A Lesson in Foresight – Risk Management and the Importance of Competent Brokers

In a move that proved to have more foresight than anyone could have ever predicted, in 2017, University of Illinois Business School Dean Jeffery Brown purchased revenue and pandemic insurance worth up to $61 million with their Chinese student body population in mind, which represents nearly one-third of their engineering program. 

Due to many clerical errors, the University was left with a policy that did not provide the appropriate coverage for the students it had, and it also expired in May 2020, at an extremely volatile period in the COVID outbreak, leaving the university exposed to risk. 

When reading about this story, one can see in hindsight the number of ways that this plan went astray:

1. Error in a contract: The policy was taken in 2017 to insure against a significant drop in revenue from Chinese students resulting from specific events –such as a trade war, visa restrictions, and even a global pandemic. It was a tailor-made policy for the University of Illinois business school, and neither the broker nor the University reviewed the fine points of the agreement. A clause included in the agreement was worded in such a way that forced them to go through a procurement process again and choose another broker.
2. Change of broker: Had they renewed with the existing broker, they could have renewed it before the spread of COVID 19 with the current terms and benefits without the substantial hike in the premium. The University appointed a new broker because the mandatory procurement process may take at least a month.
3. Late coordination from the Broker: Considering the University was provided coverage against the loss in tuition fees in light of US immigration policies tightening under the Trump administration as well as the trade war with China since 2018, the existing broker could have advised the University to renew the terms at the start of COVID -19 pandemic during the last two months in 2019 because more than 50 % of the University students were from China.
4. Delayed response from the new broker: The University only started exploring the renewal options in October 2019, and the new broker responded by March. They could have done the procurement works meanwhile and renewed with the existing broker considering this policy was created for the University by them.
5. Poor judgment from University/ Poor advice from the broker: Given that the COVID-19 was announced as a pandemic by March 10, the University could have accepted the provided terms and not negotiated further. That would have led to less coverage in the policy and higher premium amount with significantly fewer insurers.

Several measures could have been taken to ensure that this misstep could have been avoided, but all of them stem from the core root of lack of poor leadership form both the University staff and the broker managing the account, resulting in clerical errors that could have been circumvented had either party been more thorough. It was the University’s responsibility to thoroughly check the contract to ensure that it provided adequate coverage for all their students in such an event. 

Furthermore, it was also the responsibility of the brokers to ensure that the account was being handled appropriately and not to drop the ball in such a dramatic manner. As the experts in this situation, they should have had the foresight to plan for such an event and have contingencies if such mistakes are made. But by fumbling this account, they lonely served to put countless students’ academic careers in jeopardy. 

Had the University been more thorough and received proper guidance, then it would have been a better situation for both the university and the students. Let this be a lesson for all to ensure that all insurance plans are negotiated and explained to you thoroughly and professionally. 

Contact a member of Petra Insurance team today by email or phone at 800-PETRA or reach out on social media: Facebook, Instagram, Twitter and LinkedIn.