Are private schools poised for an insurance led culture shift? | Insurance Business Australia
“In many households one of the biggest expenditures outside of a mortgage is school fees and it’s not insured, and it should be,” said Johnny Marchant (pictured above), managing director of School Fee Protect Insurance.
He points out that every other important aspect of our lives is insured: health, cars, houses, lives, income and pets. Marchant hopes that school fees are next and has discussed his product with every independent school association in every state.
“We can sell policies as of today but there are certain ducks that need to be in a row that I want to get straight,” said Marchant, who is a distributor using a Lockton license.
One of those ducks could be a significant cultural shift.
“Maybe it’s because what we’re trying to do here is create a cultural change: we are doing a very simple straight out risk transfer of bad debts into the insurance market. It’s that simple. And why hasn’t anybody done it before? I’ve got no idea,” he said.
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Until now, independent, Catholic and church schools have depended on their foundations and bursaries to help parents who were unable to pay school fees. Marchant knows from his experience as a parent paying expensive private school fees that this traditional system can’t help everybody.
“Most schools, while they claimed that the bursary and the foundations will help these parents out, in a number of cases that didn’t happen,” he said.
His own experience observing “the pain that I could see some of these parents going through” prompted the idea of school fee insurance.
“You’d talk about it on the sidelines watching the rugby and go, ‘Holy cow! What are you going to do?’ There can be the loss of jobs, sickness or disability behind a sudden inability to pay school fees,” he added.
About five years ago he came up with the concept. Not only would it allow the children of financially struggling parents to stay in school for up to 12 months, said Marchant, it could significantly reduce the financial pressures on schools caused by the many thousands of Australian parents unable to pay school fees.
Marchant said a website video by the CEO of Sydney Catholic Schools explained that during the COVID-19 pandemic the number of students on fee relief schemes skyrocketed from about 4,000 to 8,000. That’s just one school system in one Australian city.
“The reality is there’s never been a product that’s enabled them to move those bad debts out of foundations and bursaries into the insurance market at a very, very low cost,” said Marchant.
Apart from the financial side, Marchant said school fee insurance would allow school administrators to avoid having distressing conversations with parents whose money troubles could mean they have to take their children out of the school.
“From a school’s perspective it avoids a whole bunch of awkward conversations with parents. My headmaster used to call it ‘the lie and cry,’ which is when parents would literally lie to the headmaster about the status of their finances and then start crying,” he said.
Marchant described his product as “a pretty standard accident health wording.”
“So, we can do a 12-month policy and the process is very simple. In the event that a parent is out of a job, for example, and can’t pay school fees, the school is going to make a claim and that claim will be paid back to the school,” he said.
There’s no selection criteria or risk management process to decide which schools or parents are eligible. Marchant said schools can buy the product and choose to pass on the cost to parents. The idea is every parent will buy a policy to keep the cost low.
“This has to be spread across the school at a very low cost. So if there’s a parent, who is, frankly, never going to lose their job, get sick or disabled, they might be going ‘Why am I paying this?’ And the answer is because you’re helping the school community in the event that others will likely be unable to pay their fees at some point,” he said.
Marchant said the crux of his cultural change challenge is convincing school leaders that school fee insurance makes sense financially.
One side of the equation is very straight forward, even when school fees are low.
“Catholic school fees in many cases are $10 a day. So they’re $3,500 a year. But if you extrapolate that by 4,000 students you’ve got $14 million of fee relief,” he said.
Marchant expects premiums, even for an expensive Sydney private school, to be no more than $20 per month, per child.
“If, when I still had kids at school, I’d seen at the bottom of my fee statements, $15 – three cups of coffee, I would have gone, ‘Thank god for that! I am very happy to be paying that’.”
However, the hurdle is changing the way schools have always dealt with their fee arrears.
“There’s also a whole government thing here: there’s $60 billion of government money going into education, including the independent and Catholic run schools. So there’s a whole bunch of cultural, social and political reasons why there might be a little bit of a pushback against this product,” he said.
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Marchant said a school system with a set amount of government funding per year could be concerned about losing that if they took up school fee insurance.
“You might be a little reticent to run that one by whoever’s responsible for handing out that government money,” he said.
However, Marchant believes school fee insurance is a better alternative.
“If that means that the money they save can go towards more teachers and better facilities, then why wouldn’t you do it?” he said.
From a government perspective, he suggested that the prospect of reducing funding to schools and at the same time reducing the number of children falling out of the private system and into the public, is very attractive.
Marchant likened the situation to pet insurance.
“Pet insurance didn’t exist 15 years ago and now if you’ve got a pet, you have to have pet insurance,” he said. “My feeling has always been that once one of these school association bodies follows what we’re trying to do here then plenty of others will start to fall in line.”
With a looming recession, Marchant suggested that moment might have come.
“Schools are going to have to find something because the next few years are going to be very, very difficult,” he said.