Brokers Keep Watchful Eye as Tough Economy Forces Workforce, Program Changes
It’s no secret that nonprofits are feeling the effects of a battered economy. Donations are down. State and federal funding is also down. In the wake of necessary cost-cutting measures, insurance providers say they are keeping a close watch on changing exposures for many of their social service clients.
Brad Baumgartner, vice president, IMA of Colorado, an Insurance Journal Top 100 Agency, says many of his not-for-profit clients are feeling the effects of the economy, especially since state and federal agencies are cutting their funding to balance budgets. “I’ve seen a lot of organizations that relied solely on those funds turning more towards fundraising efforts where in the past they didn’t need to,” he said.
A number of Baumgartner’s social services clients have been forced to reduce staff as well. Some have contemplated cutting certain programs, he adds, although most agencies choose to cut administrative costs before cutting programs.
So far, Baumgartner has yet to see one of his clients close their doors, but he notes that several have discussed eliminating locations, merging with another organization or joint venturing with other organizations to further cut costs.
Exposure Changes
Such cost-cutting measures keep insurance providers on the lookout for changing exposures, even in a very competitive insurance market. In this market, Baumgartner says it’s even more important for brokers to keep watch over their clients’ changing needs.
“At IMA we have been helping some who have been evaluating joint venturing with other agencies as a means to try and help two different agencies try and provide similar services,” Baumgartner says. “If one agency wants to partner with another sometimes we work with both on a risk management and insurance broker perspective. And if they were going to work on a joint venture to provide the same services … then we just help them understand from a contractual standpoint the risk management and insurance implications and try to walk them through that so they are going into it with their eyes open.”
Smaller organizations may be suffering the most as cuts in funding have lead to increased layoffs of staff, mostly in communications, human resources and fundraising, says Dan Mogelnicki, president of Manhasset, N.Y.-based NIF Underwriting Facilities.
“We haven’t seen much cuts in payroll dedicated to the actual servicing of consumers, but we don’t know if that will continue,” Mogelnicki says. But he is keeping an eye out for further cuts in direct service staff in the social service sector. If that happens, caseloads would increase.
“Instead of handling 10 cases, a person might have to handle 20 cases or more, so then potential losses might come up,” he says. Even though without decreases in service staff, claims could increase for non-profits forced to cut HR staff, for instance.
“A key component in underwriting is hiring and screening,” he said. Many times it’s the management or HR staff charged with record keeping responsibilities. While good record keeping might not prevent a loss, it would help to mitigate the extent of damages in a loss, Mogelnicki says. “Even if it’s just management staff that is cut we still have some concerns and keep our eye on the effects this could have.”
Competitive Insurance Market
Social service providers may be suffering from decreased funding, but the insurance market for most non-profits remains very competitive.
“It’s still a soft market,” says Baumgartner, who at 32-years-old is the youngest vice president at IMA Financial Group. “I think the underwriters are trying to hold the line and trying to keep renewals as flat as they can, but there’s definitely, from an availability standpoint, some new carriers trying to get into this industry.”
Geof McKernan, CEO of Conshohocken, Pa.-based NSM Insurance Group, agrees with Baumgartner’s assessment on market conditions for the not-for-profit, social services sector. “There’s a lot of capacity out there, McKernan says. “The availability is strong. Prices are not going up; it’s a very competitive market right now.”
NIF’s Mogelnicki says in his view the overall insurance marketplace for social service organizations is somewhat limited in the number of carriers. And at least one major carrier “has gained a tremendous amount of market share through significantly reduced pricing,” he said.
As a retail broker, Baumgartner worries a bit about new carriers entering the market and undercutting prices for the sector.
“What we don’t want to see happen is new markets coming in because they are hungry and then driving the prices down and then losses skyrocket,” Baumgartner says. “The key, as with any industry, is trying to evaluate those products and the underwriter’s knowledge because if you are a residential treatment facility or a developmental disability service provider versus mental health, or whatever, all those different groups have very unique risks.”
At the end of the day it doesn’t matter which carrier Baumgartner’s clients go with, as long as the client understands that the coverage meets their needs and the price is affordable. “That’s all that it comes down to,” he said.
Baumgartner, a former member of the Peace Corps and a longtime advocate for not-for-profits, says in general the not-for-profit sector is loyal when it comes to insurance.
“If they have been working with someone for a long period of time (and) if it’s a 5 to 10 percent difference they may just stay,” he says. “They are definitely loyal buyers and we take that into consideration.”
Loyalty might be one reason some providers target the industry. “We’re bullish on the market,” NSM’s McKernan says. “We think social services is strong and will continue to be strong.”
Topics Profit Loss Agencies Market Human Resources
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