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Volume 88, May 2015

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Nonprofit businesses are passionate

The nonprofit community had a difficult time during the recession because its funding base declined as its client base increased. The good news is that the funding base is increasing but the client base has not decreased because of the recovery's unevenness. In addition, new challenges, such as very significant cyber liability exposures, grow because of the medical and counseling services the nonprofit community provides.

Nonprofit businesses are passionate about the clients they serve. They need an agent who understands that passion and can provide the expertise they need to eliminate any gaps in coverage.


Knowledge and Dedication Drive Social Services and Nonprofit Insurance Success

Niche shows relatively good health after prolonged lean period

By Dave Willis

Social service providers and other nonprofits have endured economic stress the past few years. Amid funding cuts, need grew. After a prolonged lean period, experts say, the health of the social services and nonprofit community is relatively good.

"An improving economy certainly presents more opportunities for fundraising," explains Lisa Prinz, associate vice president, Human Services, at Harleysville Insurance. "Government money is still being cut, but people are giving more than they did a few years ago."

Riley Binford, CIC, executive vice president at Charity First Insurance Services, concurs. "Nonprofits are enjoying the fruits of the growing economy," he observes. "A record-setting $330 billion in private donations went to nonprofits in 2014." Technology has helped. "It's easier than ever to donate online," he adds. "Nonprofits not accepting online donations should consider it."

Despite donation growth, many social service agencies are still digging out from the effects of the recession. "Many social service agencies cut programs, staff and facilities to survive," explains Rekha Schipper, president of Tangram Insurance Services, "and unfortunately they couldn't invest in growth initiatives. On top of the operational pressure, the economic downturn placed significant demands on social service organizations to provide vital services to those in need, and that demand won't likely change anytime soon."

Randall Hedlund, program director at Care Providers Insurance Services, a division of NSM Insurance Group, points out that an overwhelming number of U.S. citizens who tap social services experienced little, if any, positive change in the economic turnaround.

"This leaves much of the population struggling," Hedlund explains. "This segment may also represent a significant portion of people with behavioral health issues, developmental disabilities and other mental and physical limitations."

According to Pamela Davis, founder, president and CEO of Nonprofits Insurance Alliance Group, "Nonprofits are being called on to deliver social services government agencies once provided." Hedlund sees this, too. "Governmental agencies continue to outsource public programs to the private sector to cut costs and because of outright failure of publicly operated programs."

Entities are rising to the challenge and growing. "But they assume additional risk, since they don't enjoy immunities government agencies have," Davis adds. "Nonprofits may face additional financial costs as a result." Service expansion has taken place for other reasons. "Some agencies expanded to qualify for additional funding," Binford explains. "Sometimes, expansion goes far beyond the organization's mission and abilities, carrying with it risk management implications."

For example, his firm insured a group home for troubled youth that was considering hiring them out as manual labor for local construction firms. "Their agent explained the potential loss exposures associated with that, as well as the legality of essentially acting as a staffing agency using minor wards of the court," he adds.

According to Hedlund, new social service agencies are popping up to address and fill cracks in the changing landscape of public programs. "In addition," he says, "the 'Aging of America' overlays a dimension that may present myriad challenges."

Nicholas Bozzo, president of Negley Associates, has seen growth in his sector. "As the endorsed insurer of the National Council for Behavioral Health, we see first-hand what goes on in the industry," he explains. "That organization's membership has grown dramatically over the last several years. At the same time, with health care reform, state and federal budgetary changes and constraints, and increased need for services to the mentally ill population, we've seen a huge transformation in the industry."

A move toward "treating the 'whole person' has led to integration of primary medical care and behavioral health care," Bozzo says. "This exposes organizations to additional risks."

"National initiatives around managed care, the Affordable Care Act and integration of primary and behavioral health care have led to more mergers and acquisitions in some areas," explains Brad Storey, MSW, assistant vice president, Risk Management Division, at Irwin Siegel Agency. "Social services agencies with a little better business acumen and administrative function stayed ahead of the curve with these changes. They're doing well and are best positioned to move forward."

Other factors are affecting certain segments. "There's a move in several areas to get people out of group homes and into independent self-care and support apartments," explains Prinz. "That presents challenges, both for agencies and those that insure them."

Staffing is another challenge. "Turnover of direct support professionals is around 40%," she notes. "A lot of nonprofits are really struggling to keep them."

Personnel issues surface at higher levels, too. "Many people put retirements on hold after the 2008 collapse so they could recoup some of their funds," Storey explains. "That's behind us and now we're seeing a changing of the guard, with executive directors moving out and an infusion of younger executives with fresh ideas."

Schipper points out that, since many social service agencies were forced to be leaner, there's been renewed focus on efficiency. "Also, more nonprofits are looking for government work or contracts," she adds, "because reimbursement levels are favorable."

According to Bozzo, insurance issues also affect the market. "In general, the behavioral health care/social services marketplace has seen an influx of carriers with little or no experience in the space at a time when things are changing rapidly," he says. "In the long term, this will probably prove not to be beneficial to the space." Adds Davis, "Health insurance and workers compensation are large and growing expenditures that stress nonprofits' operations."

Protecting nonprofits
Social service agencies and other nonprofits share characteristics with the broader commercial marketplace. "Some agents are reluctant to focus on nonprofits because they feel they don't know their needs," explains Binford. "Often, the needs are similar."

Hedlund says the common denominator is people. "Training, education, controls, culture, adequate staffing, conscientiousness and taking responsibility can prevent, mitigate and reduce the potential for and the severity of loss," he says. "It boils down to having the right people doing the job right with the proper tools and equipment. That's true whether you're a commercial insured or a nonprofit. Cutting corners, reducing staff and hiring the wrong people eventually comes back to haunt you."

Schipper agrees. "Hiring and retaining good employees who are inspired by the organization's mission and who seek to improve its quality are critical to any business," she says. "Everything starts with people; finding and keeping them drives success. The wrong people add a level of risk, instability and disruption."

According to Davis, another common thread is finding time and money for training and education. "It's difficult for organizations to accurately evaluate success of risk management efforts, particularly on the property/casualty side, where claims are infrequent," she says. "Without being able to tie efforts to claims prevented, the incentive to develop a robust risk management plan may be lacking."

Despite commonalities, differences exist. "Most nonprofits depend on the government for much of their revenue, unlike many for-profit counterparts," explains Schipper. "This can lead to instability and unpredictability for nonprofits, which insurers contemplate when assessing and pricing risks."

Bozzo says, "In this industry, organizations are staffed by individuals with highly specialized skill sets, and client intervention levels are exceptionally high. Therefore, every coverage should be customized accordingly."

"Many social service agencies serve society's most vulnerable-low-income people, at-risk youth, domestic violence victims and so on," explains Schipper. "From a risk management perspective, there's heightened exposure between employee and client because circumstances are sensitive, emotional and often unpredictable." Because many nonprofits serve children, the developmentally disabled, and/or mentally incompetent adults, Binford stresses the importance of sexual abuse and molestation coverage.

"In addition to good coverage, it's important to make sure criminal background and employment reference checks are done," explains Prinz. "But after employment, it's equally important-perhaps more so-to have a culture that addresses abuse and that questions things that may look funny or not quite right."

Davis adds, "Nonprofits working with troubled youth and adults require staff with sophisticated interpersonal skills to successfully deal with these clients. However, with low wages, turnover often is high in these stressful positions."

Many nonprofits also use volunteers rather freely. "These individuals may have little or no training," explains Schipper. "They aren't being financially compensated and often work in a highly interactive capacity."

Heavy reliance on volunteers brings a unique liability exposure. "Nonprofits must ensure that liability arising from volunteers is covered under their general liability policy," explains Binford. "They must make conscious decisions on how to handle volunteer injury."

Hedlund points out that many social service agencies depend on independent professional contractors like psychiatrists and psychologists to deliver specific services. "It can be difficult to integrate all the moving parts, when many are only partially controlled or outside the organization's control. Understanding exposures so they can obtain proper insurance coverage can be challenging."

Bozzo says standardized, off-the-shelf policies offered by insurance generalists aren't enough. "Also, our experience dictates similar customization with risk management," he adds. "Gear loss control programs to key loss drivers associated with each nonprofit class and to the individual organization."

One coverage that insureds often ignore is cyber liability. "This is particularly important given the rapid growth of online giving and the use of credit cards at fundraisers," Binford notes.

Storey calls cyber "the giant elephant in the room." He says many social services agency leaders aren't aware of their full exposure. "Medical is, perhaps, the fastest growing form of identity theft," he says. "With Medicaid fraud, health-related identity information is extremely valuable in the hands of people with bad intentions."

Finding markets focused on nonprofits can be tough. "Markets can be even more restricted for exposures like habitational risks," Davis says.

Auto presents challenges, too. "For example, we have wheelchair tie-down claims," Prinz explains. "This complicates the risk." She adds, "Nonprofits transport young or medically fragile passengers who may experience more serious injuries from accidents than healthy adults would."

Clients may be more physically vulnerable in other ways, too. "They need to ensure, for example, that if there's a fire in a group home they can get everyone out of the house quickly and safely," Prinz says.

On the professional side, it's important to make sure medications are properly dispensed. "Again, culture comes into play," she notes. "If someone sees a nurse not doing the right thing, it needs to be okay to report that."

"In social and human services, slip and fall exposures may need to be addressed differently, because of mobility issues," Storey explains. "For example, a cerebral palsy organization's fall prevention program may differ drastically from a nursing home's."

Another important coverage is social services professional liability. "Many nonprofits provide counseling services," says Binford. "A good insurance program should consider E&O for this exposure."

D&O liability also should be considered. "Nonprofits enjoy a somewhat unique form from most nonprofit D&O insurers that includes employment practices liability," he adds. "D&O also is important due to the public's increased awareness of board actions and the increase in private donations. We've seen increased 'donor intent' claims from contributors unhappy with how donations were used."

"Good leadership, including a capable and committed board of directors, affects an organization's commitment to efficiency, quality and safety," explains Schipper. "The more focused and successful a strategy is around these three principles, the more attractive it is to funders, investors and insurers."

Finding and keeping customers
Ken Chappell, assistant vice president of business development at Irwin Siegel Agency, recently spoke with two agents looking to grow in this niche because of its current and future market potential.

Chappell's tips for getting started are: "First, partner with an expert. Second, volunteer-but not necessarily on boards. A conflict of interest can arise when an agent serving on a board controls the insurance. Third, join state and local nonprofit associations. And attend and exhibit at conferences and advertise in trade journals."

Relationships are key. "It's hard to cold-call large nonprofits," notes Prinz. "It helps to know someone on the board or have a relationship."

Schipper points out that nonprofits work from their hearts and passionately believe in their missions. "Don't treat them solely like a business," she advises. "Take time to empathize and understand their cause, concerns and aspirations.

"It may seem counterintuitive," she adds, "but insurance doesn't have to be the primary focus. Educate yourself and find ways to help organizations further their missions through securing a grant, fundraising, or attracting or recommending a sought-after executive director or board member."

Davis agrees. "Agents and brokers who understand the unique ways nonprofits work are more likely to succeed," she notes. "Nonprofits don't necessarily choose work based on potential income or growth. Actually, as nonprofits expand, they often must raise more money to subsidize anticipated losses."

Binford says workers comp is a good product entrée for agents. "That's a pain-point for many nonprofits and many successful agents lead with it," he notes. "Another growing hot button is cyber liability. Too few agents discuss this."

To keep business, Chappell recommends executing well where others don't. "First," he says, "follow through; do what you say you'll do. Second, be accessible and respond quickly. Third, be visible. Every time you visit a client, you can learn more about its operation. Fourth, attend events, fundraisers and outings. It's hard for them to ignore people who've had a positive impact."

Davis encourages solid understanding of policy forms and available carrier services. "Be prepared to provide targeted risk management services or connect the nonprofit with the carrier's offerings," she suggests. "Ask in-depth questions about the nonprofit's work and be ready to explain specialty form nuances, such as improper sexual conduct and social services professional liability."

The notion of risk management comes naturally to nonprofits. "They don't want to hurt people," she says. "I'd argue this makes them more interested in risk management. Still, they have trouble finding money for risk management, so that's why we created free loss control and risk management offerings for our member insureds." "Insureds want a consultant," Prinz adds. "Too often, agents just check in at renewal. They must do more throughout the year, like accompanying the carrier on a risk control inspection." She also recommends holding quarterly claims reviews. "And don't be afraid to ask insureds, 'How can I help you?' It sounds basic, but too few do it."

Hedlund says good agents not only understand insurance policies, but clients, too. He stresses the importance of understanding and believing in the nonprofit's mission and knowing its operations enough to anticipate needs. Storey sums up success like this: "In a word, it's 'dedication.' If you're dedicated, if you show your face and learn from nonprofit clients and then educate them about insurance, success will follow."

Hedlund adds, "Roll up your sleeves and get your hands dirty, when necessary. When you partner with social service agencies, they'll partner with you."

The author

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



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