Center School, Old Lyme (Credit: CT Examiner)

Risk, Insurance, and Reopening Schools After the Pandemic

With every new disaster, comes new risks. With every new risk, comes a potential market for insurance.

“We are not going to see immediate changes to plans or products that would cover the pandemic, but over time as we learn from this, we will begin to see some products that will be offered related to pandemics,” said Sean Kevelighan, the CEO of the Insurance Information Institute.

At present, schools are not covered for financial losses caused by the pandemic or by health impacts if an outbreak were to occur at their facilities.

Schools with self-funded health insurance plans do, however, have stop gap insurance coverage which would limit the amount of claims the school would be required to pay, said Ian Neviaser, superintendent of Lyme-Old Lyme schools.

“There is the potential that schools could be liable for negligence when it comes to a pandemic if they were to reopen too early and an outbreak took place,” said Loretta Worters, the Vice President of Media Relations at Insurance Information Institute. “It would be hard to prove it was the school that was negligent, but it is possible.”

In recent years, schools have purchased insurance to cover the risk of school shootings, bullying, racial discrimination, cyber security, sexual harassment and assault and other issues never previously thought of as risks or liabilities.

“The liability for schools has been an increasing focus in risk for years now, but it’s hard to predict if there will be any liability shifts from this.” Kevelighan said.

According to the Connecticut Department of Education, the potential liability and cost to schools for reopening during the COVID-19 pandemic is not part of the decision-making for the closures, it’s about the safety of the young people.

But, that doesn’t mean that liability couldn’t be a consideration, and a covered risk, in the future.

“Schools, unlike businesses, are much more sensitive to liability,” Kevelighan said. “We will see what things surface out of this and what individual actions schools take.”

After the SARS epidemic in 2003, several insurance carriers considered offering protection, but the market was stymied by a lack of data. With so few examples, there was an insubstantial amount of frequency and severity data to price a product, Kevelighan said.

Before schools reopen

Although it is not covered by their insurance policies, many schools in Connecticut are considering decontamination cleaning before reopening in the spring or next fall.

“We are hearing from a lot of schools who are making prudent decisions in providing a safe space to keep the peace of mind for teachers, parents and students,” said Lance Malcolm, the U.S. President for Contractor Connection, a Division of Crawford & Co. “Most schools are looking for precautionary type services that include fogging the air, decontaminating HVAC systems and wiping down touch points throughout the building.”

Such services cost between 30 cents and $1 per square foot.

“Insurance carriers don’t typically cover this, but it could be a trend you see in the future for sure,” Malcolm said. “What’s going to happen next really depends on what occurs in this whole thing, how does this translate into risks for the future.”

Change will come, but not quickly

Although states like Massachusetts and New Jersey are pressuring insurers to adjust coverage during the COVID-19 pandemic, so far the carriers have been unwilling to alter set contracts with businesses and schools.

“It’s unconstitutional. The government can’t force a rewrite of a private contract,” Kevelighan said. “Insurance companies need to avoid making fast, politically-oriented decisions. Insurance is a 300-year-old industry that relied on some foundational, actuarially sound principles. It’s worked well, we can’t pivot quickly.”

But, it can pivot.

Kevelighan pointed to discussions between the business world, trade organizations and government about how they can learn from this and prepare for the future.

“These are encouraging collaborative efforts to find a forward-looking solution. It is likely some government solutions, such as a back stop or a fund, will surface as a result,” Kevelighan said.

Although the COVID-19 pandemic seems unimaginable, it is exactly the kind of catastrophe that the insurance industry needs to consider and prepare for – but not retroactively — said Kevelighan.

“Pandemics are extraordinary and especially extraordinary in the insurance world. It’s like potentially having a hurricane in every part of the world at the same time,” Kevelighan said.  “As unimaginable as it is though, it still could happen again and we need to be ready in a different way than we were this time.”