Risk Management & Insurance
THOMAS M. JOHNSON, UNIVERSITY PRESS OF NEW ENGLAND
University press policies and practices vary a good deal with respect to insurance and risk management. The primary determinants appear to be size as measured by annual sales and form of ownership, that is, whether or not a press is a department of a public or private institution, or is organized as an independent entity. Presses that operate independently of their universities will probably need to pay much closer attention to risk management issues than those that are well integrated into their parent institutions.
Because individual circumstances vary, this paper cannot prescribe proper or ideal coverage. Instead it is intended to provide (1) an overview of risk management and (2) a checklist of specific areas where a press might be at risk, with a discussion of appropriate insurance coverage.
Risk management is much more than simply selecting the right insurance policy, and indeed insurance is only one financing alternative in the process of managing the hazards of doing business. The first step is to eliminate or at least reduce risk. For example, it makes sense to construct safe buildings and to follow sound operating procedures in the workplace in order to reduce the risk of accidents. Similarly it pays to be careful when storing important papers, such as contracts, or book negatives. Electronic data should be kept in a safe place, secure from physical damage, as well as from theft or tampering (off-site storage of backup tapes is a wise practice).
The second step is to prepare as much as possible for the unavoidable. Enterprises routinely assume certain kinds of risks as part of normal operations. Expensing minor building repairs, adding a contingency amount to a budget, and maintaining an inventory write-down reserve are examples of this tactic. Every business expects to encounter these small and often frequent "losses" and, accordingly, charges their cost to normal operations.
The third step for organizations is to self-insure against certain kinds of risk. That can often be done for less than the actual cost of insurance. In this case the organization maintains a reserve account in order to have adequate funds on hand to meet particular needs. A good example of this would be the funding of an insurance reserve to cover deductible amounts on various insurance policies.
Finally, businesses, including university presses, will try to transfer risk to other parties. This tactic includes organizing the enterprise as a corporation to limit the owners' liability, adding a "hold harmless" clause to contracts, and, of course, purchasing insurance.
Individual insurance policies vary, so a careful comparison of the offerings of different companies is important. The following is a summary of the types of insurance coverages that university presses typically carry.
General Liability. Comprehensive General Liability (CGL) is the most common type of business insurance. CGL covers liabilities, and so pays nothing to a press; instead it pays third parties for injuries and property damage caused by the press. It defends the press against suits/claims for bodily injury or property damage and makes settlement awards. It typically covers the press's premises, products, operations, and arrangements with independent contractors. Note that certain special categories of risk (e.g., contractual liability and personal injury) are sometimes excluded from CGL policies, and special endorsement or separate coverage may be needed.
Directors and Officers. This is a kind of professional liability insurance that covers negligence on the part of an organization's director and officers. It is often packaged with general liability insurance. Individual employees who serve as directors of outside organizations should understand the risks involved as well as if and by whom they are insured against those risks.
Property and Equipment. A press's property and equipment are at risk from a variety of threats: fire, crime (theft and vandalism), and natural disasters. Often it is necessary to purchase separate coverage for real property and attached fixtures on the one hand, and the building's contents (movable supplies and equipment) on the other. Be sure that leased property and equipment, as well as what the press actually owns, is adequately protected. In most cases, employees' personal property will not be covered by the press's policy, and they should be reminded of this. Be clear on what items of equipment must be scheduled (i.e., listed for your carrier), and be sure valuations are appropriate.
Inventory Insurance. This is a special category of contents that may require separate coverage. As noted above, be careful how goods are valued. Consider valuing the press's inventory at replacement cost rather than the unit cost of manufacture, which may be a good deal higher. Also, if a large quantity of stock is stored away from the press's main facility, such as in an overseas warehouse or with a consignment customer, be sure it is adequately covered. Similarly, materials such as paper stock and work-in-process inventory should be included in coverage.
Business Interruption. If a press were to have a fire at its warehouse/order-processing facility, the chances are good that it would have coverage for the building and its contents. But even if everything could be replaced, it might be weeks or months before the press was back in business and actually selling books again. In the meantime it could lose thousands of dollars worth of sales if there were no stock to fill that critical text order or supply trade jobbers after a terrific book review. Business interruption insurance pays the insured the same profit it would have earned if the interruption had not occurred. Continuing expenses of the business are also paid.
Presses contracting with an outside company for storage and fulfillment services may be at greater risk in this area than those that can exert day-to-day control and minimize risk factors themselves.
Publisher's Liability. This type of insurance, unlike those above, is peculiar to our business. Here the risk is that a press will be sued for defamation, intellectual property torts, errors, and omissions.
In addition to the six types of insurance discussed above, a press should regularly examine its exposure and coverage in the various statutory and quasi-statutory areas, such as automobile, worker's compensation, health, etc.
University Press Insurance Coverage, Claims History, and Insurance Cost
In a 1991 survey of university presses, it was found that 66% of presses carry general liability insurance; the rest are self-insured. Only one-third actually pay a premium. The rest have this expense (premium to the carrier or money allocated to insurance reserves) picked up by their parent universities. Only 7% of respondents reported filing any claims.
Nearly one-third of university presses have special directors and officers coverage, and another third have it included in their general liability policy. About one-fifth of presses reporting are actually charged for this. No claims were reported.
Inventory coverage is the most common type of insurance among university presses: 64% take out special coverage for their stock; another 16% have inventory coverage attached to their general liability policies. Only one-half have the premium charged to the press. This type of insurance is the most likely to generate a claim: 14% of the respondents reported filing claims. The claims reported in the survey ranged from several thousands of dollars to several hundreds of thousands of dollars for inventory lost due to water or fire damage.
In the university press environment, the area most likely to see a claim, in addition to inventory, is general liability. Both categories have fairly modest premiums, probably because there are many carriers writing these kinds of policies. The cost of directors and officers coverage is also relatively low, especially when purchased along with general liability.
Just over one-half of university presses have publisher's liability coverage, and most of these have it included in their general liability policies. One-quarter incur a departmental expense. No claims were reported.
Publisher's liability insurance is extremely expensive, especially when you consider that the risk of a claim would seem to be almost nonexistent in the university press publishing world. One source I consulted suggested that this premium is so high because relatively few companies offer it. It also appears that university presses may be thrown into the same risk pool as trade houses or student newspapers, which naturally increases the likelihood that claims will be filed and that the dollar amount of those claims will be high.
The most important rule in purchasing insurance, not surprisingly, is to shop around for the best rates and coverage. This can really pay off, especially if the press has a favorable loss record. Package policies, wherein the carrier bundles different kinds of coverage, can also result in lower premiums.
When studying each type of risk/insurance need, a press should consider the policy limits and the value of what it is insuring. If protection from a major catastrophe is a primary concern, then it should opt for a high deductible. Co-insurance plans can also help control premiums.
If you are making, or guiding, decisions for the press, read the fine print, or have someone you trust summarize important points. Understand what losses are included and which are excluded from each policy. Know whether or not the carrier can control a settlement. A press might want to vigorously fight a libel action, but the insurance company may have the right to settle against its wishes. Individual presses may want to have allied organizations added to specific policies as "named insured."
Within academe, university presses are very different operations from academic departments or from performing arts centers or athletic departments, and, consequently, they have some unique operations, and they assume special risks and have special insurance needs. The responsible person at every press should review risks and coverage at last once a year and meet with the university risk management officer or insurance agent to be sure that he or she understands the press's business and the consequences of a loss.
A press should use all the risk management techniques available: risk reduction, assumption of minor risks as part of normal operations, self-insurance, and transfer of risk. Insurance should be treated as just one part of a comprehensive strategy to manage risk.
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Pfaffle, A. E. Fundamentals of Risk Management. New York: AMACOM, 1976.