Nonprofits are a lot like most insurance clients; there's not much difference. They seek trusted and consultative relationships with their agents, brokers and carriers. They seek partners that understand their mission. But they also seek agents who understand in what ways their needs differ from those of for-profits.
In exchange, they are loyal clients that are happy to give referrals for their agents.
"Nonprofits face challenges similar to those of for-profit organizations in the areas of expense controls, human talent acquisition and retention, and an increasingly litigious society," Jim Scardino, president of AmTrust Nonprofit, told Insurance Journal.
On the other hand, revenue streams for nonprofits come principally from governmental and private grants along with individual fundraising activities rather than from sales of products and services. That can be an additional hurdle, he said.
"Governmental sources have been less consistent and dependable in recent years, forcing nonprofits to be more self-sufficient and cost conscious," Scardino said.
The most impactful trend, and one not unique to nonprofits, is the rising cost of risk, according to Mike Liguzinski, divisional president, Specialty Human Services, Great American Insurance Group.
That includes everything from: increasing cost of legal expenses and expert witness expenses, a rise in frequency and severity of abuse losses, increase in frequency of professional liability, elder care/wrongful death, an increase in automobile costs, and an increase in building replacement costs, he told Insurance Journal.
Liguzinski says that client-on-client abuse appears to be on the rise, with the age of the victim and perpetrator declining in many cases. "A recent studyf rom Tyson & Mendes showed the cost of a sexual abuse-related jury verdict averaging nearly $9 million in California," he said. "These trends support rising costs and a longer tail, to which the non-profit insurance industry is not immune."
Liguzinski says that both short and long-tail claims totals have increased in frequency and severity over the past 12-18 months.
"When you combine the increased claim costs with premiums that are rising at a lesser rate than is needed to keep pace with claim inflation due to increased competition, you can see carriers feeling the pinch and taking action in the space," he said.
"Several other carriers are taking action on high exposure, long tail classes of business, including limiting umbrella or abuse limits, mandating significant price increases, or exiting certain classes or geographies altogether," Liguzinski said.
In an effort to continue protecting non-profits while facing these rising challenges, Great American's underwriting will adapt, to some extent, he said.
"We will better understand how claim costs rise faster than economic inflation. Terms and conditions will become more realistic for the claim environment we see today, including more use of CAT deductibles in areas not previously known for CAT activity, and possibly some higher hazard business flowing back to the surplus lines market, where it came from a few years ago."
Despite this challenge, Peter Persuitti, managing director, insurance and risk management, who leads the Global Nonprofit Practice and Global Religious Practice for Arthur J. Gallagher & Co. in Chicago, sees more options for nonprofits in today's insurance market.
"The options are both more carriers that are building specialized nonprofit expertise in terms of coverage forms and matching," Persuitti said.
"I think the good news on the insurance side is that every time I go to a nonprofit conference, I see more carriers and there's more commitment to the sector," he noted.
However, while there are more markets in the space, he also sees a "definite shrinking of limits" in some areas such as abuse coverage due to the rising number of large jury verdicts. "But overall, there's still plenty of capacity for nonprofits and the alternative market [captives] continue to grow."
"Nonprofit organizations exist not to enhance shareholder value, maximize profits, or dominate market niches, but to improve the lives of people and the communities in which people live," Scardino said.
Therefore nonprofit administrators and managers must stay focused on the mission of the organization and depend on outside experts, such as their insurance agents and carriers, to guide them through insurance decisions and risk management procedures.
"Agents and insurance carriers must understand the culture and specific risk exposures of the nonprofit organizations they serve," he said. "They must be sensitive to the needs and resource limitations nonprofits have and, to some degree, adopt the nonprofit's mission as partly their own."
And, nonprofits are loyal. "Indeed, it is not unusual for the account of a nonprofit to remain with the same agent and carrier for 10 years or more," he said. "Insurers can make themselves better partners by providing education and assistance on loss control matters and safety training, offering flexible billing and payment terms, updating coverage terms to match the changes in the marketplace and society, and by truly showing respect and regard for the noble work done in the nonprofit sector."