Insurance for Nonprofits: Helpers Could Use Some Help

Nonprofit organizations operate on two basic tracks. Track No. 1 is their mission, the reason they exist – be it to serve vulnerable members of a community, to combat disease, to protect the environment or to advance the interests of a business or trade association. Track No. 2 is fundraising – the task that makes fulfilling the nonprofit’s mission possible.

As it has so many aspects of our lives and society, COVID-19 has messed this all up.

The hardships the pandemic created – some directly as a result of the illness, some indirectly through job loss and related economic hardship – have made the work of nonprofits more in-demand than ever, with food insecurity a particular area of concern.

Concurrently, high unemployment has led to reduced donor capacity, and pandemic-related restrictions have caused cancellation of major fundraising events, greatly hindering organizations’ ability to raise capital. As a result, nonprofits themselves have added to the ranks of the unemployed, forced to reduce staffing while increasing services.

As Insurance Journal recently reported: "Almost three out of five nonprofits cut costs last year and more than half expect to continue cutting costs in 2021, according to The NonProfit Times. The 2020 Eagle Hill Consulting Nonprofit Survey, conducted by Ispos, included 505 respondents from a random sample of nonprofit employees across the United States. In recent months, nonprofits have implemented: program reductions (30%); hiring freezes (30%); furloughs (25%); salary reductions (24%) and layoffs, 20%. More than four out of five indicated that their organizations changed how they serve constituents, in response to COVID-19."

In short, nonprofits are hurting. And the hard market for Property and Casualty Insurance is a significant cause of their pain.

The Outlook Entering 2021

Here’s the insurance outlook for nonprofit organizations as outlined in Alera Group’s Property & Casualty 2021 Market Outlook whitepaper, released in December 2020:

► Rising insurance costs: While their focus is on doing good and serving the needs of their communities, nonprofit organizations face many of the same challenges in this renewal cycle as for-profit businesses. The number of claims and the cost of settling those claims is driving rates up and capacity down for many key insurance coverages. Even nonprofits without claims can expect to see single-digit rate increases across the board. This comes at a time when funding from governmental sources is less consistent and dependable than in prior years.

► Only a handful of carriers offer policies tailored to nonprofits: Finding the right coverage can be tough in the best of market conditions. The hard market we’re in is making the task more burdensome. The #MeToo movement and large jury awards for sexual abuse cases have alarmed insurers who traditionally write nonprofit organizations. Some are pulling out of the market entirely while others are reducing limits on coverages such as Sexual Misconduct, Directors and Officers and Umbrella/Excess.

► The organization’s mission will be a determining factor: Organizations that have high exposure to molestation or abuse, such as those who serve children and vulnerable adults, including the developmentally and physically disabled and the elderly, will find the insurance market more challenging.

► More clients forced to rely on the Surplus Lines market: As the standard market tightens and underwriters become more selective about the nonprofits they will write, an increasing number of organizations will be forced into the Excess and Surplus Lines market.

We foresaw rates continuing to rise and underwriting scrutiny and selectivity continuing to increase in each of these lines of coverage:

• Commercial Auto


• Cyber Liability


• Professional Liability


• General Liability


• Property


• Excess Liability/Umbrella.

Further exacerbating matters, Professional Liability, General Liability, Property and Excess/Umbrella all were trending toward reduced capacity, with Property and Excess/Umbrella also showing signs of worsened availability. Workers’ Compensation was the one line of coverage appearing to be stable, though some states were allowing a “presumption of compensability” for COVID-19 claims involving workers deemed as essential.

For additional details and the entire Property & Casualty 2021 Market Outlook whitepaper, click the link below.

GET THE WHITEPAPER

What’s New

The Property and Casualty market as a whole, and for nonprofits, in particular, hasn’t gotten any brighter, although in areas that haven’t suffered severe weather-related losses, Property Insurance rates have at least stabilized.

As we approach the final month of 2021’s first quarter, I’m seeing rate increases of 3.5 to 5% for General Liability, around 5% for Commercial Auto and 10 to 25% for Excess Liability/Umbrella coverage.

Even nonprofits who have been limiting operations due to the pandemic are seeing increases, and here’s why: The relatively few major carriers serving the nonprofit sector have experienced tremendous revenue loss  in this market due to decreases in and non-payment of premium. Already operating with slim margins – about 3% after claims – the carriers have to recoup their losses somehow, and they see raising rates as their only viable solution.

The Surplus market, meanwhile, has only gotten harder. With limits reduced in underlying coverages, more claims are getting into Umbrella/Excess coverage, and that’s meant increased rates and reduced capacity there.

What’s more, lawsuits against nonprofits filing for bankruptcy have turned to Directors and Officers policies, claiming mismanagement by nonprofit boards and causing D&O rates to escalate.

What You Can Do

Bleak as it is, the Property and Casualty market outlook for nonprofit organizations isn’t hopeless. There are cost-containment steps nonprofit leaders can take, and these include:

1. Start the renewal process early. Containing costs requires work. You need to give yourself time to provide the information that will enable your agent or broker to market you favorably, and you need to give underwriters time to review your proposal.


2. Explain to underwriters what changes your organization has undergone as a result of the pandemic. Look at your Workers’ Compensation policy to ensure you’re not being charged for furloughed workers, and make sure your payroll estimate for next year reflects any anticipated reductions.


3. Estimate low on your expected revenue. If revenue exceeds your projection, your insurance carrier will automatically adjust for the following year, but if revenue doesn’t meet an overly optimistic estimate reflected in your rate, the carrier will not provide you with a discount.


4. Walk the property with the carrier’s loss-control representative during inspection. This will help you contest any claim denial based on faulty safety conditions.


5. Be diligent in your risk management practices, beginning with vigilant hiring and employment practices. Do extensive background checks, conduct annual employee reviews and do not allow staff or volunteers to work one-on-one with clients.


6. Work with an agent or broker who understands the nonprofit world and has a thorough knowledge of your organization.


7. Prepare your organization for the availability of coronavirus vaccines to the general population,  by reading the Alera Group guide COVID-19 Vaccines: What Employers Need to Know. The whitepaper includes:
   
   
   
   • An analysis of whether employers can mandate vaccination as a condition for return to the workplace
   
   
   • 10 steps to take in preparing your organization and employees for vaccination
   
   
   • A condensed version of the Q&A section of the CDC website, with answers to questions regarding not only employer policies but also employee questions about vaccine safety and efficacy.
   
   
   
   

                                                                         GET THE WHITEPAPER

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About the Author                             

Joel Jarvis

Producer

Alera Group Las Vegas

Joel Jarvis specializes in property and casualty for Municipalities, Professional Liability, Errors and Omissions Insurance, and Directors and Officers coverage for Boards of Directors and Executives.  He has extensive experience developing property and casualty programs for clients in various industries: including attorneys, transportation, hospitality, nonprofits and construction.  He has sixteen years' experience in the insurance industry and an additional seven years as an internal accountant working for Las Vegas Sands, Inc, Perlman Architecture, Capitol Pacific Homes.  Early in his insurance career he handled auto, home, life and annuities policies as an agent with Horace Mann Insurance Companies serving teachers of the Clark County School District.  Joel has served as a member of the boards of directors of Aid for Aids of Nevada (AFAN) and Opportunity Village ARC Board.  He also has served on the Accreditation Team for the United Way of Southern Nevada.  He has been actively involved in the Clark County Bar Association since 2005; acted as Social Chair for the New Lawyer Committee and as a Co-Chair of the Community Service Committee.  He was awarded Ambassador of the Year by the Clark County Bar Association in 2004, and he is the Liberty Bell Award winner for 2005 with the organization. Joel holds bachelor’s degrees in accounting/finance and law from Illinois State University in Normal, Illinois.

Contact information:

• joel.jarvis@aleragroup.com


• (702) 304-7839