What is TABS Insurance program?
TABS has formed TABS Insurance, Inc.—and received a license from the North Carolina Department of Insurance in 2016 to offer a tuition protection program to our U.S. member and subscribing schools, with coverage available for the 2019-20 academic year. The name of the program is TuitionNet?.
How do boarding schools currently protect or insure tuition?
A TABS survey conducted in July of 2015 indicated that about 98% of TABS member schools provide some kind of tuition refund plan. Approximately 95% of member schools providing tuition refund plans participate in a program provided by a commercial carrier. A single commercial carrier dominates the market. The remaining schools generally self-insure.
Why is TABS providing this service?
We believe the TuitionNet? program represents an opportunity to collaborate for the common good—on behalf of schools and of the families you serve—and to begin to redirect some of the revenues flowing through the current tuition refund insurance system back into the boarding school community.
What is the ownership and governance structure of TABS Insurance, Inc.?
TABS Insurance, Inc. is a corporation (any insurance carrier, under law, must be organized as a corporation) established as a “captive insurer.” 100% of the shares of the corporation are owned by The Association of Boarding Schools (a 501-c-3). Participating schools will be the policy holders. TABS Insurance, Inc. has six (6) initial Board members—TABS Executive Director, two boarding school Heads, and a boarding school CFO, a former boarding school CFO, and TABS Vice President, Finance & Operations. Three of the six Board members are current members of the association’s Board.
What is a “captive” and how is it regulated?
A captive is a special-purpose insurance company. Captives are regulated by insurance commissioners in the state in which they are domiciled—in this case, North Carolina. As regulators, the North Carolina Department of Insurance (NCDOI) oversees overall compliance. As such, the NCDOI collects, reviews, and approves actuarial opinion letters, financial statements and annual audits, rate-setting formulas, capital reserves, legal filings, the issuance of dividends, and any material changes to the business or business plan. Captive insurance has been in existence since the 1950s. Due to the task-dedicated and focused management of common risks particularly among members of an association with shared interests, captive insurance companies have consistently outperformed commercial carriers, according to A.M. Best.
So is TABS pursuing licensure in every state?
A captive insurance company, though state-regulated, operates under a different regime and set of protocols than a carrier offering insurance to the public. Since a captive is special-purpose, and specific to a particular group of closely allied organizations, our license permits us to offer insurance to member and subscribing schools throughout the United States. Some states may treat TABS Insurance, Inc. as a “non-admitted” carrier and therefore levy a small tax (a so-called insurance “self-procurement tax”) on the premiums participating schools pay. In such cases, we have plans to eliminate or offset the economic impact of any state premium tax.
How has TABS Insurance, Inc. been capitalized?
The association is providing the initial capital, which derives from TABS general reserves and the equity in an office condominium TABS owned from its former days based in Washington, DC. Additional capital necessary to grow the pool of participating schools will derive primarily or wholly from the financial performance of the company. TABS member schools should know that the monies schools have contributed to the North American Boarding Initiative (NABI) are segregated entirely from the insurance project. There is zero commingling.
Who is TABS working with on this project?
During the due diligence and formation stages, TABS assembled a team of nationally-regarded experts in captive insurance actuarial analysis, law, and tax matters to advise on the establishment of the company and the design of the program. TABS has commissioned Marsh Captive Solutions, the world’s largest insurance broker, headquartered in New York City, to manage the day-to-day operations of the company through its branch office in Charleston, SC. Marsh Captive Solutions has a stellar reputation for providing administrative and operational services to a wide array of businesses, associations, and non-profits seeking captive insurance solutions.
What are the advantages of the TuitionNet? program for schools?
The TuitionNet? program offers a number of advantages and benefits, among them:
- Transparency. Our policies, our rate-setting methodologies and formulas, and our financials are open for inspection by participating schools. Moreover, the membership is robustly represented on the governing board of the insurance company, which itself is wholly owned by the association and thus wholly answerable to the TABS board.
- Rate Precision and Fairness. Schools have a number of coverage alternatives from which to choose. And although each school will receive its own specific annual rate quote, each quote is based on an institution’s attrition history and other factors with an empirical relationship to attrition.
- Insights and Best Practices. As the number of participating schools grows, and we have established a multi-year database of claims experience, and we plan to apply sophisticated data analysis and to share our insights with the participating schools. Our goal? To help schools reduce attrition through data-informed policies and best practices.
- More Value from the Association. A portion of any retained earnings will enable TABS to subsidize new or existing mission-based activities and strategic projects not otherwise funded through dues or normal operations. For example, we may elect to use a portion of any dividend to subsidize anticipated new faculty and leadership development programs, at no additional cost to schools.
- Potential Participation in the Program’s Financial Success. Should the program continue prove successful, there is also the intention, subject in each instance to the approval of the state insurance regulator, of offering a return of premium to participating schools. Thus, the earnings from this venture can help support the specific local priorities on your campus.
- Group Purchasing Power and Low Overhead. Association captives can obtain services (underwriting management, claims processing, actuarial services, etc.) and reinsurance more cost-effectively than if each member school attempted to obtain such services by itself. General management overhead is reduced in an association captive due to marketing and administrative economies of scale. The per-school cost of providing and administering our association captive is decidedly lower than if the identical coverage were obtained by a single school. And since TABS Insurance, Inc. is not employing any brokers, the administrative expenses are projected to be considerably lower than any commercial carrier’s.
How does TABS benefit?
After a few years of successful operation, and subject to the approval of state regulators, the Board of the insurance company will have the option of issuing a dividend to TABS, thereby allowing the association to offer expanded programming, outreach, and service at little or no additional cost to schools.
Doesn’t this distract from TABS daily work—or the enormous undertaking of the North American Boarding Initiative (NABI)?
No. Marsh Captive Solutions manages all of the day-to-day operations of TABS Insurance, Inc. and of the TuitionNet? program (under TABS supervision, of course). In the long-run, the insights we gain about student attrition should help us offer schools data-based best practices for reducing attrition—and thus reinforce the association’s ongoing efforts to support enrollment vitality across the sector.
Exactly how are claims processed? What is required of our school’s business office in making claims and processing refunds? Are claims processed rapidly?
We pride ourselves in having our insurance company and its managers to be responsive and efficient, processing unexceptional claims within three days. Marsh Captive Solutions hosts a protected portal, through which schools are able to file and follow claims, and track refunds to schools for the settlement of affected student accounts. Schools are able to file claims electronically in under 2 minutes. Enrollment data for new premium quotes or premium renewal are collected each fall. Prior to the start of school, schools will upload a list of covered student accounts with relevant information for each account.
Do you have “stop loss” coverage?
The TABS captive has been adequately capitalized and will maintain significant “loss reserves.” Substantiated by both our independent research and the analysis of one of the country’s top licensed actuarial consulting firms, “stop loss” coverage is not required in this case. The “loss fund” (premiums less administrative costs) in the TABS Insurance, Inc. model provides enough to absorb unusual or even extraordinary loss years.
We are also evaluating the potential benefits of a reinsurance contract to provide additional capital support and risk mitigation. Reinsurance is effectively “insurance of insurance” where a highly rated company, such as Lloyds of London, assumes a portion of the overall program risk in exchange for premium. As indicated above, the analysis indicates reinsurance is not required. However, we retain the right to buy reinsurance if doing so can enhance the overall financial proposition of the program.
Are extraordinarily high attrition years adequately covered? Upon what data or experience do you base your assumptions?
While individual school attrition rates vary, in some cases significantly, the highest recorded overall intra-year aggregate attrition across TABS U.S. member schools was 4.8% in 1997 (NAIS DASL). According to peer-reviewed actuarial analysis, our model would have easily accommodated the expected claims from such a year.
Does the policy provide coverage generally similar to the commercial carrier’s?
What refund plans are available?
A school joining the TuitionNet? program has a choice of refund rates for “unused tuition” (based on the percentage of days remaining in the school year) according to the type of attrition: Voluntary Withdrawal (choice of 50% – 90%), Dismissal (choice of 50% – 90%), and Medical Withdrawal (choice of 50% – 100%). In future years, there may be additional options for customizing the refund rate.
Does the TABS policy cover the same portion of the academic year that the commercial carriers cover (i.e., from two weeks after the start of classes through graduation)?
Yes. You have the option to select coverage starting on the 8th or 15th day of class. TuitionNet? also provides for medical coverage beginning August 1st of the coverage year.
Are the rates with TABS Insurance, Inc. better than or equal to current rates?
It depends. In many cases, TABS Insurance, Inc. rates track closely the prevailing commercial rates. In some cases, rates vary from prevailing commercial rates, according to the proprietary rate-setting methodology we have adopted, among other factors. As the number of participating schools increases in future years, and actual claims history becomes more clearly established, we expect to be able to slowly reduce overall rates.
What are the eligibility requirements to join this program?
The key eligibility requirements include:
- TABS U.S. Member School or Subscribing School in good standing.
- Generally, unless barred by local or state law, schools must require participation for families on installment payment plans (i.e. plans that extend payment into the school year). Other cohorts may be required to participate by the school, at its discretion. We can serve schools that wish to make participation entirely voluntary for families. However, the rates will be higher in these cases.
- Must include appropriate language in or as an addendum to enrollment contract. Note: The school is the policyholder, and TABS Insurance, Inc. offers insurance to its U.S. member and subscriber schools. The school is issuing a waiver to its covered families and collecting fees in order to fund and pay the premiums. This is effectively the same transaction flow as exists with the commercial insurance programs in the market.
- Must agree as policyholder that after using any claim proceeds to settle an affected student account, school will pay residue, if any, to family.
- Other terms and conditions spelled out in the Master Policyholder Agreement (available for review now).
- Certain schools with very high historical intra-year attrition maybe excluded from the program under underwriting guidelines. Our hope is to extend the program to all TABS U.S. member and subscriber schools in the future, with rates roughly proportional to expected claims in every case.
How do we apply? And what kind of information is required to make application?
The data capture required of the TABS captive is generally no different from that required by commercial carriers. Barring any difficulty with a school’s data submission (e.g., incompleteness), we are now generally able to quote premium rates within 7–10 days.
We are self-insured. Why should we even consider joining a group captive? Surely it will cost us more than our self-insured program.
The “law of large numbers” and the benefits of “risk pooling,” which a self-insured program cannot duplicate, accrue to all participants. Risk pooling potentially offers a school greater protection against an isolated adverse year of unusually high attrition—and greater financial predictability regarding protected tuition revenues. Participation in the TABS Insurance, Inc. program will also provide access to the risk mitigation tools, resources, and benefits referenced above.
How should we evaluate the choice to participate in TuitionNet? or to remain with a commercial carrier?
One advantage of the TABS Insurance, Inc. construct is that it provides enrolled schools the potential to participate in future underwriting profits in the form of a policyholder dividend (subject to the approval of state insurance regulators). To our knowledge, this opportunity is not available through any commercial carrier. Moreover, any dividend from earnings paid to the association accrues to the benefit of the entire community of boarding schools, not the private fortunes of a few shareholders, as the association is bound by its founding documents, non-profit status, and history to pursue mission-based work on behalf of boarding schools and the teachers, coaches, administrators, students and families who bring these amazing communities to life.