(Reuters) – After becoming Dean of the University of Illinois School of Business in 2015, Jeffrey Brown worried that politics as a virus would choke a major source of income for his school: Chinese graduates.
Jeffrey Brown, dean of Gies College of Business at the University of Illinois, poses at the school in this undated date photo. University of Illinois / L. Brian Stauffer / Handout via REUTERS NO RESALES. NO ARCHIVES. This image is provided by a third party. MANDATORY CREDIT
So Brown, along with the technical school, bought insurance worth up to $ 61 million to protect the university from such losses, including $ 36 million due to a pandemic. His worst fears came true earlier this year when the coronavirus struck.
But despite his caution, things did not go as planned.
A Reuters review of emails between school officials and insurance brokers, and interviews with people familiar with the situation show that the university may receive a payout this year to cover lower tuition fees, but it can no longer handle pandemics, visa restrictions or coverage of sanctions.
How the university, which first made headlines in late 2018 for its groundbreaking insurance coverage when the Trump administration revamped its anti-China policy, lost protection just when it needed it, is worked out here for the first time. While it is known that insurers have withdrawn from various types of coverage and prices in recent months, the account offers new insights into how quickly the market was declining.
The university opened negotiations to renew its 2017 policy, which was scheduled to expire in May 2020, as early as the fall of last year, according to emails received by Reuters via a request from the Freedom of Information Act.
The policy could have been renewed by Christmas last year, but a bureaucratic misstep necessitated a new broker, delaying the process, according to the emails and two of the sources. That means the virus struck as brokers at a Marsh & McLennan Co Inc (MMC.N.) unit that was taken over negotiated the renewal with lead insurer AXA XL through the insurance brand Lloyds of London.
As weeks go by and the virus progresses, the upgrade options are quickly limited, while costs increase. The university is now investigating a possible claim for the current year, according to the emails.
“We can hope that the outlook for insurer / reinsurer would be clearer in a year’s time,” Marsh executive Tarique Nageer wrote in an April 29 email to university officials.
A spokeswoman for the University of Illinois at Urbana – Champaign declined to comment. A Marsh spokeswoman declined to comment on behalf of the company and Nageer. AXA XL, a unit of AXA SA (AXAF.PA), and Lloyd’s of London declined to comment.
NIGHTMARE SCENARIO
About 1.1 million foreign students visited higher education institutions in the U.S. school year 2018-19 and in 2018 contributed nearly $ 45 billion to the country’s economy, according to the Institute of International Education. Click on tmsnrt.rs/30Ywem9 for an image
That ecosystem poses an existential threat because travel restrictions mean many foreign students will stay home this fall.
Brown had long worried about such a possibility. In an interview in February 2019, he told Reuters that his “nightmare scenario back in 2017 was that we would have a major flu scare that caused none of the students to show up on campus.”
About half of the graduates at Gies College of Business and 27% at the engineering school were from China and Hong Kong, university officials said.
Brown, who served as a senior economist on the White House Board of Economic Advisers under President George W. Bush, said it took him and his colleagues more than a year to find coverage because they received internal approvals. and found insurers who were willing to endorse what was then a new type of policy. The coverage costs $ 424,000 per year and spans three years.
Thinking about the cover, Brown said in a recent interview, “It was not like I had some kind of crystal ball.” But he added, “It was interesting how new it turned out.”
The policy first proved presidential when President Donald Trump’s trade war with China and anti-immigration policies heightened the spectacle of Chinese and other foreign students seeking higher education elsewhere.
Other universities, including Tufts University, Emerson College and Rhode Island School of Design, said they also considered similar coverage. The three universities said they passed it on. Tufts and Rhode Island said the cost was one concern.
“ANY UPDATES?”
By October last year, University of Illinois officials had begun exploring the possibility of renewing the policy, according to two sources and email.
However, an error in the wording of the contract meant that the university could not use the original brokers without first going through a months-long procurement process mandated by the state, the sources said. So it decided to switch to Marsh, who already had a contract with the university.
The move proved to be a turning point as it pushed the 2020 update, according to email and sources.
At the end of January, the virus became a major concern. In an email dated January 28, Tina Harlan, a risk manager at the university, asked Marsh’s Nageer for renewal options by March 1st.
A few days later, on February 11, Brown wrote to Harlan and other officials: “Any updates? I get questions from all over the place – Provost’s office, system office, faculty, media, etc. I need some answers and soon. ”
Harlan did not respond to a request for comment.
NO SUPPORT
Harlan circulated the renewal terms in an email on March 10, the day before the World Health Organization declared the coronavirus a pandemic.
The terms cost as much as $ 1.95 million to cover three years to $ 58 million in tuition losses, about 50% more expensive than the original policy. Furthermore, pandemic coverage was related to $ 20 million, down from $ 36 million previously, and the coronavirus was now excluded.
When university officials sought to clarify the terms, the choices were limited. In an email dated March 27, Nageer said AXA may need to further reduce its coverage for options that included communicable health insurance. “They apologize for this, but this is based on a number of factors, including the continuously evolving environment of coronavirus,” he wrote.
A few weeks later, Harlan reported to her colleagues that “3 out of 5 carriers on the current program no longer write coverage for political risks or communicable disease.” By April 29, that was also gone.
“Unfortunately, there is no task support in the markets in London for the elements of sanctions, visa restrictions or communal illness of the expiring policy,” Nageer wrote.
Report by Suzanne Barlyn; Edited by Paritosh Bansal and Edward Tobin
.
