Specialty Lines Markets
Social services agencies feel the squeeze
Reduced funding in social services segment creates a transitioning marketplace for agents
By Dave Willis
"I work all night, I work all day, to pay the bills I have to pay." These lyrics from Abba's 1976 chart topper sum up the 24/7 nature of the social services world and the role of service providers. And the hit's title, "Money, Money, Money," identifies a key concern social services agencies are dealing with in 2012.
"Funding continues to be one of the largest concerns facing this segment," says Paul Siragusa, ARM, ASLI, vice president, commercial lines underwriting at Philadelphia Insurance Companies. Lack of government funding has put some smaller nonprofits out of business, he adds, while other providers have been bought up by larger entities.
Shortfalls have led agencies to seek out and accept private donations. "Such donations can create more D&O exposure," explains Greg Quinn, RPLU, sales and marketing director for Gateway Specialty Insurance, a Berkshire Hathaway Company. "Potential claims by donors may arise for misappropriation of funds if the donations are not spent according with the donor's request."
Private donations also create a data breach exposure, Quinn adds, because these organizations are now responsible for the Personally Identifiable Information (PII) they obtain while collecting the funds.
"As agencies work with reduced funding, they are looking for ways to provide services at reduced costs," explains Sheila Shaw, senior vice president at Irwin Siegel Agency. "They struggle to provide quality service and outcomes with less money. Expect to see changes in delivery models, as a number of states explore some form of managed care for service delivery as a way to reduce the cost of some services."
Social service organizations are also expanding their reach, to help counter funding shortfalls. "If they feel they can increase revenue and serve more people by adding other types of services, they will do it," explains Nancy Williams, CIC, vice president, marketing and sales, for NIF Group.
Shaw sees such a strategy within the behavioral health field. "More and more, they're integrating services so that all are provided in one spot," she says. Brad Storey, MSW, Irwin Siegel Agency director of risk management, says the integration of primary and behavioral health care has been an ongoing issue for many years. "We are seeing an infusion of primary care into traditional mental health centers," he explains. "Co-locating services in the same facility makes it easier to treat the individual as a whole."
Even as some organizations are expanding their reach, others are pulling pack. "Perhaps a church or larger organization doesn't see a service fitting with their core mission, so they may spin it off," says Williams. "Or maybe the government has decided to stop providing a service."
However, needs still exist. "Some services are being privatized with government support, and others are starting up operations out from under their former umbrella," Williams notes. "These and other organizations may be looking for insurance for the first time ever."
Siragusa is seeing an increase in the number of requests for vacant building coverage from social service organizations. "As funding dries up, these service providers are forced to make difficult decisions regarding which locations they will continue to operate and which they must close down," he explains. "A weak real estate market leaves many organizations with empty buildings that must be maintained for months or years."
Some nonprofits face skills challenges. "Many social service nonprofits struggle as they transition to all electronic recordkeeping, especially for health records," explains Pamela Davis, president and CEO of The Nonprofits Insurance Alliance Group. "The technological needs call for skills that many current IT staff members don't have, and many long-time employees with good professional skills struggle with new technology, despite training. This results in some difficult staffing decisions having to be made."
Other staffing challenges exist, particularly for social service agencies providing health-related services. "Given the growing health care field," Davis notes, "it is increasingly difficult for nonprofits in the health care field to hold on to professional and executive staff, because they have cut and frozen salaries in response to the recession. As the overall health care field grows, this is likely to become a greater problem for those in nonprofit organizations doing work in the health care space."
Shaw adds, "In the midst of other changes, many of the social service agencies are going through transitions, with current executive directors retiring and new leaders coming in. And they bring new visions and new ideas for the agencies."
Employee classification—calling employees independent contractors and then asking insurers to include them as additional insureds—is another issue Davis sees in the social services arena. "If these individuals are true independent contractors, they should have their own insurance as part of their business," she explains. "If they do not have a consulting business, however, they should be hired as hourly or temporary employees, and receive the normal protections afforded any employee."
She says enforcement of this matter of independent contractor vs. employee is becoming more frequent and the fines are getting larger. "Insurers are not doing nonprofits any favors by encouraging this misclassification through the additional insured endorsement," she explains.
Cyber liability exposures also exist. "Removable data storage is a huge exposure that many people don't always associate with cyber liability," explains Storey. Offsite service documentation on flash drives can fall into the wrong hands if they're misplaced—and they're easy to lose. Similarly, Storey says, lost laptops represent another potential exposure.
For many agencies, abuse and molestation continues to be a key issue. "Recent news headlines have served to heighten awareness of this," says Quinn.
Insuring the risks
According to Siragusa, the social service agency insurance marketplace is starting to firm. "Many national carriers reported single-digit rate increases during 2011," he says, "and the trend continues in 2012."
From his perspective, the insurance market for agencies continues to expand. "There are an increasing number of new P&C carriers entering this segment," Siragusa notes, "as well as risk retention groups, RPGs, and agency captive programs."
Adds Shaw, "While capacity for social service risks overall has not dried up and there are even some new players entering, we definitely see more responsible pricing on the business than in the past several years."
Quinn says the environment is "still very competitive." But he's starting to see the rates increase, and several carriers are raising their minimum premiums on smaller operations. Abuse and molestation is still a key issue, and some carriers are automatically including a sublimit for such coverage within a minimum premium quote.
Davis sees commercial insurers attempting to take across-the-board price increases. "We take the longer-term view, and selectively adjust credits on those accounts that have poor loss histories over many years," she explains. She is seeing the pace of coverage enhancements decline as carriers look to limit their exposures.
Williams says risks with loss problems are experiencing rate hikes. "Carriers are trying to get a few points of increase and reducing their exposure," she explains. "If there is a loss issue, it's being addressed. Also, if there is property exposed to catastrophe, it's being addressed more diligently than in the past."
William Henry Jr., executive director of Volunteers Insurance Service Association, says rates for his volunteer insurance are stable.
In the midst of a transitioning marketplace, opportunities exist for agents and brokers to grow and retain business. Quinn encourages agents who want to make inroads to get involved in community service. "These organizations are all over and new ones are being formed every day," he says. He recommends starting with a targeted niche.
"For instance, focus your sales efforts on a class like food banks," he adds. "Identify all of the food banks in your region, develop marketing materials focused on this class, and go after the business with the right carrier. The social services world is entwined, so success with one class could produce numerous referrals and networking with other operations."
Henry stresses the value of appealing to nonprofit customers on the basis of their mission. "They exist to serve the community or society in one way or another," he explains. "How do your suggestions for insurance and risk management protect their ability to carry out that mission—not just this year, but long-term?
"A loss is a distraction," he adds. "It can damage staff or volunteer morale, public reputation, and the organization's ability to carry out its mission and attract support. It can make the cost of insurance go up in the future. Making the case for protecting the organization's long-term viability can appeal to the decision makers' practical side, even when the pressure is on to reduce costs."
A selling point for his organization's volunteer insurance program is that, for just a few dollars a year, nonprofits can protect their general liability limits and claims experience against a possible claim involving a volunteer, he notes. "In states where volunteers don't have to be covered under workers compensation, organizations can save a lot by accepting a limit of $50,000 for a volunteer injury," he adds. "It's a matter of educating customers, helping them understand options, and guiding them to those that protect them best in the long run."
Davis suggests that retail agents first learn about product offerings and reputations of the various markets and determine which they believe best meet the needs of their target customers. "A responsible agent wanting to do this business should carefully compare coverage forms, as well as free value-added loss control services targeted to this niche," she explains.
Williams says the timing may be good for agents to explore opportunities with social service risks. "If you have prospects you haven't contacted before, or haven't touched base with in a couple of years, this may be the year," she says. "Between the pressure on the nonprofit to be economical and a change in carrier appetites, there may be a window of opportunity."
To keep current customers, Quinn has some rather simple—but too often overlooked—advice: "Set service standards and enforce them. Listen to your customers!"
Williams adds, "When you handle a piece of business, make sure to address all the issues—any operations started, any new services being rendered and any services being offered again that might have been stopped for a time," she says. "That definitely affects the rate and affects the marketability of the account."
Storey concurs. "If an organization is getting into something that involves primary health care or something they haven't done in the past, make sure they have all the coverage they need," he says. "For instance, a lot of social service insurance programs don't extend coverage for doctors."
He also encourages agents and brokers to go beyond the policy to help social service agencies. "It's possible to help them offset the money they are losing," he explains. "Help by offering risk management services and training. There may be things they paid for in the past that can be accessed through the carrier.
"It won't cost them anything as a part of the insurance program," Storey adds. "Make sure insureds take advantage of what's offered. To be honest, many social service agencies leave these services on the table." His company has expanded its offerings and helps with everything from instruction in CPR and first aid to regulatory compliance training.
Henry says to go even further. "Budget constraints are still a major influence on decision-making, perhaps even more than ever," he explains. "We encourage nonprofits we work with to use every opportunity to show supporters and potential supporters the actual results the nonprofit produces with the resources that supporters provide.
"With the Form 990 and so much other information online, it's critical that organizations not only have a good story, but also tell it well, in order to attract support," he adds. A recent Guidestar survey found that as much as $15 billion in contributions could be redirected to the highest-performing, most effective organizations—if only those organizations did a better job telling their story.
All of these items—product knowledge, market and client familiarity, and added service—can spell marketplace success. Davis sums it up this way: "Agents who serve their clients best are those who truly understand what it means to be a valued partner to the nonprofit, not just someone there to sell insurance.
"It is counterintuitive," she adds, "but we have seen it in practice many times, that those agents who focus on serving clients, without regard to individual account commission, build tremendous loyalty which translates into a stable and growing book of business. Financial rewards follow the agent who is truly committed to service."