Rough Notes • May 2024 • INSURING NONPROFITS AND SOCIAL SERVICES

It’s no mystery that not-for-profit organizations and social service agencies face substantial loss exposures serving vulnerable people with special needs. The risk is even greater for those organizations and agencies that provide transportation or residential services.

In light of such daunting risks, it’s a bit surprising, and perhaps a relief, to hear that there’s a lot more that nonprofits and service agencies can be doing within their own operations to reduce risk and manage a challenging market for insurance.

According to Kristina Talkowski, senior vice president and leader of middle market commercial lines at Nationwide, “Comprehensive business continuity planning is an approach to risk mitigation that is often overlooked” by nonprofit clients her organization supports.

She says that, while groups dealing with the most vulnerable or populations are often required to have such plans, “those with less of a clinical exposure might not have such policies in place or the business income limits in place to protect them in the event of a catastrophe.

“Employee turnover is another big issue,” she says. “It’s a difficult problem to solve, as limits on revenue are a restriction on hiring and retaining staff. Employee turnover can lead to higher frequency and severity of losses.”

To help address these organizational challenges, Nationwide’s loss control services team goes beyond traditional loss control to help nonprofits with business continuity planning and employee training and development.

“To help reduce turnover, we’re seeing more indepth analysis of employee benefit programs focused on employee needs,” she says.

“These include features such as short-term disability coverage, interest-free loans, and lower healthcare costs,” she adds. “But the analysis extends to greater employee recognition and tiering of roles to offer opportunities for advancement.”

When it comes to helping nonprofits manage their operations, don’t overlook volunteers, says Robin Stolle, area vice president for Risk Placement Services (RPS).

“Volunteers are commonly overlooked,” she says. “Volunteers are valuable resources as long as they have been properly vetted with background checks, completed applications, and interviews.”

Peter Kim, assistant vice president of risk management services at Philadelphia Insurance Companies, also emphasizes attention to organizational fundamentals as a means to reduce risk.

“Stay on top of your maintenance schedule,” he advises organizations. “Schedule self-inspections regularly and engage third parties in inspections, whether it’s your insurance company, the fire department, or the health department. Establish a capital budget to go toward repair or replacement of property.”

According to Kim, for all the unique exposures faced by nonprofits and social services, the “number one driver” of bodily injury claims are ordinary “slips, trips, and falls” that can be avoided or prevented at relatively little cost. Similarly, Kim finds, the leading causes of property damage—water infiltration, wind/hail damage, and fire—can be mitigated by basic attention to roofing and heating equipment.

Finally, Kim notes that professional and managerial liability claims due to inadequate supervision, or failure to secure entrances (leading to elopement of clients or entry of intruders) can be effectively addressed with standard and affordable locks, alarms, and security cameras.

It’s good to hear that basic management discipline, valuable in its own right, can help reduce the cost of risk because the market for insurance has become daunting for nonprofits and social services.

“We are seeing less capacity, higher pricing, tighter underwriting guidelines and fewer policy extensions being approved by the carriers,” says Stolle. For example, she notes, some professional liability carriers are restricting coverage for prior acts, even for accounts with continuous coverage.

“A risk may come in with a retro date of 1995, but the carrier may only approve prior acts back to 2004 on new business,” she explains. “If an account has had prior acts covered back to 1995, why would it choose a quote with limited prior acts? It appears the market doesn’t want to write those risks.”

“The broader market is restricting capacity in property and professional liability lines,” says Barbara Press, director of underwriting for the small business unit of Irwin Siegel Agency. “We are seeing an increased flow of submissions, with most insureds looking at double-digit increases at renewal.

“We also see a consistent flow of submissions for excess coverage as carriers continue to restrict or sublimit coverage for professional liability and abuse,” she adds. “These critical coverages are seeing the most restrictions, whether through reduced limits, specific exclusions, and/or higher deductibles or self-insured retentions.”

Entire classes of risks are receiving greater scrutiny, according to Press’s colleague Sonya Scott, an Irwin Siegel Agency underwriter.

“Based on our application flow, we are seeing competitors reexamining residential risks closely and reevaluating their appetite,” Scott says, with small residential risks being the most affected. “Many small residential risks are being asked by their funding providers to obtain excess limits that are not easily obtainable.”

Stolle has seen some carriers get back into coverage for residential risks after withdrawing from them during the pandemic, but still detects some reluctance among admitted carriers to write foster care and adoption placement agencies.

Scott observes what she describes as “volatile” market conditions for educational risks, especially for preschool and childcare operations vulnerable to abuse claims, in addition to other property and liability losses. According to Scott, some carriers are raising rates for these risks, while others are withdrawing from the class entirely.

Some relief may be coming in certain lines important to nonprofits and social services.

According to Marcy Taggart, another underwriter with Irwin Siegel Agency, the market for cyber coverage has softened somewhat in the wake of carrier efforts to reduce risk by mandating measures such as multi-factor authentication, frequent off-site backups, and endpoint security. (Amazon Web Services describes endpoint security as “a set of practices and technologies that protect end-user devices such as desktops, laptops, and mobile phones from malicious, unwanted software.”)

“These new standard requirements have proven effective” in making cyber coverage more affordable, Taggart says. She adds, however, that “it’s difficult to predict the forthcoming cyber market, as it is based on ever-changing technology and cyber criminals looking to take advantage of any new vulnerability.”

Taggart also believes the market for management and employment practices liability insurance is “turning a corner” after several years of sharply reduced appetite among carriers and corresponding premium hikes.

“Appetite among carriers is expanding and we are seeing smaller price increases and fewer policy changes at renewal,” she says. Again, there’s no guarantee the trend will continue, or that all clients will benefit.

“Not all organizations will see noticeable improvement,” Taggart notes, “as rates for management and employment liability coverage depend largely on the overall loss experience in states where they operate.”

One shouldn’t expect much relief in the area of claims for auto, general, and professional liability.

“Liability concerns continue, primarily related to professional liability and sexual abuse and molestation coverages,” says Talkowski. Because of pandemic-related delays, thirdparty litigation funding, and other causes, “loss development in those lines often commences later and is generally longer and greater than anticipated,” she says. “Claims emerge later and stay open longer, with a negative impact on settlement amounts.”

So, beyond helping clients with organizational planning, Nationwide provides them with extensive loss control consultations. “We’ve found that specialized consultative support for fleet safety and abuse prevention programs has resulted in significant reductions in loss,” Talkowski says.

“Many carriers also offer subsidized solutions, such as vehicle telematics and conflict de-escalation training,” she adds. “Organizations should utilize their carriers’ risk management resources. The cost is likely already built into their premium, so it’s a value-added service.”

The organizational and risk management needs of cash-strapped and resource-deficient nonprofits and social services create a solid opportunity for insurance agents and brokers to become valued partners for long-term clients.

“Create training resources for employees and volunteers,” says Stolle. “This takes time on the front end, but the investment will show an underwriter an account is serious about bringing on and retaining people.”

“Educational material on risk management is available through carriers or industry groups, such as the Nonprofit Risk Management Center,” says Kim. “Partner with a carrier that specializes in nonprofits and social services and knows the unique risks these organizations face. Bringing risk management education and a good carrier will provide needed value to your clients, especially with the challenges in today’s market.”

“Agents and brokers are in a strong position to help clients by working with carriers who specialize in this segment,” says Talkowski. “Reinforce the importance of proactive risk mitigation and ensure they’re taking advantage of carrier-provided support and resources.

“Instilling a prevention-focused mindset can have real impacts on premiums, claims outcomes, and even company culture.”

The circle is complete. Attention to organizational matters will reduce losses, and reduced losses will promote a better organization.

Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P-C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.