Insurance: Rate Increases for Hurricane Losses.

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Author: Lipka, Sara

INSURANCE IS A CYCLICAL BUSINESS. To recoup their losses, carriers raise rates; after they make up the shortfall, the annual ante for policyholders, including colleges, falls. Unfortunately, just as rates were going down again after the September 11, 2001, terrorist attacks, the nation and its insurers suffered catastrophic losses in 2005, with one devastating hurricane after another.

Because of those losses, 2006 will bring rate increases for colleges â€" almost definitely for their property policies, and most likely for other lines of coverage as well. Exactly how much the increases will be depends on insurers' final estimates of hurricane damage and how they distribute the burden. For now, "there's a lot of wait and see, a lot of quantifying people are still trying to do," says Beverly C. Costello, a senior vice president at Marsh, an insurance broker and risk-management consultant that serves many colleges.

Still, the property market is most likely to bear the brunt of the rate increases, which experts expect to be between 10 and 50 percent. Coastal institutions may see the highest rate increases, whereas inland colleges' rates should not jump higher than 20 percent, says Mary Breighner, a vice president at FM Global, which insures property at many private colleges.

Increases in 2006 will not be as steep as those that followed September 11, but there will be "extra gnashing of teeth" at renewal time, says Bill Payton, director of risk and insurance management for the University of Missouri System and former president of the University Risk Management and Insurance Association. (Private colleges generally renew their insurance policies between May and October, while most public institutions do so in July.)

Insurers' calculations of premiums for 2006 renewals will depend heavily on underwriters' scrutiny of universities' disaster-recovery and business-continuity plans. "Insurance companies want to be comfortable that an institution is doing all it can to mitigate catastrophic losses," says Janice M. Abraham, president and chief executive of United Educators Insurance, a member-owned risk-management and insurance company for colleges. Insurers will ask colleges, for example, to show that their crisis plans have been tested and modified based on test results, says Ms. Abraham.

Institutions themselves may look more closely at business-interruption coverage, which is generally part of property insurance. While many colleges already hold "extra expense" insurance, which covers the cost of a trailer, for example, if a building burns down, more institutions may consider business-in-come policies, which help them stay afloat by meeting payroll, for instance, in the case of prolonged closure.

A bit of good news for colleges and universities was the two-year extension of the Terrorism Risk Insurance Act, which expired at the end of 2005. The law gives government backing to insurers on potential catastrophic losses, keeping terrorism insurance affordable for higher-education institutions. The legislation included a provision, sought by colleges, that covers general-liability insurance and should keep colleges' rates for those policies from soaring.

Some experts are watching rates for general-liability and employment insurance, however, to see if a flurry of socialvalues litigation â€" such as the Christian Legal Society's lawsuits against institutions that do not allow the society to restrict its campus membership â€" will drive up costs.

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By Sara Lipka