Insurance claims school funds. Universities find creative ways to counter rising costs

All summer long, colleges have been scrambling to keep themselves insured during the coming year. The recent increase in insurance premiums felt in industry and business also hit college campuses -- hard.

Schools across the United States report an average increase in premiums of between 300 and 800 percent for many types of insurance, including general liability; coverage for medical centers (including malpractice insurance), research laboratories, and toxic-waste disposal; and personal liability for officers and trustees (in case they are sued). It is difficult or even impossible to obtain insurance policies in some of these areas at any price, college business officers say.

Other traditionally less costly policies -- for fire loss, boiler malfunction, workmen's compensation, auto -- have also increased considerably. At Ball State University in Muncie, Ind., for example, automobile insurance has increased from $30,000 last year to $120,000 this year.

Insurance usually consumes between 0.5 and 2 percent of a college's total operating budget. This year, that figure will jump several percentage points, business officers say.

Three main factors behind the sudden increase in insurance, they say, are these:

From about 1979 to 1984 premiums were artificially low because of high competition among insurance companies. Policies were being written for ``bargain basement'' prices. Insurance companies recouped losses through high-interest-yielding investments.

About 14 months ago the insurance industry was hit with an inordinate number of major claims. At the same time, interest rates dropped. The costs were passed on to policyholders.

``We're all caught up in the same financial system,'' William O. Park of the University Risk Management and Insurance Association told the Chronicle of Higher Education, ``and when the system suffers large losses, such as the Bhopal and asbestos claims, that will affect colleges.''

Finally, the judicial system has been awarding more money in all types of cases. As a result, say insurance brokers, more cases are being filed.

Schools have several options, says Caspa Harris, business officer for Howard University in Washington.

They can hire brokers to find insurers that will cover them at a lower rate, Mr. Harris says. However, lower rates often mean much higher deductibles (the amount of a claim the insured is required to pay).

Some colleges may forgo insurance entirely, Harris says, because in many cases deductibles may actually be higher than premiums. In such cases, he says, colleges may choose to self-insure by placing money in a reserve, and then hoping they don't get hit with a major claim.

Still other colleges may band together in groups of three or more and pool resources. In effect, colleges in these newly formed ``consortia'' will insure each other. For example, it is well known (despite legal counsel to remain silent) that Princeton and ten other prominent schools with large research facilities have ``gone offshore'' to form a private insurance company in Bermuda.

Ralph Beaudoin, vice-president of the University of Santa Clara, says his school is exercising all of the above options. Because of a 1,200 percent increase in earthquake insurance, the university decided to cancel its insurance and fund a reserve instead. The university has also joined two other small California colleges to form a consortium, which ``has eased some of the burden,'' Mr. Beaudoin says.

Nonetheless, the University of Santa Clara relies on a carrier for its general liability insurance. And last year's $100 million coverage has been reduced to $50 million this year -- at three times the cost. But even when the insurance market stabilizes, he feels, ``many colleges won't be going back to the insurance companies.''