Insurance 101: Butler Undergrads Write Coverage for Dogs and Pianos
Posted February 9, 2018 1:26 p.m. EST
INDIANAPOLIS — Can you trust college students with pepper spray? If they sell blankets to other students to make money, might they be contributing to a bedbug infestation in the dorms? And how many drunken teenagers are dancing on the campus pianos instead of playing Shostakovich?
These questions, at their core, are about risk. And if you want to protect yourself from risk that has financial ramifications, you probably need insurance. Which is how it came to pass that undergraduates at Butler University found themselves in the underwriting business.
Here in the university’s Davey Risk Management and Insurance Program, 13 upperclassmen are underwriting those pianos and fellow students who seek to corner the market on fleece blankies.
If you still think insurance is boring, you haven’t really thought it through. The industry is at least partly about the fascinating science of human behavior, from recklessness to neglect, and our collective efforts to behave responsibly that never end in total success.
Still, insurance companies try to train and tame us. They provide a safety net for at least some of our inevitable failures at the same time that they charge as much in premiums as they possibly can.
The industry does lack sex appeal, though.
Insurance’s obvious image problem is how professor Zach Finn came to be teaching it instead of doing it for a living. Not long ago, he assessed risk for the J.M. Smucker Co. (For the record, peanut butter poses more theoretical risk than jelly, owing to the higher likelihood of microbiological contamination and the greater risk posed by a plastic jar’s ability to fuel a warehouse fire.)
As he made his way through the industry, however, Finn discovered that it had a risk management problem of its own: There were not enough young people seeking entry-level jobs.
Eventually he found his way to Butler, where he enthusiastically took on the usual load of faculty duties, plus unusual ones like serving as the faculty adviser to the Beta Lambda chapter of the national coeducational insurance fraternity, Gamma Iota Sigma. There is no hazing, save for some actuarial math. Nor is there a lot of booze. “We did bring in the risk manager from Jim Beam to speak one year,” Finn said.
The student-run insurance company was born of a brainstorm with Michael M. Bill, the co-founder and chairman of MJ Insurance, a local firm. MJ Insurance eventually offered $250,000, in part to help the student-run company get square with its Bermuda regulators.
Yes, the student insurers get to travel there to learn more about the industry. No, it’s not a boondoggle. In fact, the trip to Bermuda is something of an inspiration once they meet their peers.
“Working in insurance and risk management is really desirable among the young people from there,” said Anna Geist, a junior who serves as treasurer and vice president of casualty underwriting for the student company.
To the students, learning by doing through an on-campus insurance entity makes intuitive sense. They may even have a competitive advantage.
“We go here,” said Josh Toly, a Butler senior who is the student company’s chief marketing officer and vice president of property underwriting. “We know the ins and outs of the buildings better than a standard insurance company would.”
The students set out to prove it as the company began operations recently. Insuring the lives of Trip, the famous Butler bulldog, and Marcus, the not-so-famous campus bomb-sniffing dog, turned out to be relatively simple. The students stay away from more complicated matters like insurance to cover biting, since any theoretical claim might create problems related to certain student privacy laws and regulations.
They also track each of the university’s dozens of Steinway pianos through a detailed spreadsheet and set premium prices in part through shopping other carriers. The complexity of underwriting the pianos comes from context, Finn said.
“In terms of the risks of specific Steinways, they’re inherent in who has it and where it is and how it’s cared for,” he said. “Is it a Steinway with an idiot frat member with a beer, or is it in a recital hall?” The students do not have carte blanche to raise piano premiums to the moon just to see how much money they can extract from university finance administrators who are keen to provide a learning experience.
“If we overinsure, we’re wasting money,” Finn said. “But if we underinsure, well, that would be the day the music died.”
All undergraduates in the business school must start a company as part of their coursework, but administrators have traditionally set certain parameters. Food service, for instance, used to be off-limits, given the risk of poisoning people. But the student-run insurance company, which provides coverage for all of the student enterprises, figured out how to cover those startups, in part by codifying the minimum amount of coverage the company requires the suppliers themselves to have.
The premiums the students charge the university are not cheaper than the coverage their company is replacing. So the students try to win on service, sniffing out risks the school might have overlooked.
Take the university’s telescope, for instance. Though the school had been insuring it for $1 million, the students discovered that the replacement cost was closer to $2 million. Moreover, the equipment could be exposed, quite literally, if the observatory’s sliding roof panel was ever open during a storm, especially if the power went out and the mechanism to close it did not work.
This had happened at least once in the past. “There would be a Ph.D. running like crazy to shut it down, and perhaps that would be the day they tripped and rolled their ankle,” Finn said. The students persuaded the university to spend $2,000 for a backup power unit for the panel.
Things don’t always go so smoothly. While taking a close look at the physical environment surrounding the rare books in the library, the students saw that drains above some of the valuable objects were leaking.
But if you’re an undergraduate and you need to work with a librarian twice or three times your age to fix what seems, to an insurance underwriter, like an urgent problem, it can be delicate.
So, did the students issue recommendations or give orders? “Both,” said Derek DeKoning, the senior who serves as the student insurance company’s chief executive. And did the librarians consider him and his colleagues to be useful or just uppity? “Probably a little bit of both,” he said.
Indeed, the librarians’ dean had a talk with Finn’s dean, and he eventually apologized for the fact that the staff felt a bit blindsided.
“They are our allies now,” Finn said. “But this is what you don’t get in a textbook: how to not freak out a librarian and then how to get him or her unfreaked out if you do.”