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Texas School Insurance Facts - August

Market Volatility – Severity and Frequency


By now, most of you have experienced the volatility in this year’s insurance markets – double-digit rate increases, higher deductibles, and insurers leaving Texas.

What’s going on and what can schools do about it?

While many factors can create market volatility, currently we are being impacted by the losses from hail storms and tornado damage across central and north Texas. While Texas is no stranger to hail or tornados, the exception has been not only the severity but also the frequency of the storms causing major claims over the past few years. These losses are the cause of current market hardening.

While we can’t control the weather, we can ensure that we minimize district exposure in a volatile market. Here are a few points to consider:

  • Property Deductibles – Many schools who have enjoyed low per-occurrence property deductibles for years, are now faced with percentage deductible options to minimize premium increases. However, percentage
    deductibles can create millions of dollars in exposure in the event of a major claim. The deductible
    exposure cost should be weighed as carefully as the premium cost as both are the main components of the total coverage cost.
  • Reduced Coverage – Major losses often compel insurers to reduce their exposure by limiting coverage. Items such as Outdoor Property maybe subjected to sublimits, and other critical coverage components such as Extra Expense and Ordinance and Law limits may be reduced or eliminated. Don’t assume coverages will be the same as prior years. It pays to read through all lines of coverage to ensure you know your financial exposure in the event of future claims.
  • Rate Increases – It almost goes without saying that significant regional losses will result in increased property coverage rates for your district – even if you have no losses. Make sure you include the potential for rate
    increases in your budget.

Schools have to deal with volatile markets for many of their operational needs. Insurance is no different. The key is a long-term strategy to ensure product availability at predictable costs.

While market volatility is a given, working with your insurance broker to better understand the school’s financial exposure (total cost of coverage) and developing strategies to mitigate fund balance exposure will help you make the best purchase decisions to protect your school and achieve the lowest long-term costs.