Specialty Lines Markets
Helping stretched-thin social services agencies
Organizations serving the needy present opportunities, despite their funding challenges
By Dave Willis
Even as the U.S. economy is starting to work its way out of the doldrums, organizations that exist to give people a break can't seem to catch any themselves. "The poor economy has had its effect on nonprofits for several years," explains Nancy Williams, CIC, vice president of marketing and sales at NIF Group. "Most nonprofits that were new or small and could not weather the storm went out of business when they lost their funding." Some, she says, consolidated into larger firms.
Today, near-record numbers of people live in poverty, putting increased strains on social service agencies and other nonprofits. At the same time, Washington's inability to find common budgetary ground resulted in sequestration, which heightened uncertainty for organizations working to help individuals who most need it.
According to Randall Hedlund, program director at Care Providers Insurance Services, the effects of sequestration are still filtering through. "Many social services agencies have started to brace for future cuts by limiting or restricting any hiring," he explains. "They're watching their budgets, because federal funds and money related to them may be impacted."
David Leventhal, director-Commercial E&O and Healthcare Liability at Catlin US, says, "We have seen, with very few exceptions, necessary cost-cutting measures across the board in social services. Many have had funding cut dramatically, and they also are suffering from decreased charitable donations brought on by the financial crisis.
At the same time, he adds, "We are seeing an increase in services being provided by fewer professionals and for less operating revenue. Unfortunately, until the economy fully recovers, we don't expect an increase in federal funding or charitable donations. Further fund freezing coupled with an increase in inflation would only further drive up the numbers of persons seeking help and drive down the number of services available."
"Not only are providers being asked to serve more people, there is also substantial growth in the number of agencies providing these services," explains Mike Liguzinski, divisional president, Specialty Human Services Division of Great American Insurance Group. "For instance, the number of organizations in the U.S. serving as homeless or temporary shelters is 51% higher than it was 10 years ago. Community organizations providing food services, such as food banks and soup kitchens, are up more than 40%. Those assisting with substance abuse and mental health are up 30%."
Need is driving this growth. "There has clearly been a significant increase in the number of people presenting for services," explains Brad Storey, director of risk management at Irwin Siegel Agency. "In New York City, for instance, the homeless population being served in shelters is up 19% in the past year alone." He cites several reasons for the increase, including greater unemployment, and says it's a national trend. "This isn't just an issue for organizations in major cities," he adds.
Growing demand and reduced public and private funding is stretching social service agencies thin. "Despite additional needs for services, agencies are being forced to cut back on important programs," explains Jack Roche, president, business insurance at The Hanover Insurance Group. "At the same time, retaining quality professionals is more difficult, due to an inability to pay competitive salaries, and staff reductions are taxing remaining employees."
Some social service sectors are faring worse than others. "My suspicion is the senior sector will face more pressure," explains Hedlund. "In many cases, they're not as well positioned to find alternative funding sources. They're less apt to have a fundraising mechanism in place to supplant shortfalls in federal funding."
While the ultimate effects of sequestration are being played out, certain groups may be harder hit than others. "The Department of Defense has been identified as one sector that will face cuts," says Nancy Williams. "Many social service agencies and other nonprofits provide contracted services to the department, for example, providing basic janitorial and landscaping services at military bases. These agencies could feel the pinch."
Growth in the number of people living in poverty is bringing new challenges to some service providers. "For instance, providers of services to the homeless, which traditionally focused on men's and women's shelters, now have to accommodate more families," explains Roche. "The numbers are greater and are taxing the availability for shelter, especially in inclement weather.
"Additionally, veterans now represent about 10% of the homeless population," he adds. "This presents a challenge to provide more specialized services, such as post-traumatic stress and disabilities."
According to Valerie Williams, director of marketing at Irwin Siegel Agency, increases in poverty also are affecting community action agencies and mental health facilities. "Studies show a clear connection between financial stability and physical and mental health, which creates an additional layer of support services needed," she notes. Adds Storey, "For most of these organizations, it's a simple math equation: More people are in need of their services at a time when the government is reducing the dollars to provide these services."
While few social services agencies are doing well, some are faring better than others. "Organizations that have been most efficient with how they deliver services are weathering the storm better," Storey explains. "For instance, models such as permanent supportive housing and programs like Housing First have been extremely successful and have been proven to be far more cost effective for those living in poverty with a mental health condition and/or addiction."
Nancy Williams adds, "While there is less money to go around, the reality is that government still does fund many organizations. It is the well-run nonprofit that serves the community on multiple levels that will rise to the top in funding. Other nonprofits survive because they have expanded their services to qualify for more funding or they've been able to ramp up fundraising to supplant or replace public monies."
According to Roche, providers of treatment for substance abuse and behavioral health are benefiting from health care reform. "Under new legislation, private health care, state health care and Medicaid are now required to provide coverage for patients in need of such treatment," he explains. "These changes also will provide opportunities for providers of shelter and education for recovering individuals, helping them to become better through more treatment and services."
Demographic changes are helping drive growth in services for older Americans. "With the aging of our population, facilities that cater to around-the-clock living needs are on the increase," explains Leventhal. "We've seen exponential growth in the small group home environment for dementia and Alzheimer's patients. These homes seem to be fully occupied and represent a unique alternative to the traditional, large-scale nursing home or assisted living facility."
Hedlund says organizations with alternative funding sources have somewhat brighter prospects. "Those with independent fundraising efforts and other private capital funding arrangements tend to be in better shape than those without such capacity," he notes. Adds Nancy Williams, "The greater the financial squeeze, the more social services organizations will be looking for other sources of revenue. Expect nonprofits to ramp up their fundraising even more as they try to bridge the gap, or look for them to get involved in more lucrative operations that bring in revenue."
Serving social services
According to Nancy Williams, "There is always opportunity in this class of business. There will always be social service agencies and other nonprofits—because there is a need. These organizations must carry insurance to maintain their funding, so there's a reason to buy."
Growth is taking place in the market, too. "We have seen an increase in services offered by social service organizations," explains Storey. "With so many in need on a national level, in both metropolitan and rural areas, retail agents have an opportunity to help existing organizations obtain proper coverage for expanded services and exposures."
Leventhal points out that social services clients are always looking to do more for less. "This should be the focus of retailers interested in expanding into this arena and building a sustainable and profitable book," he says. "Those who offer only a broad product line for a reasonable premium will win the battle, but not the war."
Risk management is the key to a long-term relationship in this class, he adds. "The more a retailer can offer in terms of protection—saving the insured future premium dollars—the more loyal the client will be," Leventhal says. "The agent or broker will prosper further, thanks to positive word of mouth within the community of these organizations."
Hedlund says that in tough economic times, prospects and insureds are looking for stability. "What will impact them is money," he notes. "They continue to want better coverage at more attractive pricing, and they want lower retention levels or first-dollar coverage.
"Organizations in this sector tend to have very inflexible budgets," he adds. "They depend on the insurance mechanism to provide a means of replacing damaged property or paying for liabilities that occur because, in most cases, they don't have the resources to deal with the unexpected on their own."
Storey points out the importance of deep client industry knowledge. "As with any business you're insuring, retail agents must understand the industry in a meaningful way," he explains. "For example, just knowing that your client serves the homeless is no longer sufficient. Do they provide shelter or transportation?
"Understanding the model they work within is crucial to understanding the exposures that they face," he adds. "Insurance for social service organizations is becoming less of a commodity. They recognize that having an insurer and agent who truly understand their business model and operations creates a valuable partnership that can protect and sustain their organization."
Roche adds, "We see the best agents really listen closely to their clients, to fully understand their missions, management and funding. And they use this information to help clients best manage their risks. Agents who teach and sell value, not price, are positioned to win.
"Social services customers appreciate the value that comes from professional expertise and advice and are willing to pay for it, especially when they understand it," he adds. "When their insurance is delivered in conjunction with valuable risk management support and advice, they will be loyal for years to come."
Liguzinski concurs. "All of these organizations need assistance and guidance from agents to determine the appropriate insurance coverage that will protect them and allow them to focus on their mission.
"Social service providers face unique exposures that may require specialized coverages, like sexual abuse and molestation, fire, professional and general liability," he adds. "Working with a knowledgeable carrier that is focused on serving these organizations gives agents access to the specialized coverages and expertise needed to help mitigate risk."
Adds Roche, "With increased business complexity and fiscal challenges, social services organizations can benefit from the advice of an insurance agent and expertise of a specialized carrier more than ever. In this challenging environment, having support from a specialist to help manage their risks, while delivering a competitive insurance program, offers the best combination of coverage and value."
Nancy Williams encourages agents to consider carrier stability, as well. "This can be a volatile class of business, so a super-good deal one year can be disaster the next, if the carrier exits the class because of losses or the client gets canceled because of one claim," she explains. "Both instances can position the client at a disadvantage at renewal time."
Hedlund offers the following advice: "Any time there's a changing environment, a smart agent who knows the client's business and understands coverages and how the mechanism works has an advantage. People will be looking for alternatives, and if you have answers to questions, you should be able to capitalize on that."
Liguzinski concludes, "There are opportunities in every community across the U.S., and there are a handful of dedicated providers that offer expertise focused specifically on these areas. With good partners, agents can attract and service these organizations that fill such a vital role in today's economy."