INSURANCE AND RISK MANAGEMENT POLICIES
Source: Office of the Vice Chancellor for Administrative Affairs
Preservation of University assets is a major responsibility of all University departments. Departments are custodians of the property which the University has entrusted to them. Departments must, therefore, manage those risks which could destroy or deplete their assets. However, before these risks can be controlled, they must be recognized.
Risk Management is the acceptance of responsibility for recognizing, measuring, and controlling the exposures to loss which are created by the activities of the University. By contrast, insurance management involves responsibility for only those risks which are actually insured against.
Some definitions are in order:
Risk is uncertainty of loss. Peril is a source of loss (fire, windstorm, embezzlement, etc.) Hazard is a condition which increases the likelihood of loss (e.g., a known embezzler hired as a bookkeeper).
With these definitions in mind, we can now delineate the principles of Risk Management as they apply to the University. However, because of the diversification within the University, it is difficult to establish procedures which will fit all situations equally. For instance, some departments operate entirely on University owned property, while others carry out many of their operations in the field and their exposure to loss varies greatly.
All departments are exposed to the perils of fire, burglary, automobile accidents, and liability for injury on the premises. Some of these departments also have exposures in the area of malpractice, destruction of property on loan to the University, and the destruction of highly sophisticated equipment through negligence.
Therefore, an intelligent approach to Risk Management and insurance is necessary. Insurance is not purchased out of desire, but out of necessity. It is not a commodity which is enjoyed or displayed or sought after by its owner. It is one of the few things which is bought with the hope that it will never have to be used.
University departments should not leave these things to chance, but should follow established procedures to control the risks.
The purpose of the following information is to alert University departments to the nature of their risk, and to provide at least the basic pattern for management to follow in the study of these risks.
RISK MANAGEMENT AND SAFETY
A function of Risk Management and Safety is to organize and carry out a plan to control the risks to which the University is exposed. Departments can find qualified help in the University Police and Security Department or in Risk Management and Saftety. With this assistance, they can follow certain procedures to control risks adequately and to obtain an objective loss prevention program. These steps are:
- Recognize and appraise the risk.
- Estimate the probability of loss due to the risk.
- Select the optimum method of treating the risk.
- Implement a plan to carry out the selected method.
The main concern of most departments in the risk of property. This term embraces all possible loss arising out of either destruction, confiscation, or loss of use of University property, or in many cases, personal assets. Some examples:
- Loss by Destruction -- Property may be destroyed by fire, flood, wind, breakage, deterioration.
- Loss by Confiscation -- Property may be confiscated by an act of crime such as theft, embezzlement, robbery, burglary, holdup, forgery and conversion.
- Loss of Use -- When property is destroyed or confiscated, the loss is often increased because of the indirect loss resulting therefrom. Loss of rents, interest, and additional expense incurred are all indirect losses. Much greater than the loss to physical property, is the loss to records and data which were accumulated over a number of years.
METHODS FOR TREATING RISK
There are established and tested techniques by which property exposures may be controlled.
- Avoiding Risk. A risk may be avoided by not accepting or entering into the event which contains the exposure. For example: If a rental contract calls for the University to be responsible for all occurrences in the space, when the University uses only part of the space, the clause can be deleted or rejected in its entirety. This method has severe limitations because such a choice is not always possible, or if possible it may require giving up some important additional advantages. Nevertheless, in a large number of situations risk avoidance is both possible and desirable.
- Spreading Risk. It is possible to spread the risk of loss to both money and property. Duplication of records and documents; and then storing the duplicate copies elsewhere is an example of spreading the risk. Too many times a small fire in the file room has wiped out the entire records of departments' operations.
- Loss Prevention or Reduction of Risk. "An ounce of prevention is worth a pound of cure," according to an old saying. Today this statement provides the guide for the control of risk. Risk may be reduced, eliminated, or certainly controlled by using a well-planned loss prevention program.
These are some of the points all departments should consider in their efforts to reduce loss:
- Utilization of the University Police and Security and Risk Management and Safety Departments.
- Better physical protection of money and records through the use of high quality safes, vaults, and filing cabinets. If they are available, they substantially reduce the possibility of destruction or confiscation by illegal means. When facilities are available for the storage of money or valuable equipment, access should be limited to as few people as possible. Cash handling procedures are controlled by statute. At least once a week any cash that is in the office must be deposited in the University Cashier's office. Safekeeping arrangements should be made for any other valuable equipment.
- In requesting a site for storing valuable property, a number of items should be reviewed to reduce the possibility of loss. They include:
- High water level. Avoid basements, gulleys and areas where flood history exists.
- Heating system. Steam can, over a long period, be more damaging than water.
- Exposure. Surrounding area should be checked for hazardous exposures such as storage or use of gas, oil and chemicals.
- Housekeeping. Preventive Maintenance: Probably no hazard has resulted in causing more accidents than poor housekeeping. Good housekeeping procedures include, but are not limited to:
- Reporting poor workmanship of custodial personnel to proper supervisor.
- Asking for assistance in preventive maintenance of equipment, tools, and building.
- Controlling neatness and traffic flow patterns internally.
- Engineering risks; and
- Personnel administration or human relations.
The engineering approach emphasizes mechanical causes of accidents, such as defective wiring, improper disposal of waste products and unguarded machinery. The consideration of engineering as an essential part of any loss prevention and reduction program. Yet, many times neglect or just plain carelessness by University employees is the major cause of personal injuries and property damage.
Worker's Compensation and Health Insurance Programs were implemented to act as a cushion to the financial loss that may result from an accident to employees.
There is no way completely to compensate for the pain, suffering, dismemberment, or disfigurement that may result. Looking for ways to prevent injuries is the key.
- Retention, Assumption or Acceptance of Risk. These methods must be of particular interest to an operation as large as the University. Which risks should be retained by the University? Too many risks are accepted unintentionally through unawareness of the exposure. Many risks have to be retained because there is no other choice. Example: Hazards due to the acts of nature. Today, with the many new concepts of insurance, it is possible to insure against almost any risk except war and taxes if one is willing and able to pay the premium. It is not, however, always economical to do so.
Therefore, some risks are retained, assumed, or accepted. Examples of these types of risk are: glass breakage and theft of University-owned property. The importance and economic value of risk is periodically reviewed in relationship to the size of the operation. The probability and potential amount of loss is also considered.
- Transfer of Risk to Insurance Carrier or Others. Risk may be transferred contractually. The Senior Vice President for Administration, UW-System has the authority and responsibility to sign certain insurance contracts for the University of Wisconsin System. Other insurance contracts to be entered into by the University should first be reviewed by the System Risk Management. No contractual risks should be transferred to the University unless there is adequate knowledge of them. This means local campus review is necessary through the Risk Management and Safety Office. Many risks can and should be transferred to an insurance company. By doing so, that part of the risk is reduced to a certainty--the amount of the premium.
As amended 10 October 2002