Helping Nonprofits through Difficult Times

This year nonprofit acquaintances often have asked me a question for which I have no answer. That is, “Why are commercial insurers non-renewing my nonprofit?” Our experience with nonprofits has been favorable, and it seems ludicrous to see other carriers dumping whole books of this business. Hoping to be able to provide a rationale explanation to my nonprofit colleagues, I ask about changes in exposures, increases in hazard and claims experience. Alas, no, they say operations are the same, or shrunk in many cases, claims are minor or nonexistent.

In other cases, carriers renew but surprise the nonprofit’s broker with a dramatic price increase just days before the renewal. We could all understand 10 percent across the board increases to help pay for the impact on insurers from the Sept. 11 tragedies, but those of us who work in this industry know that what’s happening with insurance availability and pricing goes far deeper than that. These include practices such as long-term under-reserving and investment losses, as well as large losses from asbestos and environmental exposures. But that still doesn’t satisfactorily answer the non-renewal question posed by my nonprofit friends.

To make matters worse for nonprofits, the cutbacks in government funding and the stock market impact have reduced available funds from private donors and foundations. In a year when every dollar really counts for nonprofits, these insurance price increases are really hard to take. In some cases the price for the umbrella liability has doubled for half the limits. I ask myself whether there is any other industry that could double prices from one year to the next, while at the same time providing half the product.

There are two lines in which prices are increasing for nonprofits for which some increases are probably necessary. Those are prices for improper sexual conduct, and to a lesser extent directors and officers. The coverage for improper sexual conduct is particularly volatile and subject to larger losses. Nonprofits with residential programs for children and teens and foster family agencies are especially vulnerable to these types of claims. While many carriers refuse to offer this coverage, particularly in the present market, a few continue to offer it even on the most difficult risks, but at lower limits. D&O claims for nonprofits stem almost exclusively from employment-related lawsuits. Nonprofits with only volunteers, and no employees, should easily be able to find coverage that is modestly priced. Nonprofits with employees, particularly if they have had several employment-related lawsuits, will likely encounter price increases. Some carriers have begun to impose deductibles of $5,000 to $25,000 on employment-related claims. While frequency generally is not a problem on this line, severity can be, and the unpredictability of this line makes pricing more difficult. Commercial auto liability has the potential for catastrophic losses, particularly when insuring 15 passenger vans and busses. Prices for this coverage, especially on limits excess of $1 million, have increased significantly. In many cases, brokers may be wise to counsel nonprofits to shy away from purchasing these larger vans.

The two lines of coverage that can be most dramatically impacted by good loss control measures are D&O and auto liability. For directors and officers, the single most important loss control tool is to make sure that employment-related actions are not taken without the advice of an attorney. Pre-termination consultations are essential. For auto, regular training is a must. The purpose of the training, in addition to building skills, is to heighten safety awareness.

While even the best brokers and nonprofits can have only limited impact on insurance availability and pricing, there are several things that can be done to make the best possible impression on an insurance underwriter. Nonprofits tend to be loyal and appreciative clients, but placing them the first year can be a little extra work. Carriers that write specialty coverages such as social services professional, improper sexual conduct and directors and officers typically require separate specialized applications for each coverage.

In addition, they may require copies of policies and procedure manuals, employee handbooks, bylaws and other documentation. Brokers who wish to get the most prompt and thorough attention in any market, hard or soft, need to thoroughly complete the company’s supplemental applications and carefully provide any additional information called for on the application. If an underwriter needs to constantly ask a broker for more information, that broker’s submissions can have a way of finding themselves at the bottom of the in-basket.

Brokers can best serve their nonprofit clients by finding a market that has demonstrated a clear interest in writing this business through hard and soft markets. These markets may not always give brokers the answers they want to hear, but they ought to be able to clearly articulate their strategy as regards to writing nonprofits and what their appetite is for writing new and renewing business.

Pamela E. Davis is the CEO/president & founder of the Nonprofits’ Insurance Alliance of California; Alliance of Nonprofits for Insurance, Risk Retention Group.

Topics Carriers Agencies