Bill Summary for Bill Number Discussion of Liability and Underwriting Practices in the Private Market

Date: 09/09/2015

Final
Discussion of Liability and Underwriting Practices in the Private Market

SCHOOL SAFETY AND YOUTH IN CRISIS

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02:40 PM -- Discussion of Liability and Underwriting Practices in the Private Market

Robert Ferm and Gary Frisch introduced themselves to the committee and presented information about the liability insurance market. Mr. Ferm provided background about how schools fund their risk when they are outside of risk pools or Boards of Cooperative Education Services (BOCES). According to Mr. Ferm, these schools often have a layered approach towards covering risk. For example, they may be self-insured for the first $100,000 of coverage and purchase coverage for amounts in excess of $100,000. He explained that a school could obtain insurance from one company to take the risk for $100,000 to $250,000; purchase coverage from another company for claims between $250,000 to $500,000; and so on. Mr. Ferm said that sometimes deductibles, or the amount of self-insurance, become too high because of the costs to purchase excess coverage. Mr. Frisch added that according to his research, there has not been any reluctance in the market to write policies as a result of Senate Bill 15-213. Mr. Ferm noted that any law change creates uncertainty and this may be the reason some brokers have noted some initial concerns about Senate Bill 15-213.

Mr. Frisch reviewed the steps involved in obtaining liability coverage including underwriting criteria, including checklists, for assessing risk in schools. Senator Scheffel asked about the interplay between the checklists and the actions of an insurance company doing the underwriting and when a company may require or encourage changes versus changing the premium amount. Mr. Frisch responded that typically there is a combination of approaches undertaken during the underwriting process. He said the insurance company may ask for more information, such as school safety policies, or make suggestions for remedies to lower premiums. Mr. Frisch said that if an insurance company identifies a major area of concern, it may opt not to write the policy at all. Mr. Ferm followed up by saying that protocols give schools better leverage to negotiate premiums and coverage, but in consulting a national vendor, Firestorm, found that this is not legislated. Senator Newell asked if the underwriting criteria could be shared or if it is proprietary. Mr. Ferm indicated that he would send that information to staff.

Kate O'Donnell asked about broker concerns, to which Mr. Ferm responded that there may be increased costs for sublimits, such as with special endorsements for sexual abuse and molestation. He explained that although a school may want a specific amount of coverage, the amount available from the insurer may be less, which is why it is called a sublimit.

Linda Weinerman asked about the types of questions on the applications provided by insurers and whether decisions are data driven, such as by the number of actual incidences, or policy driven. Mr. Frisch responded that it is usually both.

Representative Willett commented that prior testimony in committee indicated that schools were expecting a 20 percent increase in premiums following Senate Bill 15-213. He noted that under current law, claims may be made for attempted behavior. Mr. Ferm responded that if there is going to be an increase in premiums, he expects to see it first in a shift from the standard market to the specialty market. Mr. Ferm said they do not yet know whether schools will see a 5 percent increase or a 30 percent increase as that will depend on the way these policies are constructed. Mr. Frisch noted that the incidents that Senate Bill 15-213 addresses are very limited, which makes it hard to determine costs. According to Mr. Frisch, there have been three relevant incidents in 16 years.