STATE EXPERIENCES IN STATE-OPERATED SCHOOL AND INSURANCE PROGRAMS*

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IVE STATES-Alabama, North Carolina, North Dakota, South Carolina, and Wisconsin-have State-operated insurance programs that include public elementary and secondary schools. Three of these-Alabama, North Dakota, and South Carolina-did not report data on any commercial coverage on the public elementary and secondary schools and are not included in the tabulations in section II. The North Carolina data on commercial (stock and mutual) coverage were not broken down by classes and are reported only in the totals columns in the tables in section II. Wisconsin data for commercial coverage are shown in section II.

This section provides summaries of each of the five State-operated property insurance programs that apply to public elementary and secondary school plants. These summary reports cover only the State insurance programs where the owners or managers of the insured public properties make regular premium payments to a State insurance fund set up for the purpose of indemnifying for fund insured losses. This study does not apply to any program of financing loss replacements of State-owned school buildings, usually State colleges or universities, from State appropriated reserves or by State assumption of the loss risk with reserves.

The data in this section are not easily compared with the costs and losses in section II which cover both public and nonpublic schools. The data in this section cover only publicly owned property, but in four of the State operated programs may include coverage on schools and various other types of local or State owned structures. The North Carolina program described here is designed only for public elementary and secondary schools. Because of variations in coverage or in the administrative pattern the State programs are not easily compared one with another.

As indicated previously, only one State operated program, that of North Carolina, is limited to public elementary and secondary schools. The other State operated programs reported here do include public school properties. In various instances the data on premium costs, losses, loss ratios, adjustments, and administrative costs for schools

*The following sections have been printed exactly as approved by the five States involved, except in those instances where changes in style were required to conform with the United States Government Printing Office Style Manual.

could not be easily segregated from data for other coverages in the State programs. However, since school insurance is included in these State programs, it seemed desirable to summarize each State program. Where feasible, available school insurance data were reported separately and were so indicated.

The data included in these State operated program summaries were developed from State laws, annual and other reports prepared by the State program directors, and by conferences with the directors of the State programs. In some States follow-up conferences were necessary. The summary for each State was returned to the State director one or more times for his corrections and the final summary for each State was returned to the State director for approval (and was approved by him) before being published.

The five summaries are offered as analytical and historical reviews of the State operated insurance programs now being carried on in these five States. Since these summaries were not intended to be either complimentary or critical of any State program, no attempt was made to provide editorial evaluations or to point out the good and bad features of any State program. The directors of each State program understood this approach, and although each director proofed and corrected data, not one suggested any revisions that would have changed this approach.

These State programs are not identical for all of the States. As indicated, the State insurance programs in four of the States include other public buildings as well as public schools and one State includes only public elementary and secondary schools as is shown in the summaries. However, this study relates primarily to school building insurance and the term "State school building insurance" is used in the titles of the summaries. While most of the summaries cover total State programs, the school insurance data were segregated and given special attention where possible. To the extent feasible the summary data for each State were grouped into a common pattern to facilitate comparing the different programs.

The following pages provide analytical summaries of the five State operated insurance programs that affect public elementary and secondary schools.

THE ALABAMA STATE INSURANCE FUND INCLUDING STATE SCHOOL BUILDING INSURANCE 1

The Alabama State insurance program covering public elementary and secondary schools is a part of an overall State Insurance Fund program covering public-owned properties of all types scattered throughout the State. Since other properties are covered under the State insurance program and since certain costs have not been pro

This report is intended to be a factual analysis, neither complimentary nor critical, of factors in the State program that apply to public school property insurance.

rated by class of buildings, it is difficult to provide exact cost and loss ratios on school building insurance.

HISTORY

The Alabama State Insurance Fund.-The Insurance Fund was established in 1923, and the authorizing law was amended in 1949. As amended, it authorizes insurance against loss by fire, lightning, windstorm, and hail of all buildings owned by the State or its agencies, or financed by the State, and all school buildings and contents.

Nature of the Alabama State Insurance Fund program.-The State Fund program is in effect a self-supporting State insurance company program which is defined by law and State supervised, but for which the State accepts no financial responsibility except through the availability of a State $100,000 appropriation to serve as an emergency fund-which is after the earned surplus has been exhausted.

In 1952-53 the State Fund insured 6,857 publicly owned buildings, including administrative, capitol, armories, eleemosynary, correction, State college and university, and prison; and also including about 3,493 county and 87 city elementary or secondary school buildings. The total value of all of the classes of property protected was $209,270,000. The total fire coverage was $156,946,000 and the total windstorm coverage $152,212,000.

Growth of the Insurance Fund.-The Insurance Fund has grown steadily throughout the life of the program. However, the reserves and the coverages have increased rapidly since about 1946. Data are not available to show how much these increases were the result of increasing property values and how much for new coverage.

ADMINISTRATION

The State insurance fund is handled as one division of the Department of Finance. The manager of the State insurance fund, Mr. James H. Horn, has five field inspectors and an overall staff of 10 including the manager. These employees are under the Alabama merit or classified personnel service system. Operating expenses, limited by law to 4 percent of the premiums, were for the 1953 fiscal year (closing September 30) about $53,000, or less than 4 percent of the premiums. Expenses cover salaries, travel, equipment, and incidentals, and by legislative appropriation are taken from premium payment incomes. The fund director makes an official annual report and in addition makes frequent progress reports to the director of finance. Building appraisals.-The State insurance fund, acting for the Department of Finance, is required to establish appraisal values for all buildings covered. A 1949 fund revision law makes it mandatory for the local school officials to certify the property description and location of buildings and contents to be covered and no policies are to be written. until the certification has been filed or until the director has waived.

this requirement. The fund officials also use the State Department of Education and the State Building Commission data on construction costs as needed in checking building values. In case the director and the owners do not agree on building value it is possible to appoint a third person as arbitrator.

Inspections and Field Service.-Buildings insured are inspected annually, or more often as is necessary, and an inspection report is prepared for each property which provides an analysis of the building structure, use and occupancy, housekeeping conditions, and hazards which might affect fire safety or safety to life. Copies of the report on school buildings are filed with the owners and with the State department of education.

The fund field inspectors cover about 2,000 inspections a year each. This provides frequent check-up service. Detailed inspections of 7 or 8 buildings a working day are not generally feasible; hence, many of these inspections must necessarily be re-checks of conditions found. These men provide guidance service on school fire safety. (Evidence was not available to indicate the relationship between field inspector instruction on fire safety and State department of education leadership in this area.) The field staff men have been appointed deputy State fire marshals and delegated authority to condemn hazardous schools. Fund officials often advise on fire safety factors in building plans and encourage better construction and the development of better protection services.

COVERAGE

As indicated, the fund wrote $156,946,556 fire and $152,212,436 windstorm coverage in 1952-53 on 6,857 buildings and their contents with an estimated value of $209,270,266. This coverage was divided as follows:

State insurance fund coverage on schools is not 100 percent since some of the cities write their coverage with stock and/or mutual companies. State insurance fund officials indicate that there has been some shift from commercial to State coverage on school buildings.

Risk Coverage Policies-Risks covered by the fund shall be insured for not less than 75 percent of value. Value is used here as present worth or replacement cost less depreciation. School property other than rural school properties may, at the option of the director, be insured up to 100 percent of value. Coverage is compulsory, except for separate city-owned school properties specifically exempted, and some of these have voluntarily purchased the fund coverage. There was an increase of 46 city buildings so covered last year. In practice these building values are established as current or sound values which are computed as current replacement costs less accumulated depreciation.

Policies are of the specific schedule type. Each policy is for 1 year, the fiscal year expiring September 30. Reinsurance coverages are for 1 year, renewable 5-year contracts with 5-year term reductions. Coverages on part years are on a time prorata basis. All premiums are due at the beginning of the fiscal year, October 1. By arrangement short term credit may be extended where justifiable. If a school fails to pay, arrangements can be made to deduct premium payment amounts from State moneys due the district. Coverage is for protection against loss by fire, lightning, hail, or windstorm. Some consideration is being given to the legal changes needed to permit writing extended coverage. Coinsurance contracts are written on both fund retained and reinsured coverage when rate conditions make it profitable to do so. On fund coverage coinsured, the coinsurance rate is used to compute the premium and the usual 40 percent premium reduction is applied in the same way as for fund coverage without coinsurance.

RATES AND RATING

School buildings are classified according to location, types, protection, etc., to facilitate risk rating. For instance, a fire-resistive building may have one base rate in a location having ample fire protection but might have a much higher base rate in an area with less protection. Non-fire-resistive buildings have higher rates, and in each case rate penalties and/or credits may be used to indicate the hazard conditions in a particular risk. "Fund" officials indicate that with frequent inspections and detailed reports to the owners the class rating is effective. The insurance fund law requires that the Alabama Inspection and Rating Bureau (a franchised nongovernmental agency) rating scale be applied to all publicly owned buildings. The rating bureau assesses the rate applicable to the schedule of reinsured buildings, and the