RISK MANAGEMENT DEFINITION

Risk management is the acceptance of responsibility for recognizing, identifying, and controlling the exposures to loss or injury which are created by the activities of the University. By contrast, insurance management involves responsibility for only those risks which are actually insured against.

Some definitions are in order:

Risk is uncertainty of loss.

Peril is a source of loss (fire, windstorm, embezzlement, etc.).

Hazard is a condition which increases the likelihood of loss (e.g., a known embezzler hired as an accountant).

With these definitions in mind, we can discuss the principles of risk management as they apply to the University. However, because of the diversification within the University, it is impossible to make one statement which will fit all situations equally. For instance, some departments are involved exclusively with education, others with research or patient care, and in some cases, with a combination of many operations and functions.

PURPOSE

All departments are exposed to the perils of fire, theft, earthquake, burglary, work-incurred accidents, and liability for injury to the public. Some of these departments also have exposures involving possible loss of valuable papers and records, accounts receivables, loss of income and extra expenses to continue operations.

Therefore, an intelligent approach to risk management and insurance is necessary. Insurance is not purchased out of desire, but out of necessity. It isn't a commodity which is enjoyed or displayed or sought after by its owner. It is like headache tablets or spare tires; i.e., bought with the hope that they will never have to be used. Insurance should be the last line of defense and available after all other safeguards have failed.

Departments should not leave these things to chance, but follow good judgment and established procedures to control the risks and their costs.

The purpose of the following guidelines is to provide at least the basic pattern for managers to follow in managing the University's risks.

A PLAN FOR ACTION

A function of risk management is to organize and carry out a plan to control or reduce the risks to which the University is exposed. Departments can find qualified help in the Insurance/Risk Management Department, Environmental Health & Safety Department, Police Department, Health Physics Department (Radiation Safety), Facilities Department, Employment/Employee Relations Departments, Omsbudperson and the Legal Office. With this assistance, they can follow certain procedures to control risks adequately and to obtain an objective loss prevention program. These steps are:

• Recognize and appraise the risk
• Estimate the probability of loss due to the risk.
• Select the optimum method of treating the risk.
• Implement a plan to carry out the selected method.

The main concerns of most departments are the risks to property and people. Some examples of losses include:

1. LOSS BY DESTRUCTION - Property may be destroyed by fire, earthquake, flood, wind, breakage, or deterioration.
2. LOSS BY CONFISCATION - Property may be confiscated by an act of crime such as theft, embezzlement, robbery, burglary, forgery, and conversion.
3. LOSS OF USE - When property is destroyed or confiscated, the loss is often increased because of the indirect loss, e.g., loss of income, interruption of activities and extra expenses to continue operations. Much greater than the loss to physical property, is the loss of records and data which are vital to the operation of the University.
4. LOSS BY NEGLIGENCE - Liability claims are incurred when persons are injured or property of others is damaged or destroyed due to negligence.
5. LOSS OF EMPLOYEE/STUDENTS GOODWILL - Discrimination, sexual harassment, libel, slander, bad faith and unfair dealings will create liability situations and poor employee/student and public relations issues.

METHODS FOR TREATING RISK

There are established and tested techniques by which risks may be controlled. 1) AVOIDING RISK - A risk may be avoided by not accepting or entering into the event which has hazards. This method has severe limitations because such a choice is not always possible, or if possible, it may require giving up some important advantages. Nevertheless, in some situations risk avoidance is both possible and desirable. 2) SPREADING RISK - It is possible to spread the risk of loss to property and persons. Duplication of records and documents and, then, storing the duplicate copies elsewhere is an example of spreading the risk. A small fire in a single room can destroy the entire records of a department's operations. Placing people in a large number of buildings instead of a single facility will help spread the risk of potential loss of life or injury. 3) LOSS PREVENTION OR REDUCTION OF RISK - "An ounce of prevention is worth a pound of cure," according to an old saying. Today, this statement provides the guide for the control of risk. Risk may be reduced, eliminated, or certainly controlled by using a well-planned loss prevention program. These are some of the points a department should consider in its efforts to reduce loss: A. Utilize the services of the Insurance/Risk Management Department, Environmental Health & Safety Department, Police Department, Health Physics Department, Facilities Department, Employment/Employee Relations, Legal Office, Ombudsperson, HELP Center, and the Health Improvement Programs. B. Establish a system of accountability. Identify the causes and costs of losses and claims; study trends and patterns of repetitive accidents; form a safety or review committee to study incidents in order to better understand and control risks; include loss control as one of the more important goals and objectives of departments. C. Secure protection of money and records by preventing access to your accounts or computer systems, protect and safeguard codes and personal identification numbers, use high quality safes, vaults, and filing cabinets. When facilities are available for the storage of money or valuable equipment, access should be limited to as few people as possible. Cash handling procedures are reviewed by our internal auditors. Any large amounts of cash or checks must be deposited with the Cashier. Safe-keeping arrangements should be made for any other valuable equipment or materials. Change locks, and combination numbers when necessary to protect the integrity of access to secured areas. D. When selecting a site for storing valuable property, a number of items should be reviewed to reduce the possibility of loss. They include: (1) High water level - Avoid basements and areas where flood history exists. (2) Heating system - Steam can be more damaging than water. (3) Construction of building - Safeguards and loss preventive systems built into the facility at time of construction (fire sprinkler system, security alarms, etc.) (4) Exposure - Surrounding area should be checked for hazardous exposures such as storage of flammable materials and chemicals. E. Housekeeping - Preventive Maintenance and good housekeeping procedures include, but are not limited to: (1) Educating and training staff in maintaining good housekeeping habits. (2) Arranging for preventive maintenance of equipment, tools, and building. 3) Controlling neatness and traffic flow patterns internally. F. Establish a safety program. There are basically two approaches to accident prevention: (1) Engineering risks, and (2) Personnel administration or human relations. The Engineering approach emphasizes mechanical causes of accidents, such as defective wiring, improper disposal of waste products and unguarded machinery. Safety engineering is an essential part of any accident prevention and loss reduction program. Yet, many times neglect, work attitudes, poor judgment or just plain carelessness by employees are the major causes of personal injuries and property damage. An effective program of education, training, and performance evaluation will aid in responding to the human element of accident prevention. Worker's compensation, disability and health insurance programs act as a cushion to the financial loss that may result from an accident to employees. There is, however, no way to truly compensate for the pain, suffering, dismemberment, and lost earnings or disfigurement and lost earnings that may result. Looking for ways to prevent injuries is the key. 4) RETENTION, ASSUMPTION OR ACCEPTANCE OF RISK - These methods are of particular interest to an operation as large as the University. Constant vigilance is needed to avoid accepting risks unintentionally through unawareness of the exposure. Some risks have to be retained because insurance cannot be purchased or the cost of insurance is not economically sound. Therefore, some risks should be retained, assumed, or accepted. Examples of these types of risks would be: earthquake, war, flood, accidental breakage, wear and tear etc. The importance and economic value of risk are reviewed in relationship to the size of the operation, the probability and severity of loss. Before accepting a risk, consideration is first given to the potential amount of the loss and the effect the loss may have on the operations of the University. 5) TRANSFER OF RISK TO INSURANCE CARRIERS OR OTHERS - Risk may be transferred contractually to others. For example, when leasing facilities from others, the lease could require the lessor to assume all property and liability losses. Contracts to be entered into by the University must be reviewed by the appropriate University offices, e.g., procurement, sponsored projects, Legal and/or Risk Management. Only named individuals, approved by the Board of Trustees or delegated by a senior officer, may sign contracts or obligate the University under any written agreement. Many risks can and should be transferred to an insurance company. By doing so, that part of the risk is reduced to a certainty; i.e., the amount of the premium and deductible. The purchase of insurance is a tool that is used to help solve problems. However, the Director of Insurance/Risk Management recommends insurance only as a last method to solve a problem, not the first.

Specific Policies Governing the Insurance/Risk Management Programs

The University is exposed to various risks which may be insured or not insured. Also, certain risks may be avoided, reduced, spread, or prevented. Recognizing the need and responsibility to preserve the University's resources, the following policy and guidelines have been prepared for the managing of insurance and risks:

1. We will achieve and maintain a lower cost of risk (both insurance and self-insurance) as compared with sister schools without placing Stanford in a position of risk exposure which could have a significant impact on its financial security and academic/research mission.
2. All risks of loss and need for insurance are to be evaluated from both a single department and entire campus viewpoint.
3. Conditions and practices which may cause loss are to be eliminated or modified whenever possible.
4. Risks are to be assumed or self-insured whenever the amount of potential loss would not significantly affect the University's financial position.

   In determining what constitutes a significant loss, we shall use as a guideline a limit of $5,000,000 in any single occurrence of $20,000,000 in the aggregate for any one year where there is a probability of multiple occurrences of the same type of loss.

   Exceptions to this guideline may be made:

   a. when insurance is required by law or contractual agreement;

   b. when it is desirable to buy special services, such as legal defense, claims handling, adjusters, engineering, or similar services as a part of or separate from an insurance contract;

   c. when the degree of risk, compared with the cost of insurance dictates the economic feasibility of purchasing insurance coverage.

5. Risks are to be insured whenever the amount of potential loss would be significant, i.e., when loss is greater than $5,000,000 per claim or $20,000,000 in total per year.

   Exceptions may be made:

   a. when insurance is not available at any cost;

   b. when cost of insurance, compared with the risk, indicates purchase of insurance is not financially sound; or,

   c. the risk has been analyzed and study concludes that it should not be insured.

Insurance/Risk Management has the Authority and Responsibility For:

a. preparing an Annual Report for the Board of Trustees and auditors;

b. developing and implementing risk management/risk identification, measurement, evaluation, and claims control programs;

c. recommending those risks which are to be insured and which are to be self-insured or assumed, establishing types and amount or limits of coverage to protect the University's resources;

d. selecting risk funding alternatives;

e. recommending level of funding for self-insurance reserves;

f. purchasing and administering all University insurance and self- insurance plans relating to property, casualty, workers compensation, crime, boilers, machinery, bonds, builder's risk, overseas programs, athletic programs, travel accident, etc.;

g. coordinating efforts with Personnel Services Department for the administration and purchase of employee benefits insurance programs;

h. recommending selection of insurance sources (agents, brokers, adjusters, claims administrators, actuaries and insurance companies, etc.);

i. working with the Legal Office, insurance companies and others in negotiating, adjusting and settling all insured or self-insured losses;

j. maintaining insurance and accounting records.

What Insurance or Self-Insurance Programs Does the University Provide?

1. Buildings and Contents - Insurance covers fire, smoke, windstorm, explosion, riot, civil commotion, vandalism, malicious mischief, falling aircraft, and theft. There is a $1,500,000 deductible per occurrence ($25,000 on buildings and contents at the Medical Center and the Shopping Center); however, each department pays only for the first $1,000 of each loss.
2. Liability - Insurance covers all locations and activities including University and government-owned vehicles. For personal vehicles used on University business, Stanford's liability insurance covers excess of the insurance provided by a faculty or staff member's automobile liability insurance (however, an individual must carry at least the State minimum financial responsibility limits). Liability insurance also covers non-owned aircraft, watercraft, professional liability, employers' liability, products liability, etc. University officers, faculty, and staff are included as additional insureds for activities arising out of and in the scope of their employment. The first $2,000,000 of each claim is self-insured by the University (maximum self-insurance limit is $5,000,000 per year). The department pays the first $1,000 of each loss.
3. Workers' Compensation - Covers medical expenses, vocational rehabilitation and disability as required by law. The University's claims are administered by a third party claims management company.
4. Blanket Crime - Insurance covers loss to monies and securities due to robbery, burglary, theft, or employee dishonesty. There is a $500,000 deductible per occurrence; the first $1,000 of which is charged to departments.
5. Boilers, pressure vessels, and heavy machinery - Insurance covers explosion, burning, bulging, and cracking of insured objects; most machinery is covered for sudden and accidental breakdown. There is a $25,000 deductible per occurrence, the full amount of which is charged to Operations and Maintenance or the department if it is income-producing.
6. Physical damage to University-owned vehicles and rented vehicles Stanford self-insures for physical damage. The department is responsible for the first $1,000. When renting vehicles, do not buy the rental agency's insurance applicable to the collision and physical damage deductible "buy back" provision. Normally, for an additional cost, drivers can eliminate the renter's deductible; however, Stanford chooses to self-insure this risk. In these cases, the full deductible is paid by the University and is not charged to the department.
7. Miscellaneous - Miscellaneous bonds are arranged through the Insurance/Risk Management Office.
8. Business Travel Accident - A separate paper describing this plan is available from the Insurance/Risk Management Office; also, consult the Administrative Guide.
9. Employee Benefits - Health, Life, Retirement, Short Term and Long Term Disability, Unemployment Compensation, etc. Questions concerning these plans should be referred to the Benefits Office.

Who Pays for the Insurance?

Revenue-producing units are recharged for their insurance coverage on a prorated basis. General Fund supported units are covered through a separate General Fund account. Costs of special insurance coverages are billed to the account of departments requesting such insurance.

How May Special Insurance Coverages be Procured:

Any department having special risks that it feels should be insured should discuss their concerns with the Insurance/Risk Management Office. If insurance does appear to be the best way of managing a risk, the Insurance/Risk Management Office will negotiate the policy with the insurance carrier and then bill the cost to the requesting department.

What Should be Done in the Event of an Accident?

All claims must be reported promptly. Take whatever steps are immediately necessary to render emergency medical care, salvage property, or reduce the further extent of the loss. If possible, do not disturb the evidence or hazard which caused the claim until the area can be inspected, pictures taken, and conditions recorded. Obtain the names and addresses of parties involved, witnesses, etc. Under no circumstances should one admit liability; to do so could jeopardize the insurance coverage. We should rely upon the insurance company and/or attorneys representing Stanford to respond to claims of others. As soon as possible, record the details of the accident while it is still fresh in your mind. Your report should include: date, time, place, who or what was involved, witnesses (if any), how it happened, names, addresses, and estimated ages of persons involved; description of injury, loss or damage; and action that was or will be taken to prevent a recurrence.

How May a Claim be Processed?

FIRE - Notify the Insurance/Risk Management Office. Depending upon the size and location of the loss, Procurement Services, Hospital Engineering, Facilities and/or Facilities Project Management offices will be directly involved in the repairs or reconstruction. The preparation of specifications and a bidding process may be necessary. Copies of all contracts, work orders, and purchase requisitions must be processed through the Insurance/Risk Management Office.

THEFTS AND VANDALISM - Be sure the Police Department has been notified immediately. Only the police are authorized to conduct an investigation or take action regarding criminal acts such as theft or vandalism. Submit a Property Losses Form
(https://www.stanford.edu/dept/risk-management/docs/protected_forms/propertyloss.fb) of the theft to the Risk Management Office. All purchase requisitions for replacement must be routed through Risk Management as an FYI, please call Risk Management at 3-0042 or 3-4555. When the requisition has been completely paid by the Departmental Account, Risk Management will then prepare a Core Financial Journal reimbursing the Department for all charges above the $1,000 deductible.

DISHONESTY OF EMPLOYEES - Report losses immediately to the Police, Internal Audit Department and notify the Insurance/Risk Management Department. Indicate the circumstances of the loss, the date of loss, building and room number, and the amount of the loss. One word of caution: once a loss due to the dishonesty of an employee becomes known, the insurance company will not pay for any future losses caused by such employee; i.e., there is a duty to report claims promptly and take action to prevent or reduce further loss.

LIABILITY OR INJURY TO NON-EMPLOYEE - Upon becoming aware of an incident which might lead to a liability claim and when a claim for liability is received, immediately notify the Insurance/Risk Management Department.

AUTOMOBILE - Report the accident at once to the local police department or highway patrol. Accident information requirements are noted on the white cards, which are in the glove compartment of University and government vehicles. This information should be provided to the Insurance/Risk Management Office (NOTE: at SLAC, send the information to the Manager of Administrative Services and at Stanford Health Services, to the Environmental Health and Safety Office). These offices can also give you instructions regarding arrangements for repairs.

EMPLOYEE INJURY - Report injuries promptly. Any injury resulting in death, permanent disfigurement, dismemberment, or hospitalization expected to last more than 24 hours MUST be reported immediately to both EH&S’s 24 hour hotline at 650-725-9999 and Risk Management at 650-723-7400. In such cases, the SU17 MUST be faxed directly to both EH&S at 650-725-9218 and Risk Mgt. at 650-723-9456.

All other injuries must be reported immediately via the SU17 by faxing it to
Risk Management at 650-723-9456. Contact Risk Management for details
concerning the filing of a Workers’ Compensation claim or when additional
support or instructions are required.

Property Which is not Insured

Government-owned property and personal property of faculty, staff, and students are not insured or covered by Stanford.

Property Leased or Loaned to Stanford

(Ref: Property Management Manual 2.4 2, Incoming Loans of Equipment Operational Procedures)

The Property Management Office (PMO) must be notified of all incoming loans of equipment (other than works of art - contact the Insurance/Risk Management office) prior to their arrival. PMO will review and involve the Office of Sponsored Research (OSR), Office of Technology Licensing (OTL), Procurement and Risk Management as needed. It is important that the agreement be signed by an authorized official. The agreement must indicate the description and value of the property, specific start and end date of the loan period, the party responsible for insurance, the perils to be covered, who is responsible for transportation insurance (both coming and going), etc. Copies of such agreements must be sent to the Insurance/Risk Management Office.

Aircraft and Watercraft

If aircraft (other than scheduled airlines) or watercraft (25 H.P. or more and/or over 25 feet in length) are to be used on University business, call the Insurance/Risk Management Office as special insurance arrangements may be necessary to protect both the University and the faculty and staff.

We hope you now have a better understanding of the insurance/risk management programs; however, if you still have questions, contact Risk Management at telephone 723-4554.