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Volume 99, May 2016

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Write one nonprofit and others will follow

Networking is an important part of almost every nonprofit organization. Most are very interested in developing additional sources of revenue, volunteers and partnered services. They are also very interested in keeping their administrative costs as low as possible in order to have the majority of their funds supporting the mission of their organization. This networking helps the agent interested in writing nonprofits too.

Smaller nonprofit organizations may have minimal coverage and are interested in finding an agent to help them find and fill the gaps in their coverage, such as cyberliability and D&O. The good news is that regional brokerages have the knowledge and their companies have to capacity to write nonprofits. Even better news is that they are actively working with retail agents that are interested in growing a nonprofit book of business.


Vision Does Not Require Sight

Success with social service agencies and other nonprofits

By Dave Willis

While their corporate structure, mission and audience may differ from their commercial counterparts, nonprofits share many challenges in common with for-profit endeavors. "Nonprofit and social service leaders juggle the same critical management responsibilities as for-profit leaders," explains Thomas Herendeen, RPLU, nonprofit D&O product manager at Travelers Bond & Specialty Insurance. "They are managing budgets and employees and further engaging volunteers and contributors to fulfill their mission, often with limited resources."

Key for agents and brokers serving the segment is developing a solid understanding of the issues social service agencies and other nonprofits face, and then delivering insurance products, risk management resources and other support to help them fulfill their missions. According to Riley Binford, executive vice president of Charity First Insurance Services, economic issues are paramount. "Nonprofits continue to struggle with budgets and finding additional revenue to cover them," he notes.

Dawn Martin, assistant vice president of underwriting, large accounts division, at Irwin Siegel Agency, concurs. "One of the biggest issues nonprofit social service agencies face is funding cuts," she says. "Most agencies rely on government funding, in some capacity, to operate programs."

At the same time, demand is up. For example, says Nicholas Bozzo, president of Negley Associates, "The Millennial generation is seeking mental health care more often than other groups." He anticipates that leaders of nonprofits will need to respond to a greater demand for walk-in clinics and technology-based services.

Also, Bozzo notes, "Response to a recent U.S. Surgeon General report about the state of substance use, addiction and health may well change the national dialogue about issues relating to behavioral healthcare agencies in particular."

Martin points out that, with more people needing services and less money available for them, smaller agencies may find that survival requires merging with a larger organization or greater collaboration with other providers. "Pooling management and HR resources and even sharing employees could save money, which can be redirected to programs," she remarks.

Bozzo adds, "Based on increased insurance coverage and benefits, this segment has become increasingly attractive to investors, resulting in ongoing consolidation and diversification."

Providers in certain jurisdictions are dealing with other changes. "As states move forward with Medicaid expansion, employees at many social service agencies are becoming Medicaid-eligible," explains Brad Storey, MSW, assistant vice president, risk management division, at Irwin Siegel. "This will have an impact on their employee benefits."

At the same time, changing labor regulations could affect nonprofits. "Proposed FLSA (Fair Labor Standards Act) changes involve what's called a salary level test, which is a primary indicator of whether or not someone should be paid overtime," Storey notes. The new threshold will be doubled to more than $50,000 a year. "Many mid-level nonprofit managers are paid within the range of the increase, which could create a sizable financial burden for many organizations, particularly in states where wages are a bit lower."

Randall Hedlund, program director at NSM Insurance Group, points out that "to gain efficiencies and better manage their operations, organizations are increasingly dependent on technology. But the very tools that make life easier also deliver significant challenges." He explains that organizations are being bombarded by external-and sometimes internal-attacks on their IT systems, by individuals looking to access their financial resources, personal data and other information that can be used to exploit them. "Leaders of nonprofits often underestimate the impact these attacks can have on their organization's ability to continue to operate," Hedlund notes. "And they're often ill prepared to solve the issues and return their organization to normal operation quickly."

Michelle Irwin, director of underwriting for Irwin Siegel Agency, says the cyber issue is becoming harder and harder for nonprofits to ignore. "Historically, many providers looked at their HIPAA and cyber exposures separately," she notes. "Nowadays, it seems as if they are forever linked." She points out that many policies have HIPAA coverage, which is designed to cover fines and penalties associated with violations of these federal regulations.

"Now we're seeing situations where protected health information is breached, leading to an identity theft exposure," she says. "Without a cyber liability policy, there's no coverage for data breach notification and credit monitoring, a costly requirement in nearly all jurisdictions."

Irwin adds, "The social engineering of private and confidential information also is on the rise, which compounds this issue further." This occurs when a criminal impersonates someone or otherwise persuades a victim to provide information or access to confidential data-unknowingly providing entry into an otherwise protected environment the imposter can exploit. "Social engineering and/or fraudulent impersonation coverage can be endorsed onto a crime policy to help address this broadening exposure," she notes.

Pamela Davis, founder, president and CEO of the Nonprofits Insurance Alliance Group, has observed other challenges. "We see an increasing trend for municipalities to try to foist more legal liability onto nonprofit social service providers," she explains. "As a carrier writing only 501(c)(3) nonprofits, we're used to regularly naming government funding sources as additional insureds, but recently we've seen a trend toward governments trying to force nonprofits to accept liability for government actions and decisions over which the nonprofit has no control."

She stresses the need for nonprofits and their brokers to carefully review defense and indemnity provisions in contracts before signing them. "In many cases," Davis adds, "we have successfully advocated for the nonprofit, helping them get contract revisions to remove unreasonable provisions."

Binford says, "Workers comp continues to be a thorn in many organizations' sides, due to the volatility of the line of business in many states. Also, employment-related claims, such as wrongful termination, discrimination and sexual harassment, are continuing or are on the rise." He also points out that sexual abuse is a top concern for nonprofits working with minors and other individuals in their custodial care.

According to Herendeen, nonprofits face important D&O concerns. "Nonprofits singularly focused on their particular cause often neglect to identify and protect against risks that may leave them-and their board members and officers-exposed," he says. "D&O claims can be complicated and expensive to defend and can divert the energy of the nonprofit organization away from its mission. Volunteer board members often don't realize their personal assets may be at risk in the event of a D&O liability claim."

Herendeen points out that roughly two-thirds of nonprofits buy D&O coverage. "That leaves a third exposed to D&O risks," he observes. "This is important because increased disclosure and transparency required by various stakeholders and regulatory bodies has magnified the need for nonprofits to have strong board governance practices and comprehensive directors and officers insurance in place."

Market success

According to Irwin, the social service agencies insurance space continues to be very competitive. Pricing is competitive, as are coverages and limits. "Capacity is increasing as more insurers try to break into this niche market," she notes. "New carriers are sometimes unaware of the trends and issues facing nonprofits and the complexity of claims handling required within the segment."

Bozzo says agents will find it easier to succeed in the sector by partnering with insurance specialists who are embedded in the industry. "With boots on the ground, specialists can spot emerging trends, develop coverage for new risks and counsel clients about unnecessary coverage that should be avoided," he explains. "Generalists, on the other hand, typically produce policies from a home office perspective-from the top down."

Davis agrees. "Agents working in this sector should have a deep knowledge of the nuances of the forms available to nonprofits, or they should work with a few specialist carriers that have demonstrated long-term commitment through specialized loss control and claims handling-or both," she asserts.

Agents and brokers looking to enter the market need not look far. "The best way is to start in your own community," advises Sheila Shaw, AU, senior vice president at Irwin Siegel Agency. "Look for the local Boys and Girls Club or Head Start program, or maybe the community has a Meals on Wheels program or food pantry." She says agents interested in targeting larger nonprofits should consider organizations that provide services to people with developmental disabilities or addiction treatment or behavioral health services.

"Once you've identified the types of nonprofits you want to target, become visible by attending fundraisers and volunteering with the organizations," Shaw adds. "Attend conferences at the local and state level to start and, as you grow your book of business and expand into other states, consider attending a national conference."

Davis says, "While many large brokerages fight over the 10% of this sector that qualify as 'large accounts,' we find that local and regional agents willing to work with small and mid-sized organizations can build a very loyal and stable book and provide quality service to their communities in the process."

Hedlund recommends taking a holistic approach to insuring nonprofits. "A comprehensive insurance program not only includes traditional property, liability and auto coverage, but also needs to consider the ramifications of technology," he explains. "Coverages like D&O, cyber liability and crime should be integrated to eliminate gaps while removing redundancies that may increase cost." He adds, "Having an agent who understands these issues and can explain them in detail is important. Having a carrier that can offer them comprehensively is essential."

Herendeen points to opportunities for agents to sell more management liability products to nonprofits. "Client education regarding exposures and the various coverage and risk management available to them is key," he notes, citing a Travelers survey that showed that about 25% of nonprofits without management liability coverages saying they don't perceive a risk to their organization and another 20% saying they are unfamiliar with the coverages available.

He says that most nonprofits don't purchase important coverages, such as employment practices liability, fiduciary liability and cyber, which is a growing threat to nonprofits of all sizes. "The best agents will work with strong carrier partners to educate their nonprofit customers about what is at stake," Herendeen adds.

Hedlund recommends educating and supporting clients around their cyber exposures. "Make sure they properly assess their risks, maintain updated security software and conduct regular staff training," he says. "Also, establishing strict protocols around transactions and information sharing, using redundant verification, encouraging caution and positive reinforcement of incident reporting and conducting regular system testing can go a long way toward avoiding problems."

"Agents and brokers need to become their nonprofits' risk management resource," Binford says. "Provide guidance for risks like child safety, sexual abuse controls, concussion management and other exposures they face. In addition, to better manage risk, educate clients on the use of waivers and hold harmless agreements."

Hedlund encourages agents and brokers to build relationships that go beyond technical know-how. "This means not only being an expert insurance advisor, but being a great partner, friend and supporter of the nonprofit," he explains. "Let them know you have their back and be prepared to do what it takes to live up to that commitment."

"The great thing about nonprofits," Binford says, "is that they are fairly loyal to their agents if they feel they have been well taken care of. Establish that rapport and you will have a client for a long time."

Bozzo says agents and brokers can boost retention "by partnering with MGUs that offer state-of-the-science risk management services that will help clients avoid claims and maintain lower premiums."

Networking with client peers also is important. "Be part of their mission, attend their meetings and learn everything possible about the intricacies of their business," Hedlund advises. "Make sure they understand that you're a committed member of their specific group." He adds, "Be responsive to nonprofits and their needs, regardless of their size or 'flavor.' Small nonprofits that don't completely match your personal interests deserve your full attention and very well may need more of your time and expertise than you feel is warranted. You never know how things will develop or an organization will grow."

Added support can lead to improved account performance. "Remember, social service agencies and other nonprofits that are dealing with funding cuts and increased workloads may be tempted to cut corners on safety and training," Storey notes. "When that happens, nobody wins."

Shaw adds, "Brokers who understand the mission of the nonprofit and can bring solutions to the table are more successful in attracting new business and keeping it on the books. It may take a little longer to write a nonprofit account, but as long as you provide good service, you should be able to keep the account for many years."

The author

Dave Willis is a New Hampshire-based freelance insurance writer and regular Rough Notes magazine contributor.



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