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

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 2

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

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. 4

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
The “Public Sector Risk Management Manual” is published by PRIMA and written by public sector risk managers.
Note to Presenter: This is based upon a traditional and rather narrow definition of risk – which is focused upon potential loss. An expanded definition of risk, which includes the potential for loss or gain, is the definition used in “enterprise risk management”. 5

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)
This is an attempt to restate the definitions in non-technical language.
The major concepts (listed in parentheses) are discussed in more detail throughout the rest of the presentation. 6

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 7

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 8

9. 9

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 10

11. Risk Management Toolkit
Avoid
Sub-contract
Exit
Control
People
Plant
Finance
Fund
Insurance
Transfer
Contract 11

12. Standard Public School Insurance Coverages12

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). 13

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 14

15. Property Coverage Buildings Contents Inland Marine Valuable Papers
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
Electronic Data Processing Equipment, Data, and Software
EDP Equipment and media/software includes all electronic property and equipment that is generated by a microprocessor or other memory device (please note that EDP definitions vary widely with insurance policies). In addition to the perils described above, other causes of loss commonly insured under an EDP form include: electrical damage, power surge, brown-out, short circuit and magnetic damage or erasure of EDP data and/or software, mechanical breakdown, change in temperature or humidity, computer virus and earthquake and flood. For example, coverage would apply if a software virus infected your information systems and destroyed all the data saved on the hard drives. 15

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

17. Boiler and Machinery Coverage
Fired / Unfired Pressure Vessels
MEA coverage
Refrigeration coverage
Air Conditioning Units
Extra Expense
Water Damage
Joint Loss Endorsement
BOILER AND MACHINERY COVERAGE
This form of insurance provides important mechanical breakdown coverage generally not available under any other insurance policy. A Boiler and Machinery policy can protect an insured against the effects of catastrophic property loss, such as steam boiler explosion or an expensive breakdown of machinery and equipment.
But it's not just the physical damage caused by the explosion or breakdown that's of concern. While repairs are being made, valuable time and profits are lost. Business Interruption coverage protects against this. Often Extra Expense coverage is required to keep the business in operation regardless of cost. Consequential Damage and Refrigeration Interruption insurance protect against spoilage as the result of a breakdown. Many times these business interruption, extra expense and spoilage losses can be much more extensive than the damage to the equipment itself.
Equally important is the very valuable inspection service that Boiler and Machinery insurance can provide. Not only does this service satisfy most jurisdictional inspection requirements, but it also can benefit the insured by providing sound loss control recommendations that can help assure efficient operation and longer equipment life. 17

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

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 19

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 20

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

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 22

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 23

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

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 25

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 26

27. 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 Control Less Risk
Greater Control Greater Risk 27

28. Pros and Cons of Available Options
Stand Alone / Individual District Purchase
Cooperative Purchasing
Pools
Risk Retention Groups
Captives
STAND ALONE
100% control
Bid on annual basis, if desired
Dictate terms, to some extent 28

29. Pros and Cons of Available Options
Cooperative Purchasing
Mission
Eligible Members
Size
Lines of Coverage
Program Structure
Financial Condition
Accessibility
Governing Body
Know the Group’s Mindset!!!
Align missions: Smarter Adults – Safer Children program 29

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

31. Conclusion 31

32. Contact Information
Michael McHugh - Area Executive Vice President
Public Entity & Scholastic Division
Arthur J. Gallagher Risk Management Services
Direct: (630) 32

33. Questions? 33