Nonprofit organizations bolster communities and improve lives through diverse endeavors including art, charity, religion and science. With more than 1.8 million nonprofits in the United States, each organization has a distinct core function ranging from building homes to writing limericks to organizing STEM summer camps. Accordingly, nonprofits require an insurance portfolio aligned with their niche mission.
In 2022, charitable giving plummeted $17 billion, as economic uncertainties and inflationary factors affected nonprofits' ability to raise money through donations and fundraising efforts.
The Special Donor Trust Report on Donor Participation from the Better Business Bureau (BBB) Wise Giving Alliance stated that the decline is “tied to broader societal trends with undeniable momentum, such as growing economic inequality, loss of a sense of community, and polarization.”
Furthermore, the National Council of Nonprofits (NCN) reports declining volunteerism and workforce shortages, coinciding with a rising demand for nonprofit services.
The escalating costs for nonprofits providing essential services such as food, housing and healthcare further strain their financial resources. While government-funded entities and grants provide some level of stability, nonprofits relying on private donations are struggling.
Despite these challenges, the nonprofit sector has demonstrated remarkable resilience and commitment to serving their communities. Nonprofit insurance buyers are increasingly relying on their insurance programs to offset the impact of inflationary pressures. Given the obstacles, it’s imperative to partner with the right broker who can build an insurance program that actively supports the mission and goals of the nonprofit.
Reviewing the Market Outlook on Insurance for Nonprofits
In December 2022, Alera Group released its 2023 Property and Casualty Market Outlook. Here’s what we said about nonprofit organizations:
“Pricing will continue to increase. Capacity and availability will be challenging in some lines of business and for some clients. Factors influencing the market:
- “There is limited availability and capacity. The number of specialty insurers that focus on nonprofits is limited. The good news is that new carriers are coming into this sector. Due to the broad range of risks nonprofits face, insurance companies will continue to be selective in the organizations they’re willing to cover.
- “The importance of telling a compelling story. Underwriters have a soft spot for organizations that do good. When possible, leadership should get in front of the decision-makers who will underwrite their accounts. In addition to talking about the organization’s work, it’s vital to discuss the controls in place to manage risk. The best pricing and terms will go to clients with effective controls and positive loss histories.
- “Philanthropic organizations are held to a higher standard. The U.S. remains a highly litigious society, and signs indicate that the environment may become even more challenging in the years ahead. Juries continue to be more open to awarding ‘nuclear verdicts’ of seven figures and greater. Nonprofits are not exempt from impact. Because nonprofits are held to a higher standard of conduct, they are more vulnerable to suits. Nonprofits will see liability rates rise in the upcoming year, and Umbrella/Excess Insurance may be difficult to obtain.
- “Coverage for sexual abuse and molestation is hard to purchase. Traditional players are pulling back on how much capacity they will provide. Obtaining coverage at affordable rates will be challenging for nonprofits that serve vulnerable populations.
- “Nonprofits are a target for cyberattacks. Organizations commonly retain donor financial files; employee, volunteer and client data; and credit card information. While they store a lot of data, nonprofits often lack the funds for data integration IT security. Both the need for Cyber Liability Insurance and the cost of obtaining it are increasing.
- “Claims related to employment law continue to be common and costly for nonprofits. Harassment, wrongful termination, retaliation, discrimination and wage-and-hour disputes are among the top claims against nonprofit employers. While rate increases for this line of coverage are moderating slightly, underwriters will scrutinize organizations closely to ensure they have the policies and procedures in place to reduce the risk of claims.”
Throughout this year, carrier capacity and interest have improved. Some of the underwriting concerns during the pandemic never materialized, particularly with Directors and Officers Liability Insurance (D&O) and Employment Practice Liability Insurance (EPLI). Carriers expected a prolonged upsurge of claims as boards and executives faced heightened scrutiny about fund management and performance. Funding uncertainties caused layoffs, job restructuring and salary reductions, increasing the exposure to allegations of wrongful termination and discrimination.
The stability of claims activity has prompted carriers to re-enter the market and compete for nonprofit business. Overall, however, the nonprofit sector remains a challenging class of business for insurance coverage.
Heightened Exposures for Organizations Serving Youth and Vulnerable Populations
The primary exposure for many nonprofit organizations is predatory behavior targeting youth and vulnerable individuals. When an organization serves this population, underwriters expect a comprehensive abuse and molestation risk management program.
Philadelphia Insurance Companies recommends these five key elements for an effective child sexual abuse prevention program:
- Support from leadership
- Documented policies and procedures
- Documented employee and volunteer training
- Specific training for hiring managers
- Criminal background checks.
Over the past decade, the size of verdicts related to abuse and molestations claims has trended significantly upward. Earlier this year, a judge upheld a $2.46 billion sex abuse settlement against the Boy Scouts of America.
When an organization fails to take appropriate measures to protect children under its care, juries tend to impose harsher punitive measures.
Effective risk management surpasses mere administration compliance. It is essential to ensure that policies and procedures undergo thorough review by legal counsel and insurance professionals. This step helps ensure that your documents are comprehensive and compliant with legal standards.
Furthermore, integrate education and training initiatives into daily operations, extending beyond the onboarding of new employees, hiring managers or volunteers. Documentation of these activities is paramount.
The primary objective of comprehensive policies and procedures is to prevent abuse and safeguard the wellbeing of youth and vulnerable individuals. From an organizational standpoint, meticulously vetted policies and procedures can help serve as a protective shield and insulate the organization in the event of an incident.
Partner with a Broker Who Understands Your Mission
A knowledgeable broker with nonprofit expertise can provide invaluable guidance throughout the process of securing new coverage or renewal terms. Such brokers have access to a wide range of carriers who specialize in covering niche exposures and offer a wealth of risk management resources, including screening tools, abuse prevention training and volunteer management.
A sophisticated broker will:
- Educate nonprofit insurance buyers. While larger organizations may employ dedicated risk managers, most nonprofits can benefit from a comprehensive analysis of their current insurance program. This analysis helps them understand how their coverage aligns with their mission and identifies any gaps that need to be addressed. By providing this educational support, a diligent broker empowers nonprofit executives to make informed decisions about their insurance portfolios.
- Bring your story to life during the underwriting process. Underwriters must grasp the nuances of each organization to confidently offer a competitive insurance program. They need to understand and be inspired by the nonprofit’s mission. Your broker facilitates the process by educating the underwriters on why the nonprofit exists, whom you serve in the community and how your work is accomplished. Personal interactions, such as video calls or onsite meetings, allow carriers to gain a deeper understanding of your operations. This, in turn, differentiates your underwriting submission and helps you secure optimal policy forms, limits and pricing.
- Provide assurance and expertise during the claim process. When your nonprofit organization experiences a claim, a broker can advocate for you throughout the process and communicate with the claims adjuster and carrier. Moreover, in the case of traumatic incidents such as armed robbery or abuse, a discerning broker can play a crucial role in guiding the organization through the aftermath and facilitating the recovery process.
- Support your mission through a holistic approach. A full-service insurance broker who can cater to all your insurance needs is invaluable. By simplifying the buying process with a one-stop shop, the nonprofit saves time, money and resources that can then be allocated to its community. Such a holistic approach encompasses employee benefits, wealth services and retirement plan services as well as property and casualty insurance.
By partnering with the right broker, nonprofit organizations can navigate insurance complexities with confidence and focus their resources on impacting their communities and achieving their missions.
For a broader look at navigating insurance market conditions, read Alera Group’s 2023 Property and Casualty Market Outlook and our March 2023 Commercial Property Update.
With more than 130 offices around the country, Alera Group combines local service with national reach and provides individualized, carefully crafted coverage programs that fit each client’s unique needs. To contact an Alera Group agent or broker, click on the link below.
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About the Author
Brynnan Hyland
Sales Executive, Partner
Propel Insurance, an Alera Group Company
Brynnan Hyland specializes in building property and casualty programs for nonprofit organizations. Inspired to advocate on behalf of his clients, Brynnan provides them with innovative, comprehensive and competitive risk management solutions that align with their mission and goals.
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