Eastern Guilford High School insurance, revisited
Occasionally I get a call from a reader who still cannot wrap his or her mind around the Guilford County Schools insurance policy and how paltry the final insurance settlement of $17.6 million seems when the new Eastern Guilford High School is estimated to cost $61 million.
I received such a call about a week ago and I'm not sure if my various explanations were able to ease the caller's mind. So I decided check in with Wanda Frazier, the district's risk manager, to see if I had missed anything, and post the outcome of our conversation on The Chalkboard for public benefit. I also spoke today with Everette Arnold, executive director of the Insurance Advisory Committee, a group that helps local municipalities and other government agencies purchase insurance.
In cased you missed it, I posted a short explanation on this back in early 2007 along with copies of the district's insurance policy at the time. Other insurance coverage.
Now, the question I keep getting is, if the district had replacement coverage, why isn't it getting enough money to rebuild Eastern? (In some readers' minds, the $17.6 million couldn't be enough to rebuild the school at present time.)
There is such a thing in the insurance world as guaranteed cost replacement insurance, which will pay to rebuild your property even if the cost exceeds your policy limit. I understand this type of insurance to be very expensive and uncommon, especially for school systems. GCS had replacement value insurance, a type provided by the state Department of Public Instruction to most school systems in the state.
"The statewide plan is very good," Arnold said. "Let's call it reasonably priced."
In fact, both Frazier and Arnold said that the DPI insurance premiums are so low that private companies have a hard time matching them. Arnold estimates the district is saving hundreds of thousands of dollars a year on premiums, which could total in the area of $3 million if you multiplied those savings by 15 years, the amout of time the district has bought state insurance (since merger in 1993). GCS is currently paying $534,758 a year to insure its $1.4 billion in assets, but is seeking insurance bids for 2008-09.
"My recommendation would be to set that (the savings) aside," Arnold said. "But I don't think the Board of Education will set that money aside to build a new school. They'd say we need it now."
Would taxpayers even support either paying more in insurance premiums or setting the savings aside, given that a total loss is so unlikely and that money could be used to pay for staff and other resources?
Also keep in mind that the argument about replacement cost insurance is somewhat moot when the district decided to build a bigger school. The construction costs of the 1968 blueprint, even when modernized to meet current codes, are theoretical as that project did not go out for bid. All we have are Eastern's appraisals, totaling $20.3 million back in 2006.
Following is the text of an e-mail sent from Frazier to the same reader who called me:
"Each school system administrative unit is responsible for insuring the schools in their district. GCS carries property insurance with the Insurance Section of the Department of Public Instruction in Raleigh. This group insures over 90% of all the schools in NC. The coverage we carry is replacement coverage. Replacement coverage is for the building/s that are lost. We lost a building that was constructed in 1974/75. Our coverage pays for replacement of like kind and quality of what was lost. We would not build back a school constructed to the codes of 1974/75. Also the building that burned was a total of 126,500 sq. ft. The portion that was lost was 104,578 sq. ft. Insurance does not pay for the portion not lost.
The old Eastern High was built to accommodate 920 students. On November 1, 2006 when Eastern was lost, we had 1068 students. The new Eastern High’s core capacity will accommodate 1600 students with a total of 270,000 sq. ft.
GCS is requesting bids for higher levels of property coverage for the school year 2008-2009. These will be evaluated and a recommendation will be given to the BOE. Additional coverage always costs more money, so the available budget will also be a consideration."
Does that help?