t included in the core general liability coverage. Because each institution has its own risk tolerance, they don’t share risk, instead buying stand-alone policies, said MUSIC’s broker, Jerry McKay, senior vice president, Marsh Inc.
In addition to cost savings, McKay said, consortia members benefit from sharing best practices. “Typically, the larger members develop best practices that they share freely with the other members.”
“Consortia are a forum for members to discuss how they found missing travelers, how they keep track of them, how they’ve helped them, what’s their disaster plan,” said Rupar.
“That takes a lot of collective thinking, and the result is a very good thing.”
When numerous facilities in Prince Georges County, Md., including 76 school buildings and the court building were hammered by a succession of weather-related catastrophes, Meaghan Haney “rode herd” on the insurance companies, said Steve Middleton, risk manager of the self-insured risk pool that insures the county’s public works. She made sure that the 100,000 boxes of court records that had been underwater were restored and the buildings repaired with the least possible amount of downtime, even wrangling a $5 million advance in emergency cash so the county could start repairs, Middleton said. “She made us her priority. She’s one of the most energetic account managers I’ve ever known.”
Pam Schroeder, chief of the division of risk management in Montgomery County, Md., confirmed Haney’s tenacity when its self-insured risk pool was considering cyber liability insurance, despite a lack of uniform terminology. “It was hard to compare coverage,” Schroeder said. “Meaghan put it into charts for us to make line-by-line comparisons. She helped explain the terms, and found references we could check. I trust Meaghan.”
And she has negotiation chops. When the University of Memphis stumbled over additional liability for an RV that staff, students and volunteers sometimes drive, school officials were ready to pull the plug on non-staff drivers. Haney stepped in and negotiated coverage that names the state as the additional insured. “We use Meaghan as a member of our staff,” said Rodney Escobar, director of risk management in the Tennessee state treasury department.
When Dan Mahle transferred in 2005 from Portland, Maine to Syracuse, New York, he maintained the same hands-on relationship with many of his clients, including James Kelley, procurement and risk manager at Bowdoin College in Maine. “He’s so connected with us,” Kelley said. ‘He knows when we want to self-retain risks. He’s an excellent negotiator on our behalf with carriers. It’s personal.”
Richard Nale, risk manager and associate director of human resources at Colby College, values Mahle’s creative negotiation and solid relationships with carriers and underwriters. Three years ago, he suggested Colby, then a new client, put 50 percent of its insurance out to market. The coverage he found saved nearly 30 percent of Colby’s gross premium.
Early on a Saturday morning even before the ink was dry on the new policy, the gym and field house flooded. “Dan and his team connected immediately with the company and had all the answers by Monday morning. I hadn’t even written the first quarter premium check, and the insurance company was writing me a check,” said Nale.
Mahle is thorough, said Ted Coviello, director, contracts, compliance and risk management at St. Lawrence University. When students go off campus for internships, liability is ambiguous because it’s unclear who employs the intern. The problem gets even stickier when interns work out of state. “Dan took it upon himself to put some parameters around the liability problem. The issue is complex, and there’s not a lot of case law. Dan is putting together a paper to give us guidance in the future.”
Master Problem Solver
Forced by cuts in state funding to find other revenue sources, Central Michigan University increasingly partners with industry, such as the brand-new CMU College of Medicine’s partnership with two local hospitals. But how to best insure students and faculty?
“There was so much to consider,” said Jan Trionfi, the university’s director of risk management, environmental health and safety. Jerry McKay and his team steered CMU through the research and cost-benefit analysis. “As a leader and partner,” Trionfi said, “Jerry’s the best.”
The success story continues. As McKay reviewed contracts with industry partners, he found unreasonable demands around professional liability.
He proposed a creative hybrid product that saved CMU a lot of money in premiums. “We didn’t have to go to commercial insurance,” Trionfi said, “and the excess carriers gave us an affordable price.”
Timothy Kellogg, director of business services for Western Michigan University, said McKay’s problem-solving abilities are at the top of the list.
“He never gets flustered,” said Kellogg.
For example, an actuary unrelated to Marsh had changed the methodology for calculating risk without telling the school, Marsh or the self-insured consortium to which the school belongs.
“When Jerry saw the reports, he stepped in before the group even knew about the problem and had it fixed before it became an issue,” Kellogg said.
“It wasn’t easy for him, but he made a potential failure into a success.”
Jack of All Trades, Master of All
Universities are as complex as small cities, said Chris Weber, the manager of risk management and insurance for Ferris State University. They require coverage that ranges from common to exotic: health care, employee-related research, travel abroad, kidnap and ransom, foreign exposure, work arrangements with external organizations, facilities and data-mining issues. Brokers who service these accounts must have deep knowledge of all of these topics. Michigan Universities Self Insurance Corp. (MUSIC), the insurance consortium of 11 public Michigan universities to which Ferris State belongs, is one of the best, said Weber, and “Tony is largely responsible for that.”
With his Marsh colleague Jerry McKay (also a 2014 Power Broker®), Rey helped Grand Valley State University join MUSIC, one of the 20-odd higher ed consortia Marsh manages.
“We didn’t want to be in a commercial insurance environment,” said Mick Doxey, director of risk management for Grand Valley and president of MUSIC. “We wanted more control over coverage and claims, and they made it possible.”
With 11 universities, only some of which employ risk managers, consortium members need different levels of care, said Jan Trionfi, director of risk management, environmental health and safety, Central Michigan University. “Tony recognizes each member’s needs to keep everybody satisfied and happy.”
“The important thing that makes him a Power Broker® is that he loves what he does,” Weber said. “He loves helping us. He helps the program be the best it can be.”
Tony Rey is enriching the lives of young people in his personal and professional life. As an education broker, he was challenged to help give college students better access to professional training by designing coverage for university internship programs. Students and faculty members were being stymied by the lack of insurance coverage for professional liability as they competed for work outside of the university. He was able to construct coverage and negotiate with the excess carrier to include the program at no additional costs for the members.
In addition, Rey gives freely of his time to a number of nonprofit organizations, including personal participation and involvement in fundraising activities. Among his activities are donating blood to the Red Cross, aiding the Rotary Club as it donates to many community causes, and involvement in the United Way. He also organized a day of volunteering at the Children’s Hospital in Detroit, and coaches Little League and Babe Ruth baseball.
Rey also aids the industry’s future by mentoring new employees and participating in local chapters of the Chartered Property Casualty Underwriter society. In addition, Rey works to increase morale among co-workers by involvement in his organization’s Employee Committee.
A year and a half ago, Seton Hall University had to make a sticky transition. “We discussed it with Steve,” said Lori Brown, Seton Hall’s director of compliance and risk management. “He handled it gracefully. He navigated us through the transition while managing our expectations.”
“He brings not just his knowledge of insurance but developing trends across higher ed,” said Helen Schneider, associate vice president for facilities and campus services, Loyola University. Recently Loyola worked on a pollution policy, and Schluter raised the issue with the five self-insured universities in the risk management consortia. “He asked, ‘Do we need to look at this collectively?’ He encouraged us to look at attitudes within higher ed towards pollution, where the insurance market is going and what needs we aren’t aware of.”
Schluter also guided consortia members into the waters of cyber insurance, helping them understand how to mitigate cyber risks, and connecting them with the right experts at Aon. The result: lower risk and better coverage for all of the group’s members.
“Steve helped us figure out how to allocate our hours with Aon so that we came to best practices together,” said Schneider. “Nobody monopolizes billable hours, and we don’t duplicate effort.”
“People skills are his special gift,” said Brown. “He sets up teams of people who specialize in various areas of insurance.” In a policy like Seton Hall’s that involves many pieces, she said, “that connection to resources is very valuable.”
Making the Client Look Good
Robert Altholz hired Scott Wightman twice, first as risk manager at St. Louis University, and later — despite 900 miles between them — as insurance broker and risk manager, after Wightman left academia to become a broker and Altholz became CFO of Long Island University.
“You’re only as good as the people around you, and Scott made me look good,” Altholz said. “Scott’s role as LIU’s risk manager helps him understand our every need.”
As universities increasingly form partnerships with industry, they enter “a new world” of risk, Altholz said. For example, when students in the pharmacy school complete a practicum in hospitals, nursing homes and other medical facilities, questions arise: Who is responsible for their coverage? Who employs them?
“Scott and I decided together the student is still a student, and we are responsible for professional liability. He helped negotiate terms of employment with our partners.”
The work Wightman began a few years ago for the Missouri United School Insurance Council continues to reap benefits for the self-insured consortium. When CFO Mark Stockwell’s Parkway (Missouri) School District had the worst workers’ comp experience of all the group’s 470 participants, he called Wrightman and said, “I need help.”
Wightman helped establish safety and return-to-work programs, quickly reducing the size of claims. “I was doubtful at first, but Scott was spot-on. Scott’s programs turned our workers’ comp experience around.”
Global Program Premium Allocation: Why It Matters More Than You Think
Ten years after starting her medium-sized Greek yogurt manufacturing and distribution business in Chicago, Nancy is looking to open new facilities in Frankfurt, Germany and Seoul, South Korea. She has determined the company needs to have separate insurance policies for each location. Enter “premium allocation,” the process through which insurance premiums, fees and other charges are properly allocated among participants and geographies.
Experts say that the ideal premium allocation strategy is about balance. On one hand, it needs to appropriately reflect the risk being insured. On the other, it must satisfy the client’s objectives, as well as those of regulators, local subsidiaries, insurers and brokers., Ensuring that premium allocation is done appropriately and on a timely basis can make a multinational program run much smoother for everyone.
At first blush, premium allocation for a global insurance program is hardly buzzworthy. But as with our expanding hypothetical company, accurate, equitable premium allocation is a critical starting point. All parties have a vested interest in seeing that the allocation is done correctly and efficiently.
“This rather prosaic topic affects everyone … brokers, clients and carriers. Many risk managers with global experience understand how critical it is to get the premium allocation right. But for those new to foreign markets, they may not understand the intricacies of why it matters.”
– Marty Scherzer, President of Global Risk Solutions, AIG
Basic goals of key players include:
- Buyer – corporate office: Wants to ensure that the organization is adequately covered while engineering an optimal financial structure. The optimized structure is dependent on balancing local regulatory, tax and market conditions while providing for the appropriate premium to cover the risk.
- Buyer – local offices: Needs to have justification that the internal allocations of the premium expense fairly represent the local office’s risk exposure.
- Broker: The resources that are assigned to manage the program in a local country need to be appropriately compensated. Their compensation is often determined by the premium allocated to their country. A premium allocation that does not effectively correlate to the needs of the local office has the potential to under- or over-compensate these resources.
- Insurer: Needs to satisfy regulators that oversee the insurer’s local insurance operations that the premiums are fair, reasonable and commensurate with the risks being covered.
According to Marty Scherzer, President of Global Risk Solutions at AIG, as globalization continues to drive U.S. companies of varying sizes to expand their markets beyond domestic borders, premium allocation “needs to be done appropriately and timely; delay or get it wrong and it could prove costly.”
“This rather prosaic topic affects everyone … brokers, clients and carriers,” Scherzer says. “Many risk managers with global experience understand how critical it is to get the premium allocation right. But for those new to foreign markets, they may not understand the intricacies of why it matters.”
There are four critical challenges that need to be balanced if an allocation is to satisfy all parties, he says:
Across the globe, tax rates for insurance premiums vary widely. While a company will want to structure allocations to attain its financial objectives, the methodology employed needs to be reasonable and appropriate in the eyes of the carrier, broker, insured and regulator. Similarly, and in conjunction with tax and transfer pricing considerations, companies need to make sure that their premiums properly reflect the risk in each country. Even companies with the best intentions to allocate premiums appropriately are facing greater scrutiny. To properly address this issue, Scherzer recommends that companies maintain a well documented and justifiable rationale for their premium allocation in the event of a regulatory inquiry.
Insurance regulators worldwide seek to ensure that the carriers in their countries have both the capital and the ability to pay losses. Accordingly, they don’t want a premium being allocated to their country to be too low relative to the corresponding level of risk.
Without accurate data, premium allocation can be difficult, at best. Choosing to allocate premium based on sales in a given country or in a given time period, for example, can work. But if you don’t have that data for every subsidiary in a given country, the allocation will not be accurate. The key to appropriately allocating premium is to gather the required data well in advance of the program’s inception and scrub it for accuracy.
When creating an optimal multinational insurance program, premium allocation needs to be done quickly, but accurately. Without careful attention and planning, the process can easily become derailed.
Scherzer compares it to getting a little bit off course at the beginning of a long journey. A small deviation at the outset will have a magnified effect later on, landing you even farther away from your intended destination.
Figuring it all out
AIG has created the award-winning Multinational Program Design Tool to help companies decide whether (and where) to place local policies. The tool uses information that covers more than 200 countries, and provides results after answers to a few basic questions.
This interactive tool — iPad and PC-ready — requires just 10-15 minutes to complete in one of four languages (English, Spanish, Chinese and Japanese). The tool evaluates user feedback on exposures, geographies, risk sensitivities, preferences and needs against AIG’s knowledge of local regulatory, business and market factors and trends to produce a detailed report that can be used in the next level of discussion with brokers and AIG on a global insurance strategy, including premium allocation.
“The hope is that decision-makers partner with their broker and carrier to get premium allocation done early, accurately and right the first time,” Scherzer says.
For more information about AIG and its award-winning application, visit aig.com/multinational.