Anyone who owns a car or a home is all too familiar with the high cost of insurance. So any savings in premiums, without lowering the quality of coverage, is much appreciated extra change in the pocket.

When an institution the size and scale of Penn--with more than 23,000 employees, property valued at $3 billion, and 214 owned and leased vehicles--can reduce its insurance premiums, the dollar savings can be significant indeed.

And Penn is doing just that. Since fiscal year 1988, the University has reduced its annual catastrophic property, liability and workers' compensation insurance premiums paid to outside carriers by more than 40 percent while maintaining and, in some cases, enhancing its coverage, according to Director of Risk Management Kenneth M. Hoffman.

The University self-insures much of its coverage. "On an aggregate basis, we assume about $1 million annually in self-insured property loss, for example," Mr. Hoffman said. "But we transfer risk for catastrophic loss to commercial carriers."

Savings are achieved, he explained, by aggressive negotiation in the insurance marketplace, self-insuring expected losses, streamlining reporting processes, and implementing loss prevention programs.

"We've been in a soft insurance market for the past eight years," Mr. Hoffman said. "We've successfully negotiated pricing and coverage terms during that time. We're managing our claims well and holding down the cost of losses through prevention and control activities."

In the area of workers' compensation, for example, the University has a self-insured program but also purchases excess coverage. To hold down costs, Penn informs employees of their rights and responsibilities under the Workers' Compensation Act, while working with each department to stress job safety and streamline the reporting process as claims occur.

When a Penn employee is injured on the job, he or she has to be evaluated and treated by one of a panel of physicians who participate in Penn's workers' compensation program.

These doctors are located throughout the Delaware Valley to offer "easier access for employees" who live throughout the area, Mr. Hoffman said. "Our goal is for the employee to receive prompt, appropriate medical treatment and return to work as soon as possible."

Most frequent claims involve back-related strains and hand and arm injuries, Mr. Hoffman reported. Predictably some departments are more injury-prone than others by the nature of their work; for example, Environmental Services and Physical Plant.

But the Risk Management team, located in the Franklin Building, works with the Fire and Occupational Safety office to identify injuries that occur most often, monitor their frequency and severity, and train employees in injury-prevention measures.

In the area of property insurance, the University is saving money on insurance costs by working with various departments to reduce risks of theft, water, fire and sprinkler system damage. But many older buildings on campus are still vulnerable to water damage from pipes that may leak, break or freeze.

When those claims arise, the Risk Management team responds rapidly. "Prompt loss investigation is crucial," Mr. Hoffman explained, "so we get on it right away to assist departments in the assessment of damage."

Property insurance covers not only damage to buildings, but their contents as well. Again the old saw about the ounce of prevention proves valid. Preventing theft, for example, through a University-wide computer lock-down program can save money. All office computers and peripherals are subject to higher department deductibles if they are not locked, Mr. Hoffman reiterated.

The University insures its property to a $1 billion limit and has "negotiated a Fiscal Year 1996 premium savings of $400,000 on property insurance alone by restructuring the program while maintaining the same quality of insurance coverage," Mr. Hoffman noted.

Savings have been realized in property insurance, he explained, because "we took the program to the competitive market on a group purchase basis with 10 other universities. Underwriters consider us a well-engineering facility, and therefore we aggressively negotiate to attain the most cost-effective program." Strong engineering support--in terms of quality of construction and fire-protection systems in new construction as well as renovation projects--translates to loss prevention and control, and ultimately savings.

But sometimes all the preventive measures in the world are overrun by a natural disaster, such as the tornado of August 3, 1991, when the University suffered its largest property loss in recent memory: $914,000 in damage to the Morris Arboretum.

That act of nature proved the need to carry catastrophic coverage; the large portion of the damage was borne by an outside carrier. Other large claims for occasional fire and water damage have ranged between $250,000 and $300,000, most of which was self-insured by the University.

"While the University has achieved cost savings under a more traditional insurance approach, the Office of Risk Management is in the process of analyzing current insurance practices and assessing future requirements in the context of our rapidly changing environment," Mr. Hoffman said.

"We are studying the feasibility of forming a single-parent captive insurance company, principally to insure the expanding medical-professional liability risks of the Health System and deductibles of the University," he added. "As a part of this process, we are addressing appropriate self-insurance levels, information system support needs and methodology for equitable internal expense allocation, which will minimize the impact of risk-financing costs on University operating units.

"Our goal," he noted, "is to develop appropriate strategies and policies for managing institutional risk by identifying the most cost-effective and administratively efficient insurance models for the future."

--Martha Jablow