SPECIALTY LINES MARKETS
Supporting social service organizations
Less funding and a hardening insurance market loom
By Dave Willis
Social service organizations may well need some support services of their own as a perfect storm materializes over the next couple of years, according to Sheila Shaw, senior vice president for Irwin Siegel Agency, Inc. "Two issues combined could pose some serious problems for social service entities," she says. "First is funding. Every year we talk about budget cuts and funding reductions. This year, many states have made the cuts very real. Some have even gone back to 2008 funding levels.
"In addition to reduced financial resources, the insurance market is showing signs that it is beginning to harden," she adds. "Within the next two years, this niche could experience an increase in rates along with historically low funding."
Nicholas Bozzo, managing director of Negley Associates Underwriting Managers, sees customers facing these challenges, too. "They are all good business people, but they are all funded by, for the most part, federal, state, and local government," he explains. "As governments are cutting back, funding is definitely being squeezed. They are doing more with less."
Nancy Williams, CIC, vice president of marketing and sales for NIF Group, sees organizations dealing with shrinking budgets, especially as TARP monies are exhausted. "Many organizations are leaning more and more on private funding," she notes. Depending on the nonprofit's reputation and stability, some are finding success. "Those with a better reputation and those that have a high-profile supporter are doing best."
Besides budget cuts, social service organizations are faced with what Sara Ruggiero, director of marketing for Irwin Siegel Agency, calls "unfunded mandates and medical reform measures. Agencies are required to comply with new laws and regulations that can become extremely costly. HIPAA compliance is one example of an issue that has become a hot topic."
In difficult economies, organizations face potential increases in lawsuits by employees, usually in the areas of discrimination, harassment, retaliation and wrongful termination, Ruggiero adds. "There are other issues to be aware of, such as Medicaid qui tam lawsuits geared towards whistleblowers who expose fraud on behalf of the government and can receive a share of the recovery as their reward," she notes.
Another trend, particularly among larger nonprofits, is executive leadership coming to retirement age. "With today's difficult fiscal environment and so much regulatory change, some agencies are facing perpetuation issues," Ruggiero says.
Bozzo adds that as a way to meet the challenges, some social service agencies are finding partnerships—often with other nonprofits that share a similar audience or with health care firms that offer related services.
Others are expanding services. In the mental health arena, for instance, some organizations are getting into the delivery of physical health care. "There has been a push toward a more concentric approach to health care," he explains. "Some of the drugs used for individuals with mental illness have effects on metabolism, blood pressure, diabetes risk, and these all need to be managed together. This has created greater risk."
Medicare and Medicaid reform have also led some mental health providers to consider hiring, partnering or figuring out other ways to combine mental health services with primary physical health care services, Bozzo points out.
His firm has even seen interest in coverage for medical marijuana treatment. "We've had people inquire about that," he explains. "They're seeing how the insurance community would respond if they got into that."
According to Bozzo: "The market continues to be soft. A lot of people are shopping their accounts." Adds Williams: "Coverage is still pretty available and pricing is very competitive. That hasn't changed. There are a few more players in the space. They are getting their feet wet in this niche, and that always makes for greater competition."
Shaw concurs. "It's not difficult to find a market these days," she says. "It seems to be an appealing class to write, and many carriers will enter into the marketplace without understanding the true nature of these exposures or potential claim issues. As new players, they are driven to put premium on the books in preparation for future losses the program may suffer."
In his office, Bozzo is seeing a number of risks that don't fit the firm's niche. "We've been at this for more than 40 years," he says. "Normally, people just send us business they know we like and consider. But today, we're seeing things that may be not-for-profit, but they don't fit the world of behavioral health care."
What's more troublesome, he says, is the appearance in the marketplace that all social service risks are the same. "What scares me most about this marketplace is I don't think there is a solid understanding of how risks are changing. For example, our clientele, our niche, is getting into the delivery of primary and physical health care, and not just delivering mental health care anymore," Bozzo explains. "There doesn't seem to be a distinction between long-tailed difficult exposures and benign social service risks. Too many markets are treating the entire spectrum of social services as benign, not-for-profit business."
Shaw, too, worries about untested capacity. "The problem comes when claims are much more severe than expected and a company leaves the market with unprecedented pricing. It is important for agents, brokers and providers to understand the marketplace and hold it accountable."
In the midst of the competitive marketplace, coverage is expanding. "As a result of some of the new mandates, for instance, HIPAA protection is available to provide coverage for defense costs and pay damages assessed due to violations of HIPAA regulations," Ruggiero says. Providers, clearinghouses and payers that electronically process medical-related data must be in compliance or face hefty fines and prison terms.
"Human service organizations that rely on computers to store information are exposed to network security breaches," she adds. "Nearly every company in any industry today stores sensitive information about clients and employees on a network. Anyone affected by security breaches may take action against those they think are responsible."
Many jurisdictions require notification of such breaches. "This can be very costly to human service organizations," she says. "Coverage that addresses network security and privacy liability exposures and that provides adequate protection and defense in case such breaches occur is a huge benefit to today's social service provider."
NIF Group is upgrading its professional liability and general liability forms. "It's important to stay up to date and respond to changing market demands," Williams says. "We've broadened the definition of bodily injury to include mental anguish, and we expanded the definition of insured, relative to professional liability. These are important coverages for nonprofits because they have professional liability exposures that general liability excludes."
Risk management continues to play a pivotal role in the marketplace. "There are always varying degrees of interest in and dedication to risk management," Bozzo says, "but it's particularly important that we help our clients provide good patient care and minimize or eliminate potential claims. We equip brokers with tools—Webinars, DVDs, publications and more—to help them serve clients better."
Says Shaw: "Our program takes into account the numerous costs associated with an agency's operating budget and attempts to address each expense and offer solutions to increase efficiency, reduce budget costs and increase training efforts, while allowing the agency to continue focusing on its mission. Components like background checks and litigation services related to D&O claims are examples of how an insurance provider can help clients. The goal is to take the client's premium from being an expense to being viewed as an investment, and that's an excellent selling point."
Ruggiero encourages agents and brokers to reach out to social service organizations they know. "Every community has social service providers that need attention and a helping hand," she says. "This can be an excellent starting point for brokers exploring the market. By helping local providers, agents are doing something that makes a difference to those around them."
Think outside of the classic "insurance box," she adds. "Taking a real interest in their services and advocating on behalf of their mission will prove to be an invaluable lesson and offer the experience an agent will need to continue growing in this market."
Williams echoes the sentiment. "Get involved because, even though it's competitive, it's still a growing segment," she says. "Look in your local community. If you or your family or employees are involved in faith-based organizations, Boys and Girls Clubs, after-school programs, look to them, and then expand beyond that.
"The good thing about nonprofits," Williams adds, "is they put a lot of value in their agent as a counselor and advisor. They are tough to court at first because they are trusting and so focused on their mission, but once you get a loyal customer, you really do have someone that is good to do business with. Plus, they pay their bills because they need insurance to maintain funding."
Bozzo's take on market opportunities is relatively simple: "Segmentation, segmentation, segmentation," he advises. "You really have to pick and choose. Decide where you want to be and figure out how you can make a difference."
For complex business, in particular, make sure to partner with the right specialist. "Some of the more innocuous risks may not require the expertise," Bozzo says, "but trying to write methadone clinics and psychiatric hospitals or trying to write major health care foundations is a whole different world, with an entirely different set of complexities. Unfortunately, the tail on that line of business is pretty long, so what new providers have been doing for the last couple of years hasn't come home to roost."
Those in the business need to focus on retention. "Visit with clients before its time for their renewal and look over any potentially new exposures they may be facing," Ruggiero advises.
"For example, discuss HIPAA and network liability. See how they are doing with their budget and expenses. Can you bring something to the table to help them deal with funding reductions? Pay attention to more than just the insurance policy. Look for ways to bring a new level of value to their operation. It will mean a lot to them, especially this year."
Williams advises: "Be aware of changes in the marketplace. Nonprofits change a lot—perhaps more than other classes of business. And the insurance market changes, as well. Stay attuned to the niche and to the insurance marketplace that serves it."