CHAMPAIGN — Before tensions escalated between the United States and China over trade and security, two of the University of Illinois' biggest colleges took out an insurance policy — literally — against a sudden drop in Chinese enrollment.
The Gies College of Business and the Grainger College of Engineering bought a three-year insurance policy with Lloyd's of London in early 2017, paying up to $60 million, to protect themselves from the loss of tuition and fees paid by Chinese students.
Together, the two colleges have a large chunk of the UI's 10,000-plus international students. Just over 300 of the business college's 3,051 undergraduates are from China, as well as 507 of its graduate students, officials said. The engineering college has more than 4,000 international students at both levels, UI data shows.
The insurance policy, which costs $424,000 annually, would take effect if a visa ban, trade war, pandemic or other emergency caused a one-year drop of at least 18.5 percent.
Business Dean Jeffrey Brown said the idea came up at a faculty meeting in 2015, shortly after he had taken over as dean. He was presenting the opportunities and risks facing the college, including its "single-country exposure" in China in the event of some unforeseen political event or health crisis.
Finance Professor Tim Johnson asked if Brown had ever thought about insuring against that risk and offered to research the issue with help from finance Professor Morton Lane. All three professors have a background in risk management.
Brown took the idea to the engineering school, which signed on, and the university eventually agreed on terms and pricing with Lloyd's, he said. The policy eventually took effect on July 1, 2017, and runs through June 30, 2020.
But it didn't become public until last fall, when the Wall Street Journal reported it, Brown said. The policy initially carried a confidentiality required by the insurer, Brown said.
"The discussions started when this was still a much more theoretical risk. It had nothing to do with Donald Trump," Brown said last week.
"We have one more year to go. It is our intention to at least start conversations about renewal," although the current political environment makes the insurance both more valuable and more expensive, he said.
Brown said the college had a "dip" in Chinese enrollment last fall but appears to have rebounded for next year.
The hope is that the insurance policy won't get triggered, but the risk has been elevated by the trade war between the two countries and other "diplomatic rows," Brown said. Last week's announcement from China warning students about the risks of studying in the United States didn't help, he said.
"It is not a welcome development, but it is also neither completely surprising, nor is it an emergency. At this point, the Chinese government has basically made a statement to discourage students from coming. It's not an actual restriction on travel," Brown said.
"Our sense is that the demand for high-quality education in the U.S. is still strong, and our hope is that most students who have committed to coming here will continue to do so."
He thinks the Chinese government realizes that this is a "pressure point" for the United States, because hundreds of thousands of students from China who study in the United States every year are an important source of income for colleges and universities.
"This kind of action is not unusual when countries are in a dispute," Brown said.
A bigger risk is that "fewer and fewer companies are willing to go through the expense and difficulty and the uncertainty of sponsoring foreign nationals for employment, and thus fewer companies are recruiting Chinese students for U.S. jobs," Brown said.
That tends to erode the desirability of getting a U.S. degree, he said. The business college has worked harder to find jobs for its graduates back in China or with multinational firms in other locations.
The school also hopes to diversify its international enrollment, Brown said, noting that the online iMBA program has students from more than 80 countries — and wouldn't be affected by any travel or visa restrictions.
Brown said the decision to terminate its on-campus MBA program, announced in late May, was not based on international enrollment trends. That program didn't have a large number of Chinese students, though other graduate programs do, he said.