The task of insuring nonprofit organizations is a complex one and agents, brokers, underwriters and carrier representatives say that in order to fully serve those entities that serve our communities in myriad ways, it's vital to take the time to understand what they do and how they do it.
Specialists in this segment are more important than ever as the commercial market has tightened and property and liability coverage rates continue to rise, challenging the slim budgets of most nonprofits.
Headlines from the #MeToo movement and large jury awards for sexual abuse cases have also spooked carriers who write nonprofit business into offering smaller limits or pulling out of the space altogether, nonprofit insurance experts say.
As the third largest employment sector in the United States -- behind retail and manufacturing -- the nonprofit world, made up of 501(c)(3) tax exempt organizations largely focused on contributing to their communities, faces the types of operational challenges that exist in the for-profit universe but also issues that are unique to the charitable sector.
Funding is one such challenge, as nonprofits typically have smaller budgets than for-profit entities with funding coming from donations as well as from contracts with larger nonprofits or local, state and federal governments.
Finding the proper insurance coverage can be another challenge for nonprofit organizations in light of the different factors that affect the organization, such as its funding sources, liabilities that stem from its mission, its property, clients, staffing and a heavy reliance on volunteer participation.
The class requires specialists who take the time to really understand a nonprofit's different challenges and exposures, experts say, particularly considering the changing market.
"We spend a lot of time on doing what somebody might call a deep dive into what they do," said Polly Kosyla, president of S. Wolf and Associates, a Chicago-based independent agency focused solely on the nonprofit sector.
She said that includes developing an understanding of the nonprofit's mission, their activities, the responsibilities of their volunteers and staff, their funding sources and the other entities with which they work.
"I think the front-end work of what we do is very labor-intensive to really get a full understanding of what an organization is not only doing now, but also trying to accomplish in the future," added Charlie Kosyla, vice president at S. Wolf and Associates.
Because of the variety of nonprofit risks, there's no one carrier that can provide the coverage needs for all of them, Charlie Kosyla added. In crafting solutions for their clients, it's a matter of finding a fit with "the collection of carriers and MGAs we work with. It's fitting all the policies because there's no one carrier to cover them all. It's a vast market."
Peter Andrew, president and CEO of Council Services Plus in New York, an agency that only writes nonprofits, said there are few carriers that regularly and comprehensively work with nonprofit organizations because of their exposures, which can make it difficult for the smaller nonprofits to get all the coverage they need.
"There are certain coverage features that nonprofits like to have that maybe for-profit businesses don't, like coverage for volunteers, coverage for special events, fundraisers, the ability to name additional insured, funding sources, municipalities, conference, location hosts, things of that nature," he said. "There's only a handful of insurance companies who are really writing a policy that's comprehensive for the nonprofit world in that way."
In a space that is already limited in terms of carriers that specialize in it, nonprofit insurance experts say exiting capacity is a huge risk to the segment that could make nonprofits vulnerable to being underinsured or without the coverage they need to operate.
Andrew and other specialists say there are signs of a tightening market with higher rates and lower capacity for both liability and property insurance after many years of a very soft market.
"In addition to a shrinking capacity, some of the for-profits [carriers] are completely withdrawing from the nonprofit market or certain sectors of the nonprofit market, especially sectors that have high exposure to the molestation abuse -- so nonprofits serving children, vulnerable adults," said Brian Johnson, chief underwriting officer for the Nonprofit Insurance Alliance, a nonprofit-focused insurer writing business in 32 states and D.C."
"Carriers are getting out of foster care, they're getting out of camps, they're pulling back limits on misconduct, on D&O; they're even taking it out of the umbrella in some cases. They're non-renewing or maybe extending [coverage] for a month," said Peter Persuitti, managing director of the Nonprofit Practice at Arthur J. Gallagher.
Nicole Jolley, director of Nonprofit at Church Mutual Insurance Co. in Merrill, Wis., noted there has been "some tightening in the property space and we're looking at liability as a potential next line of business that will be hardening."
She added that the #MeToo movement and changes in sexual misconduct reviver statutes across the country, where many states are suspending the statutes of limitations for abuse and molestation, are having an impact on liability rates for both nonprofit and for-profit businesses.
Certain segments, particularly those that have exposure to minors or vulnerable adults, are seeing the biggest shift due to a swell in plaintiff attorneys going after nonprofits.
Mike Liguzinski, division president, Specialty Human Services at Great American Insurance Group in Cincinnati, Ohio, said the social inflation caused by a very proactive plaintiff bar, which is pursuing and winning more verdicts and high jury awards, is impacting rates. It's not a new phenomenon, rather a trend that seems to cycle around about every 10 years, he said.
"We're going to see rising rates for the next two to three years because of social inflation," Liguzinski said.
Brad Baumgartner, executive vice president with IMA Inc. in Denver, said liability and property coverages in the nonprofit space are mirroring what is happening in the P&C market in general.
"Comp prices are coming down, which is great, because that has historically been a big spend for them. But just like anywhere else in health and human services, professional liability has been going up," he said.
Nonprofit insurance broker Jordann Coleman with Heffernan Insurance Brokers in Walnut Creek, Calif., said a soft workers' comp market has been a "silver lining" for many nonprofits as property and liability rates rise.
"Workers' compensation has been the one area that we've been able to -- at least rate-wise -- provide some relief," she said.
Carriers that specialize in nonprofits are taking note of the market changes.
Liguzinski wouldn't go so far as to say that the market is in a crisis mode, but he acknowledged his company is "getting a ton of calls" from brokers trying to place business. "Let's put it this way: Our phone is ringing. We don't have to go looking for it," he said.
Johnson of the Nonprofit Insurance Alliance tells a similar story.
"Our submission account for 2019 was up overall 25% year-over-year, and a lot of that is because some of the for-profits [carriers] are saying, 'Yep, we're out. We're not doing it anymore.'" he said.
While the market is changing, Polly Kosyla says coverage is still available for most of her clients.
She said she has been in insurance long enough to remember a time when there were no carriers that would insure a shelter or provide a sexual abuse liability policy.
"There certainly are carriers that are willing to write a bulk of what our clients do," she said.
Kosyla said her agency has succeeded in weathering the ups and downs in carrier capacity by working with a core group of carriers that "we can go to for more standard risks and ... more unusual risks."
For accounts that aren't in the religious sector and haven't been hit with lawsuits, Heffernan's Coleman says coverage is still available, and she hasn't seen much change from the specialized carriers that write the business.
"I think the ones that are in it have been in it for the long haul and will continue to stay in it for the long haul," Coleman said.
Council Services Plus' Andrew said he doesn't think the nonprofit market is in crisis -- yet.
"There's only a handful of insurance companies who are really writing a policy that's comprehensive for the nonprofit world, and when they start to go away or they start to firm up, then there's even less options in the marketplace," he said. "I don't think it's reached crisis level, but does it have to reach crisis level for us to get ahead of something?"
He said the landscape is shifting, and, "if we're not careful, we're going to have hundreds and hundreds, if not thousands of nonprofit organizations wasting resources to pay for more premiums or being outright canceled and not being able to get insurance. Then we really have a crisis."
Impact of Funding
A nonprofit's revenue sources are highly influential not only to how the organization is managed and its ability to complete its mission, but to the development of an insurance program for the risk, the experts say.
Many nonprofits receive funding from grants or contracts from municipalities, states or the federal government, and that funding dictates the level of limits or coverages that nonprofits must have.
Charlie Kosyla said brokers need to pay attention to those details, so that nonprofits have all the proper insurance in place and carriers feel comfortable writing the risk.
"The funding difference between a nonprofit and a for-profit is a for-profit might have a product that they're selling or might have a revenue stream that's coming in and supporting the business, whereas a nonprofit, they're going to rely on multiple revenue streams," Charlie Kosyla said.
"Nonprofit organizations are under obligation contractually to have certain insurances in place, and if that insurance isn't available or it's only available at a cost prohibitive price, then it threatens the nonprofit sector unlike it threatens any other sector," Andrew said.
Andrew noted he has had clients with $8,000 budgets that have to spend $2,000 on insurance; dedicating such a big portion of their budget to insurance takes away their ability to help their local community.
"Every dollar that goes to insurance is one less dollar to its mission," said Andrew. "We can't do that to communities."
Helping Nonprofits During Uncertain Times
Nonprofit experts agree this segment needs agents and underwriters who specialize in it and can help their clients understand their exposures and what coverages they need. That knowledge will be especially important to helping nonprofits navigate a firmer market with limited coverage availability.
"Insurance isn't the top of their list of things that they're doing on a daily basis," Baumgartner of IMA said of the nonprofits with which he works.
Baumgartner said sometimes he sees exposures a previous broker hadn't paid much attention to. Nonprofit brokers need to do a "thorough risk review, where you're reading the terms and conditions of the various policies, discussing the limits, and benchmarking the pricing," Baumgartner said. "I've run into a number of scenarios where there are a lot of coverage gaps."
Polly Kosyla said many clients who have transitioned to her agency previously worked with agents that had been trained to work with commercial accounts but not necessarily with nonprofits.
"We get a lot of clients who are with insurance that doesn't fit them or had premiums that are way too low or way too high because it doesn't fit what they do. I can understand why a commercial agent would be frustrated trying to figure out how to insure a group that they really don't understand," she said.
An agent's expertise and deep understanding of the client's operation is not only essential to the client, it's a big factor in how underwriters look at the risk, as well, said Penny Parisoff, non-profit product management director at GuideOne Insurance in West Des Moines, Iowa.
She said agents need to understand the types of clients the nonprofits serve and clearly articulate their story to the underwriter.
"I think that's true on all of the nonprofits -- because the nonprofit space has such variety to it -- is that agent really learning the risks?" she said.
Agents and brokers can help their clients by working with them on their processes and procedures, their safety culture and preventative measures, and help them establish a risk management plan with steps in place, Great American's Liguzinski said.
"Help them wear that hat or co-wear the hat with them, the risk manager hat," he said. "A number of the carriers have risk management tools and portals and online training, and sending out a loss control person to work with them on their processes, procedures, background checks."
Nonprofit Insurance Alliance's Johnson says he tells his brokers one of the most important things to do is understand what contracts nonprofits are signing "because it's the broker's job to help the nonprofits figure out what coverages they need, what limits they need, and an important factor of that is what contracts are they signing, what liability we're taking on."
He also noted that brokers need to understand the differences in policy forms that different carriers offer and "not just go where you get the most commission, not just go where you know the person best."
"Make sure you understand the policy so you're going to get the nonprofit the best coverage available for the best price. Understand loss control services that the companies are offering," he said. "Make sure you're taking advantage of their employment risk management services.
Make sure you're taking advantage of their driver training."
He added brokers should be aware of different statute changes around the country and the changes in social inflation and he cautioned against brokers going with a policy that offers the highest limits because it may not be to the benefit of smaller nonprofits.
"It's easy for a broker to say to a nonprofit, 'You need a $10 million umbrella. Get as much coverage as you can get as possible,' because they can never be accused of not offering to give them enough coverage -- they're protected," he said. "Nowadays, what that does is it puts a target on their back, so the lawyers will say, 'They got $10 million of coverage. I think I'm going to demand $10 million.' It never fails."
Andrew says he wishes more brokers would become specialists in the nonprofit sector and learn about it on a "grassroots level."
That intimate knowledge would help underwriters feel more comfortable offering coverage in the segment.
"If more brokers got into the sector and took time to understand the sector, then yes, more companies would understand what nonprofits are and then understand that these organizations are not the risk that they might be perceived. No one's taken the time to really talk through what this organization does with an underwriter," he said.
Nonprofits are evolving and working to address and manage their exposures, said Persuitti. "It's a very dynamic sector that is in many ways at the edge of lots of risk, but very committed to screening its volunteers. It's learned so much. It's taken that knowledge and science and the advancements of technology."
Persuitti said despites its challenges, the nonprofit segment is a "remarkably growing space" that is very rewarding to work in.
Andrew said he hopes the insurance market will work to ensure the availability and affordability of insurance for nonprofits before it becomes a crisis because that would be devastating for not just the nonprofits themselves, but the communities they help.
"That worries me because I see what these small community-based organizations are doing on the local level," he said.
Insureds and insurers benefit from fair premiums being charged for the risk -- not too high or too low, he said. The broker's job is to "bring those two ends together" so both sides get a fair deal.
"When those two things come together, the nonprofit's expectations and the company's understanding, boy, that's a great thing," Andrew said. "We don't have enough of that right now."
This story originally appeared in the Feb. 10, 2020 issue of Insurance Journal