By Harry Rosenthal

For the CFO, it should be comforting to know that for 28 years, Unimutual has been working with Australian university finance divisions providing protection against serious loss events impacting budgets, teaching and research. The university sector is Australia’s third largest export sector, behind iron ore and coal, generating an estimated $22 billion in revenue for the country.  As one of the largest industries in the country, we are exposed to a wide array of risks to our strategic and operational initiatives. Over the years, the sector has experienced thousands of loss events which have affected the operations of a Member’s property, staff, students, contractors and researchers. These events have resulted in over $230 million in claims payments to Members.

The silver lining is that these losses have created a great deal of data on typical losses to higher education institutions. This data also supports the Mutual, allowing us to forecast future financial needs.

It is this collection of the sector’s past losses which best illustrates the value of having a Mutual. As our Members compete in the global higher education arena and engage the risks needed to survive in this competitive environment, the Mutual has become a repository of the frequency and severity of those risks, over time. Each loss is a captured sector statistic, from which lessons can be learned over time. In each case, the Mutual has worked to ensure critical university operations were minimally impacted, recovery was swift and funds were rapidly made available to the Member to minimise interruption.

Many serious losses are not inevitable or the result of “bad luck,” but can be prevented. During the 2015-2016 protection period, these were the biggest financial losses the Mutual saw:

• We saw 33 storm related losses, causing serious damage to buildings and infrastructure costing Members over $3.1m in total. Severe storms, lightning strikes and localised flooding are parts of the external operating environment of the Australian higher education sector, causing millions of dollars in damage every year.

• Unimutual Members suffered four fires during the 2015-16 protection period with a total cost of $1.9m. The most significant of these occurred on 1 November 2015 in a childcare centre on a rural campus. The building was badly damaged and was subsequently demolished. The claim was settled for $1.1m in April 2016.
• Members submitted ten spoilage claims, totalling $1.1m. The most significant of these arose from the failure of a thermostat in a domestic freezer, which was not fitted with an alarm. By way of comparison, Members submitted 11 spoilage claims in 2014-15, with a total value of $1.1m. In 2013-14, Unimutual received 17 spoilage claims with a total value of $3m.  These figures are correct as at February 2017 but are subject to change as some claims have not yet been finalised.

One way the Mutual shares this we­­­alth of data with its university Members is through our program of annual benchmarking reviews with CFOs. Our Member-specific annual reports compile the history, data and statistics of each Member, helping them understand the drivers of their risk financing program, illustrating how reducing loss experience can result in lower protection costs. The Mutual’s transparency ethos encourages each Member to understand how their entity’s loss experience impacts not only their financial contribution, but also their institution’s ability to meet its core mission of teaching, learning, research and community engagement.

Finally, the Mutual’s regular data reviews allow us to develop risk programming to assist all Members in identifying the factors of their total cost of risk.  Through identifying the drivers of our sectors’ losses, its trends and frequencies, we are able to create targeted risk management programs to minimise the cost of risk for all.

To the CFO, there must some frustration that many of the drivers of the risks they are financing are outside of their control. Most of the Mutual’s initiatives designed to assist the Member from becoming a statistic focus on non-finance divisions such as Facilities, Security, Research or Legal. It is the CFO who must fund the institution’s risk exposure, but can exercise little control over whether or not it becomes a statistic.

How can the data assist? Firstly, in each annual report we clearly illustrate to the Member how much of the total cost of risk they are self-funding each year. This is amounts which are paid by the Member themselves, due to retentions or sub-limits. This money can be forecasted and could be used as an investment bank to fund targeted risk initiatives. Spending money on risk mitigation will result in savings.

Secondly, the CFO can pose “The $50,000 question”. That is question is, “If we had an extra $50,000, what would be the best use of the money to improve our institution’s loss experience?” For each institution the answer is slightly different and using sector data, the Mutual can assist the CFO in allocating seed money to projects which will prevent them from becoming a future statistic.

We look forward to working with CFOs over the next year, to help you prevent major financial loss events in 2017.