Closer Look: Nonprofits

Over the years, many a vexed property/casualty insurance company chief executive has joked about his firm being a nonprofit, blaming pricing regulation, market cycles, high loss ratios, low investment income or some combination of these forces for erasing any net gain.

While nobody wants to report a loss, there are several insurers that are not bothered if they don’t report a profit. They serve the nonprofit market and are themselves nonprofit organizations. They figure they have an advantage in understanding their insureds since they, too, face similar membership, governance, tax and insurance issues.

One such nonprofit insurer is the Alliance of Nonprofits for Insurance, Risk Retention Group (ANI-RRG), a Vermont-domiciled risk retention group. It is a 501(c)(3) tax-exempt nonprofit insurance company whose mission is to be a stable source of reasonably priced liability insurance for 501(c)(3) nonprofits.

ANI-RRG and an affiliated reinsurance captive company were capitalized with $10 million in grants from the Bill and Melinda Gates Foundation and the David and Lucile Packard Foundation. It currently writes coverage for 501(c)(3) nonprofits in Colorado, Connecticut, Delaware, District of Columbia, Iowa, Kansas, Maryland, Michigan, Missouri, Nebraska, Nevada, North Carolina, Ohio, Oregon, Pennsylvania, Utah, Vermont, Virginia and Washington.

Modeled after the Nonprofits’ Insurance Alliance of California (NIAC), which was founded in 1989 and provides coverage to nonprofits in California, ANI-RRG is governed by its nonprofit organization members. ANI-RRG and NIAC are part of a group of affiliated companies that also includes the National Alliance of Nonprofits for Insurance, a captive reinsurer, and Alliance Member Services, a management company.

Surprising stability

“Having written 501(c)(3) nonprofits exclusively since 1989, we don’t see much that surprises us,” said Pamela Davis, founder, president and chief executive officer of ANI-RRG. But her organization’s approach to underwriting might surprise a few executives at those for-profit insurers. Her underwriters rarely see an account they won’t price or renew.

“When we write an account, it is generally with the expectation that we will be able to provide them with the variety of coverages we offer. It is our policy to underwrite and price appropriately rather than to exclude the tough coverages when the insured has the exposure,” she said.

The emphasis is on keeping customers, according to Davis, who said it has resulted in a renewal rate in excess of 90 percent and a roster of happy agents, brokers and customers who value stability.

“We are also accountable to the public in the same way that our members are,” Davis commented. “Our members value stability in pricing and have an expectation that they will not be non-renewed because of a single claim. Instead of focusing on ‘what the market will bear’ we focus on what works best for our members and their brokers. We value the confidence our member-insureds place in us because we are, like them, a part of the nonprofit sector.”

The alliance writes nonprofits of varying sizes and types except for housing developers, hospitals, birthing centers, churches and lock-down facilities. It offers general liability, improper sexual conduct liability, social services professional liability, commercial auto insurance, liquor liability, umbrella, directors and officers liability, employee benefits liability, and non-owned and hired auto. Through an “A+” rated specialty program, it also offers agents and brokers access to property and fidelity.

ANI-RRG (www.ani-rrg.org) reports $57 million in gross written premium on total surplus of $65 million, with a combined ratio of 88 percent. NIAG insures 6,700 nonprofits and is assigned an “A” (Excellent) rating by A.M. Best. ANI-RRG and NANI garnered an “A-” (Excellent) rating.

The first to serve

Chicago-based First Nonprofit Insurance Company has been in the business of serving nonprofits like itself for 35 years.

“Because we were created by leaders in the nonprofit community, First Nonprofit has always been willing to assume risks other insurers have refused and to design new programs as organizations request them. Today, First Nonprofit remains governed by nonprofits and continues to provide the customized coverage they need,” the company says in its literature.

According to Trish Shanahan, vice president of marketing, the company got its start in a crisis. “Faced with the insurance market crunch of the mid-1970s, several leaders of Chicago’s most important nonprofits pooled their ideas and committed their energy to creating the first nonprofit owned alternative to the commercial insurance market,” Shanahan said.

She noted that while mergers and acquisitions have slowed in the for-profit world, nonprofits continue to merge or form alliances in reaction to funding changes. “These alliances can result in dramatic changes in operations,” Shanahan said.

First Nonprofit writes 501(c)3 charitable organizations, most of which are social service agencies, in Illinois, Indiana, Michigan, Minnesota, Ohio, Pennsylvania, Maryland and the District of Columbia. First Nonprofit Insurance was recently admitted in South Carolina, Florida and Wisconsin. The company operates in Ohio as First Insurance Company for Nonprofits.

The company uses a broad definition of “insured” in its legal liability coverage for executives, employees, board members and volunteers. In addition, it offers specialized coverages generally not offered by other insurers. These include professional coverages such as social workers liability/foster care, explicit sexual abuse/molestation, pastoral counseling, teachers professional and other forms of professional liability. It also offers traditional coverages for auto, workers’ compensation, and umbrellas for all underlying policies. It sells its policies through independent agents.

First Nonprofit (www.firstnonprofit.com) writes a little more than $51 million in premium; it ended 2005 with $19.7 million in surplus and a 94.1 percent combined ratio. First Nonprofit Insurance is rated “B++” (Very Good) by A.M. Best and “A” by Demotech.

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