RISK MANAGEMENT DEFINITION
Risk management is the acceptance of responsibility for recognizing,
identifying, and controlling the exposures to loss or injury which are
created by the activities of the University. By contrast, insurance
management involves responsibility for only those risks which are
actually insured against.
Some definitions are in order:
With these definitions in mind, we can discuss the principles of risk
management as they apply to the University. However, because of the
diversification within the University, it is impossible to make one
statement which will fit all situations equally. For instance, some
departments are involved exclusively with education, others with
research or patient care, and in some cases, with a combination of many
operations and functions.
Risk is uncertainty of loss.
Peril is a source of loss (fire, windstorm, embezzlement, etc.).
Hazard is a condition which increases the likelihood of loss (e.g.,
a known embezzler hired as an accountant).
All departments are exposed to the perils of fire, theft, earthquake,
burglary, work-incurred accidents, and liability for injury to the
public. Some of these departments also have exposures involving
possible loss of valuable papers and records, accounts receivables, loss
of income and extra expenses to continue operations.
Therefore, an intelligent approach to risk management and insurance is
necessary. Insurance is not purchased out of desire, but out of
necessity. It isn't a commodity which is enjoyed or displayed or sought
after by its owner. It is like headache tablets or spare tires; i.e.,
bought with the hope that they will never have to be used. Insurance
should be the last line of defense and available after all other
safeguards have failed.
Departments should not leave these things to chance, but follow good
judgment and established procedures to control the risks and their
The purpose of the following guidelines is to provide at least the basic
pattern for managers to follow in managing the University's risks.
A PLAN FOR ACTION
A function of risk management is to organize and carry out a plan to
control or reduce the risks to which the University is exposed.
Departments can find qualified help in the Insurance/Risk Management
Department, Environmental Health & Safety Department, Police Department,
Health Physics Department (Radiation Safety), Facilities Department,
Employment/Employee Relations Departments, Omsbudperson and the Legal
Office. With this assistance, they can follow certain procedures to
control risks adequately and to obtain an objective loss prevention
program. These steps are:
The main concerns of most departments are the risks to property and
people. Some examples of losses include:
- Recognize and appraise the risk
- Estimate the probability of loss due to the risk.
- Select the optimum method of treating the risk.
- Implement a plan to carry out the selected method.
- LOSS BY DESTRUCTION - Property may be destroyed by fire,
earthquake, flood, wind, breakage, or deterioration.
- LOSS BY CONFISCATION - Property may be confiscated by an act of
crime such as theft, embezzlement, robbery, burglary, forgery,
- LOSS OF USE - When property is destroyed or confiscated, the
loss is often increased because of the indirect loss, e.g., loss
of income, interruption of activities and extra expenses to
continue operations. Much greater than the loss to physical
property, is the loss of records and data which are vital to the
operation of the University.
- LOSS BY NEGLIGENCE - Liability claims are incurred when persons
are injured or property of others is damaged or destroyed due to
- LOSS OF EMPLOYEE/STUDENTS GOODWILL - Discrimination, sexual
harassment, libel, slander, bad faith and unfair dealings
will create liability situations and poor employee/student
and public relations issues.
METHODS FOR TREATING RISK
There are established and
tested techniques by which risks may be controlled. 1) AVOIDING RISK -
A risk may be avoided by not accepting or entering into the event which
has hazards. This method has severe limitations because such a choice
is not always possible, or if possible, it may require giving up some
important advantages. Nevertheless, in some situations risk avoidance
is both possible and desirable. 2) SPREADING RISK - It is possible to
spread the risk of loss to property and persons. Duplication of records
and documents and, then, storing the duplicate copies elsewhere is an
example of spreading the risk. A small fire in a single room can destroy
the entire records of a department's operations. Placing people in a large
number of buildings instead of a single facility will help spread the
risk of potential loss of life or injury. 3) LOSS PREVENTION OR REDUCTION
OF RISK - "An ounce of prevention is worth a pound of cure," according
to an old saying. Today, this statement provides the guide for the control
of risk. Risk may be reduced, eliminated, or certainly controlled by using
a well-planned loss prevention program. These are some of the points a
department should consider in its efforts to reduce loss: A. Utilize the
services of the Insurance/Risk Management Department, Environmental Health
& Safety Department, Police Department, Health Physics Department, Facilities
Department, Employment/Employee Relations, Legal Office, Ombudsperson,
HELP Center, and the Health Improvement Programs. B. Establish a system
of accountability. Identify the causes and costs of losses and claims;
study trends and patterns of repetitive accidents; form a safety or review
committee to study incidents in order to better understand and control
risks; include loss control as one of the more important goals and objectives
of departments. C. Secure protection of money and records by preventing
access to your accounts or computer systems, protect and safeguard codes
and personal identification numbers, use high quality safes, vaults, and
filing cabinets. When facilities are available for the storage of money
or valuable equipment, access should be limited to as few people as possible.
Cash handling procedures are reviewed by our internal auditors. Any large
amounts of cash or checks must be deposited with the Cashier. Safe-keeping
arrangements should be made for any other valuable equipment or materials.
Change locks, and combination numbers when necessary to protect the integrity
of access to secured areas. D. When selecting a site for storing valuable
property, a number of items should be reviewed to reduce the possibility
of loss. They include: (1) High water level - Avoid basements and areas
where flood history exists. (2) Heating system - Steam can be more damaging
than water. (3) Construction of building - Safeguards and loss preventive
systems built into the facility at time of construction (fire sprinkler
system, security alarms, etc.) (4) Exposure - Surrounding area should
be checked for hazardous exposures such as storage of flammable materials
and chemicals. E. Housekeeping - Preventive Maintenance and good housekeeping
procedures include, but are not limited to: (1) Educating and training
staff in maintaining good housekeeping habits. (2) Arranging for preventive
maintenance of equipment, tools, and building. 3) Controlling neatness
and traffic flow patterns internally. F. Establish a safety program. There
are basically two approaches to accident prevention: (1) Engineering risks,
and (2) Personnel administration or human relations. The Engineering approach
emphasizes mechanical causes of accidents, such as defective wiring, improper
disposal of waste products and unguarded machinery. Safety engineering
is an essential part of any accident prevention and loss reduction program.
Yet, many times neglect, work attitudes, poor judgment or just plain carelessness
by employees are the major causes of personal injuries and property damage.
An effective program of education, training, and performance evaluation
will aid in responding to the human element of accident prevention. Worker's
compensation, disability and health insurance programs act as a cushion
to the financial loss that may result from an accident to employees. There
is, however, no way to truly compensate for the pain, suffering, dismemberment,
and lost earnings or disfigurement and lost earnings that may result.
Looking for ways to prevent injuries is the key. 4) RETENTION, ASSUMPTION
OR ACCEPTANCE OF RISK - These methods are of particular interest to an
operation as large as the University. Constant vigilance is needed to
avoid accepting risks unintentionally through unawareness of the exposure.
Some risks have to be retained because insurance cannot be purchased or
the cost of insurance is not economically sound. Therefore, some risks
should be retained, assumed, or accepted. Examples of these types of risks
would be: earthquake, war, flood, accidental breakage, wear and tear etc.
The importance and economic value of risk are reviewed in relationship
to the size of the operation, the probability and severity of loss. Before
accepting a risk, consideration is first given to the potential amount
of the loss and the effect the loss may have on the operations of the
University. 5) TRANSFER OF RISK TO INSURANCE CARRIERS OR OTHERS - Risk
may be transferred contractually to others. For example, when leasing
facilities from others, the lease could require the lessor to assume all
property and liability losses. Contracts to be entered into by the University
must be reviewed by the appropriate University offices, e.g., procurement,
sponsored projects, Legal and/or Risk Management. Only named individuals,
approved by the Board of Trustees or delegated by a senior officer, may
sign contracts or obligate the University under any written agreement.
Many risks can and should be transferred to an insurance company. By doing
so, that part of the risk is reduced to a certainty; i.e., the amount
of the premium and deductible. The purchase of insurance is a tool that
is used to help solve problems. However, the Director of Insurance/Risk
Management recommends insurance only as a last method to solve a problem,
not the first.
Specific Policies Governing the Insurance/Risk Management Programs
The University is exposed to various risks which may be insured or not
insured. Also, certain risks may be avoided, reduced, spread, or prevented.
Recognizing the need and responsibility to preserve the University's resources,
the following policy and guidelines have been prepared for the managing
of insurance and risks:
- We will achieve and maintain a lower cost of risk (both insurance
and self-insurance) as compared with sister schools without placing
Stanford in a position of risk exposure which could have a significant
impact on its financial security and academic/research mission.
- All risks of loss and need for insurance are to be evaluated from
both a single department and entire campus viewpoint.
- Conditions and practices which may cause loss are to be eliminated
or modified whenever possible.
- Risks are to be assumed or self-insured whenever the amount of
potential loss would not significantly affect the University's financial
In determining what constitutes a significant loss, we shall use
as a guideline a limit of $5,000,000 in any single occurrence of
$20,000,000 in the aggregate for any one year where there is a probability
of multiple occurrences of the same type of loss.
Exceptions to this guideline may be made:
a. when insurance is required by law or contractual agreement;
b. when it is desirable to buy special services, such as legal
defense, claims handling, adjusters, engineering, or similar services
as a part of or separate from an insurance contract;
c. when the degree of risk, compared with the cost of insurance
dictates the economic feasibility of purchasing insurance coverage.
- Risks are to be insured whenever the amount of potential loss would
be significant, i.e., when loss is greater than $5,000,000 per claim
or $20,000,000 in total per year.
Exceptions may be made:
a. when insurance is not available at any cost;
b. when cost of insurance, compared with the risk, indicates purchase
of insurance is not financially sound; or,
c. the risk has been analyzed and study concludes that it should
not be insured.
Insurance/Risk Management has the Authority and Responsibility For:
a. preparing an Annual Report for the Board of Trustees and auditors;
b. developing and implementing risk management/risk identification,
measurement, evaluation, and claims control programs;
c. recommending those risks which are to be insured and which are
to be self-insured or assumed, establishing types and amount or limits
of coverage to protect the University's resources;
d. selecting risk funding alternatives;
e. recommending level of funding for self-insurance reserves;
f. purchasing and administering all University insurance and self-
insurance plans relating to property, casualty, workers compensation,
crime, boilers, machinery, bonds, builder's risk, overseas programs,
athletic programs, travel accident, etc.;
g. coordinating efforts with Personnel Services Department for the
administration and purchase of employee benefits insurance programs;
h. recommending selection of insurance sources (agents, brokers, adjusters,
claims administrators, actuaries and insurance companies, etc.);
i. working with the Legal Office, insurance companies and others in
negotiating, adjusting and settling all insured or self-insured losses;
j. maintaining insurance and accounting records.
What Insurance or Self-Insurance Programs Does the University Provide?
- Buildings and Contents - Insurance covers fire, smoke, windstorm,
explosion, riot, civil commotion, vandalism, malicious mischief, falling
aircraft, and theft. There is a $1,500,000 deductible per occurrence
($25,000 on buildings and contents at the Medical Center and the Shopping
Center); however, each department pays only for the first $1,000 of
- Liability - Insurance covers all locations and activities including
University and government-owned vehicles. For personal vehicles used
on University business, Stanford's liability insurance covers excess
of the insurance provided by a faculty or staff member's automobile
liability insurance (however, an individual must carry at least the
State minimum financial responsibility limits). Liability insurance
also covers non-owned aircraft, watercraft, professional liability,
employers' liability, products liability, etc. University officers,
faculty, and staff are included as additional insureds for activities
arising out of and in the scope of their employment. The first $2,000,000
of each claim is self-insured by the University (maximum self-insurance
limit is $5,000,000 per year). The department pays the first $1,000
of each loss.
- Workers' Compensation - Covers medical expenses, vocational rehabilitation
and disability as required by law. The University's claims are administered
by a third party claims management company.
- Blanket Crime - Insurance covers loss to monies and securities
due to robbery, burglary, theft, or employee dishonesty. There is
a $500,000 deductible per occurrence; the first $1,000 of which is
charged to departments.
- Boilers, pressure vessels, and heavy machinery - Insurance covers
explosion, burning, bulging, and cracking of insured objects; most
machinery is covered for sudden and accidental breakdown. There is
a $25,000 deductible per occurrence, the full amount of which is charged
to Operations and Maintenance or the department if it is income-producing.
- Physical damage to University-owned vehicles and rented vehicles
Stanford self-insures for physical damage. The department is responsible
for the first $1,000. When renting vehicles, do not buy the rental
agency's insurance applicable to the collision and physical damage
deductible "buy back" provision. Normally, for an additional cost,
drivers can eliminate the renter's deductible; however, Stanford chooses
to self-insure this risk. In these cases, the full deductible is paid
by the University and is not charged to the department.
- Miscellaneous - Miscellaneous bonds are arranged
through the Insurance/Risk Management Office.
- Business Travel Accident - A separate paper describing this plan
is available from the Insurance/Risk Management Office; also, consult
the Administrative Guide.
- Employee Benefits - Health, Life, Retirement, Short Term and Long
Term Disability, Unemployment Compensation, etc. Questions concerning
these plans should be referred to the Benefits Office.
Who Pays for the Insurance?
Revenue-producing units are recharged for their insurance coverage on
a prorated basis. General Fund supported units are covered through a separate
General Fund account. Costs of special insurance coverages are billed
to the account of departments requesting such insurance.
How May Special Insurance Coverages be Procured:
Any department having special risks that it feels should be insured should
discuss their concerns with the Insurance/Risk Management Office. If insurance
does appear to be the best way of managing a risk, the Insurance/Risk
Management Office will negotiate the policy with the insurance carrier
and then bill the cost to the requesting department.
What Should be Done in the Event of an Accident?
All claims must be reported promptly. Take whatever steps are immediately
necessary to render emergency medical care, salvage property, or reduce
the further extent of the loss. If possible, do not disturb the evidence
or hazard which caused the claim until the area can be inspected, pictures
taken, and conditions recorded. Obtain the names and addresses of parties
involved, witnesses, etc. Under no circumstances should one admit liability;
to do so could jeopardize the insurance coverage. We should rely upon
the insurance company and/or attorneys representing Stanford to respond
to claims of others. As soon as possible, record the details of the accident
while it is still fresh in your mind. Your report should include: date,
time, place, who or what was involved, witnesses (if any), how it happened,
names, addresses, and estimated ages of persons involved; description
of injury, loss or damage; and action that was or will be taken to prevent
How May a Claim be Processed?
FIRE - Notify the Insurance/Risk Management Office. Depending upon
the size and location of the loss, Procurement Services, Hospital Engineering,
Facilities and/or Facilities Project Management offices will be directly
involved in the repairs or reconstruction. The preparation of specifications
and a bidding process may be necessary. Copies of all contracts, work
orders, and purchase requisitions must be processed through the Insurance/Risk
THEFTS AND VANDALISM - Be sure the Police Department has been
notified immediately. Only the police are authorized to conduct an investigation
or take action regarding criminal acts such as theft or vandalism. Submit
of the theft to the Risk Management Office. All purchase requisitions
for replacement must be routed through Risk Management as an FYI, please
call Risk Management at 3-0042 or 3-4555. When the requisition has been
completely paid by the Departmental Account, Risk Management will then
prepare a Core Financial Journal reimbursing the Department for all
charges above the $1,000 deductible.
DISHONESTY OF EMPLOYEES - Report losses immediately to the
Police, Internal Audit Department and notify the Insurance/Risk Management
Department. Indicate the circumstances of the loss, the date of loss,
building and room number, and the amount of the loss. One word of caution:
once a loss due to the dishonesty of an employee becomes known, the
insurance company will not pay for any future losses caused by such
employee; i.e., there is a duty to report claims promptly and take action
to prevent or reduce further loss.
LIABILITY OR INJURY TO NON-EMPLOYEE - Upon becoming aware of
an incident which might lead to a liability claim and when a claim for
liability is received, immediately notify the Insurance/Risk Management
AUTOMOBILE - Report the accident at once to the local police
department or highway patrol. Accident information requirements are
noted on the white cards, which are in the glove compartment of University
and government vehicles. This information should be provided to the
Insurance/Risk Management Office (NOTE: at SLAC, send the information
to the Manager of Administrative Services and at Stanford Health Services,
to the Environmental Health and Safety Office). These offices can also
give you instructions regarding arrangements for repairs.
EMPLOYEE INJURY - Report injuries promptly. Any injury resulting in death, permanent
disfigurement, dismemberment, or hospitalization expected to last more than
24 hours MUST be reported immediately to both EH&S’s 24 hour hotline at
650-725-9999 and Risk Management at 650-723-7400. In such cases, the SU17
MUST be faxed directly to both EH&S at 650-725-9218 and Risk Mgt. at
All other injuries must be reported immediately via the SU17 by faxing it to
Risk Management at 650-723-9456. Contact Risk Management for details
concerning the filing of a Workers’ Compensation claim or when additional
support or instructions are required.
Property Which is not Insured
Government-owned property and personal property of faculty, staff, and
students are not insured or covered by Stanford.
Property Leased or Loaned to Stanford
(Ref: Property Management Manual 2.4 2, Incoming Loans of Equipment Operational Procedures)
The Property Management Office (PMO) must be notified of all incoming loans of equipment (other than works of art - contact the Insurance/Risk Management office) prior to their arrival. PMO will review and involve the Office of Sponsored Research (OSR), Office of Technology Licensing (OTL), Procurement and Risk Management as needed. It
is important that the agreement be signed by an authorized official.
The agreement must indicate the description and value of the property,
specific start and end date of the loan period, the party responsible for insurance, the perils to be covered, who is
responsible for transportation insurance (both coming and going), etc.
Copies of such agreements must be sent to the Insurance/Risk Management
Aircraft and Watercraft
If aircraft (other than scheduled airlines) or watercraft (25 H.P. or
more and/or over 25 feet in length) are to be used on University business,
call the Insurance/Risk Management Office as special insurance arrangements
may be necessary to protect both the University and the faculty and staff.
We hope you now have a better understanding of the insurance/risk
management programs; however, if you still have questions, contact Risk
Management at telephone 723-4554.