Risk Management 101

1. Risk Management 101 Presented at: Illinois ASBO 61st Annual Conference May 16, 2012 Presented by: Michael McHughArea Executive Vice PresidentArthur J. Gallagher Risk Management Services, Inc.

2. Introductions 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

3. Objectives Define Risk Management Explore basic components of a typical Risk Management Program

4. Risk Management Defined 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.

5. 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

6. Risk Management Involves 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)

7. Risk Categories 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

8. Risks for Public Schools • 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

10. The Evolution of Risk 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 • 1998 • Risk Financing • Cost Allocation • Loss Control • Contractual Risk Transfer • Claims/Litigation Management • Outcome Orientation & Benchmarking • Integrated Disability Management • 1988 • Risk Financing • Loss Control • Organizational RM Focus • Claims Management • Regulatory Compliance • Public Safety RM • Employee Benefits • 1978 • Insurance Procurement • Policy Administration

11. Risk Management Toolkit

12. Standard Public School Insurance Coverages

13. Insurance 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).

14. Insurance Program Coverages • 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

15. Property Coverage • Builder’s Risk • Needed for new construction and renovations at your district • Extra Expense • Increased Cost of Construction / Demolition Coverage • Auto PhysicalDamage • Buildings • Contents • Inland Marine • EDP Equipment • EDP Extra Expense • EDP Media • AV Equipment • Valuable Papers • Fine Arts • Musical Instruments

16. Crime Coverage • Employee Dishonesty • Loss of Money - inside / outside premises • Depositor’s Forgery • Bonds • i.e. working cash / treasurer’s / life safety

17. Boiler and Machinery Coverage Fired / Unfired Pressure Vessels MEA coverage Refrigeration coverage Air Conditioning Units Extra Expense Water Damage Joint Loss Endorsement

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

19. General Liability 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 Limits usually $1M per occurrence / $3M aggregate Fire Damage (Legal Liability) $500K limit Employee Benefits Liability - $1M Claims-Made coverage

20. School Board Liability Coverage • 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 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

21. Medical Indemnity Statutory Employers Liability Other States Endorsement Voluntary Compensation Endorsement Workers’ Compensation

22. Student Accident Program 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 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

23. Student Accident Insurance Benefits Reduces litigation against district Reduces administrative burden on district administration Good-Will gesture towards community Reduces claim costs Easy for parents to get reimbursed

24. Specialty Coverages • Pollution Liability • Foreign Liability • Special Events • Professional Liability • Nurses • Educational Foundations • Fiduciary Liability – including 403(b) exposure

25. Educational Foundation Directors’ & Officers’ Liability Coverage Separate Board of Directors creates exposure Provides up to $5M for fiduciary liability arising out of funds managed by Foundation

26. Foreign Liability Program 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

27. Pros and Cons of Available Options Less ControlLess Risk Greater ControlGreater Risk 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

28. Pros and Cons of Available Options • Stand Alone / Individual District Purchase • Cooperative Purchasing • Pools • Risk Retention Groups • Captives

29. Pros and Cons of Available Options Know the Group’s Mindset!!! • Cooperative Purchasing • Mission • Eligible Members • Size • Lines of Coverage • Program Structure • Financial Condition • Accessibility • Governing Body

30. Cooperative Purchasing • Loss Control Activities • Vendor Capabilities and Resources • Claim Settlement Policy • Member Requirements • Financial • Contractual

31. Conclusion

32. Contact Information Michael McHugh - Area Executive Vice President Public Entity & Scholastic Division Arthur J. Gallagher Risk Management Services Direct: (630) 285-4373 Email: michael_mchugh@ajg.com

33. Questions?