Declining Enrollment Brings Risk Business to Higher Ed

By Bret Murray

Significant demographic changes to college enrollment projected over the next decade mean colleges and universities need to find new ways to drive down costs as they reconfigure their approach to attracting students and generating new revenue. Drawing students from the traditional, now-dwindling applicant pool who are not keen on loading up on loan debt is one of higher education’s growing challenges.

Enterprise risk management (ERM) is a process designed to identify potential events that may harm a business and minimize their potential effects by planning for them. ERM techniques should be an integral part of an institution’s plan to ensure budgets remain in line, giving colleges and universities the financial security needed to navigate this new strategy.

The changing demographic landscape

College and university budgets face a triple threat of declining enrollment, older students and an unwillingness to accept perpetually rising tuition. For the sixth year in a row, 2018 saw a decline in the number of undergraduate enrollments in the U.S. In a recent Boston Globe review, 20% of the 118 four-year, private colleges in New England have seen their enrollment drop by at least 10% over the past 20 years. That trend isn’t likely to change if institutions continue to follow the traditional high-school-to-college playbook because the number of new high school graduates is declining and the average age of students is rising.

Statisticians widely agree that the number of high school graduates will remain relatively flat and then drop significantly by 2025, due to lower birthrates sparked by the 2008 recession and millennials starting smaller families later in life. Fewer traditional high school grads means fewer traditional college enrollments. Further, according to the most recent analysis from The Hamilton Project, almost half of all students at for-profit schools and one in five at four-year schools are over the age of 30.

Finally, price matters. Tuition has steadily risen at a rate greater than the average cost of living for decades, and the resources of the middle class have not kept up. Fewer students can afford full tuition; loan debt horror stories abound.

Ways to buffer costs

Higher education institutions, first and foremost, need to adapt and innovate to address the shifting demographics and generational changes. Many have done so by offering or increasing the number online programs that allow students flexibility and tuition savings. Some have taken advantage of better marketing techniques, especially social media, to extend their outreach to new bases of prospective students. Others have expanded the number of articulation agreements they pursue with community colleges to fill empty seats.

In addition to finding ways to combat the downward enrollment trends and balance ever-tightening budgets, ERM is another financial tool to drive down costs, ensure financial stability and protect educational quality.

Partnering with a broker who specializes in higher education insurance can help administrators reduce financial exposures through aggressive claims management, regular benefits analysis and risk mitigation through customized modeling assessments. A good client-broker relationship goes beyond simply placing insurance for a client; it also involves the client taking full advantage of the consultation resources a broker has to offer.

Aggressive claims management can lead to substantial savings for higher educational institutions—both at the individual claims level and in the aggregate. This is especially true for institutions that have a self-insured workers’ compensation program with a third-party administrator (TPA). By adding an extra set of eyes and leveraging their substantial claim-management expertise, a higher education broker can significantly affect overall claim payments and outcomes.

For example, one college was paying over $1 million per year in workers’ compensation claims. The broker recommended that the institution’s risk management department conduct quarterly claims review meetings with the TPA, excess insurer and its environment, health and safety and human resources departments. During these quarterly meetings, the broker would challenge medical treatment plans by the TPA or provider, recommend claim settlements where appropriate, and ensure the TPA was following industry best practices and the institution’s client service instructions. After a year of holding these quarterly reviews with the broker and following up between meetings, the college was able to see its claim payments drop to $850,000 and then to $800,000 the year after. Ultimately, this resulted in substantial, cumulative expense savings, funds that can be redirected back into its operating budget.

Conducting regular employee and student benefit assessments is also sound fiduciary practice. New insurance products and insurers are constantly entering this marketplace, and it is important for brokers to keep their higher education clients updated and provided with alternative quotes.

In one instance, an institution’s current broker did not put its life and disability policy out to bid and came back with a 9% renewal increase over its existing premium. This institution, obviously not happy with the result, reached out to a second broker who completed a full market review of the program and was able to come back with a premium rate 23% less than the expiring policy, with enhanced policy conditions. Had this school’s policy not been put out to bid, it would be paying 32% more for less coverage.

Not only can alternatives lead to overall benefit plan cost savings, but also better terms and conditions. When an institution is able to offer more competitive benefit plans, it increases its ability to both attract and retain good talent.

Risk-modeling assessments are an integral tool to assess the various risks and exposures that affect higher education institutions. Such assessments are a critical component of an institution’s financial decision-making process for any meaningful project or critical operation. When an institution engages a broker to perform a risk modelling analysis, it can more accurately quantify the associated risks and make informed decisions about physical risk mitigation efforts, in addition to that project’s overall insurance needs. With natural and human-made disasters on the rise, understanding and mitigating risk exposures helps prevent significant financial and business-interruption losses.

While project costs may increase to mitigate the report’s identified risk exposures, the effective long-term risk management results in savings from lower premiums, fewer disruptions and costly building improvements that would otherwise be needed post-event and over time more than validates the value of this investment.

Colleges and universities face enormous challenges in the future. The golden days of reliable enrollments from the usual places and steadily rising tuition rates are over. Institutions need to find ways to buffer costs by implementing smarter, comprehensive ERM practices. Establishing a partnership with an experienced higher education broker to create a comprehensive ERM program can reap rewards over time and help offset these intensifying headwinds.

Bret Murray is higher education practice leader at Risk Strategies.



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