Solving the Challenge of Finding Markets for Nonprofit Organizations

For nonprofit organizations, obtaining adequate insurance coverage for their needs has been difficult in the past and continues today due to market dynamics. The cost of property and casualty insurance has been on the rise and it now can potentially bring far-reaching consequences. With a national health emergency in the forefront, the nonprofit organizations – especially small and midsized – are seeing large impacts in the coverage they can secure. Without additional support for the nonprofit insurance market, there will be hundreds if not thousands of nonprofit organizations struggling to pay higher premiums with limited and/or shrinking budgets, that is – unless their coverage is simply canceled outright.

During the insurance crisis of the 1980s, Congress realized the need for new methods of insuring risks and the issues that came with it. Congress enacted the Liability Risk Retention Act of 1986 (LRRA). The LRRA allowed the formation of risk retention groups, which are market-driven solutions enabled by informed legislation but sustained by fundamental business principles and financial oversight. The LRRA was a good step in the right direction to focus on getting niche and specialty businesses as well as nonprofits the coverage needed.

In a recent Insurance Journal article, Brad Baumgartner, executive vice president with IMA Inc. in Denver, said that liability and property coverages in the nonprofit space are mirroring what is happening in the property and casualty market in general. “Comprehensive prices are also coming down, which is great because that has been a big spend for the nonprofit space, but just like everywhere else in health and human services, professional liability has been rising.”

According to the National Council of Nonprofits, there are 1.3 million charitable nonprofits in the U.S., 97% of these have budgets of less than $5 million annually. 88% of these spend less than $500,000 a year and many are receiving nonrenewal notices from their insurance companies and others offered renewals with tightened terms and conditions at skyrocketing premiums. Peter Andrew, president and CEO of Council Services Plus in New York, noted some nonprofits work with a budget of just around $8,000 and spend nearly $2,000 of that on insurance, which shows how much of an impact rates for nonprofits can have on their overall mission and success. The nonprofits that are hit the hardest during times like these are the organizations that work with animals, small children, senior citizens, and disabled individuals.

The alternative risk transfer market, as differentiated from traditional for-profit commercial insurance companies, is made up of insurers and insurance options that are very good at addressing risks that traditional insurers disfavor. This helps nonprofit organizations to find the right coverage for what they need. According to AM Best, alternative types of insurance have been outperforming the commercial sector on many important financial measures in recent years.

A possible resolution for the challenges nonprofits face could be to have a larger amount of specialists in the sector that understand these organizations’ risk better. The nonprofit space has a large amount of variety to it, so it is important to make sure agents are really learning the individual risks of the nonprofit and presenting details to underwriting to make sure the nonprofit is getting the right type and amount of coverage they need. Many nonprofits receive funding from grants or contracts from municipalities, states or the federal government, and that funding dictates the level of limits or coverages that nonprofits must have, so this makes the task of getting the correct amount of coverage even more difficult.

One organization that’s making a real difference in getting coverage for nonprofits is the Nonprofits Insurance Alliance. To learn more about who they are, what they do and how they do it, we recently caught up with their CEO Pamela Davis.

IVANS Communications: Who is Nonprofits Insurance Alliance?

Pamela Davis: During the insurance crisis of the 1980s, commercial insurers non-renewed liability insurance policies for a number of nonprofit services, including domestic violence shelters, foster family agencies, after school programs, animal rescues, rehabilitation centers, and other social services. As a result, many social service nonprofits were forced to cease operations due to the unfounded assumption that nonprofits were too risky to insure.

Nonprofits Insurance Alliance (NIA) formed to address this market failure and demonstrate that risks facing nonprofits are quantifiable and insurable. Over 30 years later, the success of our business model and mission is clear: 20,000+ nonprofits insured, 94% renewal rate, $575 million in assets for the last completed fiscal year, and 900+ independent brokers appointed across the country.

NIA insures only 501(c)(3) nonprofits. We have a broad appetite, from adoption to youth programs (Access IVANS Markets for more information).

The NIA group brand includes NIAC (Nonprofits Insurance Alliance of California), which covers only California nonprofits, and ANI (Alliance of Nonprofits for Insurance, RRG), which serves organizations primarily outside of CA in 31 states and D.C. Both insurers are 501(c)(3) nonprofits. NIA provides stably-priced liability and property insurance tailored to the specialized needs of the 501(c)(3) sector. NIA also assists nonprofits with developing and implementing successful loss control and risk management programs.

IC: What do you see as a main reason for the rising costs of insurance for nonprofits?

PD: The insurance industry operates on cycles that see rising/falling rates and expanding/contracting availability. Insurance companies often move in lock-step. Rates fall and capacity expands when insurers are eager to increase their profitability by expanding market share. Rates rise for many reasons, including a focus on underwriting profits, sudden aversion to a type of risk exposure (for example, improper sexual conduct) or recouping catastrophic losses. In the case of nonprofits, the former two seem like the primary drivers right now. Carriers that lacked discipline in the past are now re-underwriting their books and are reluctant to insure nonprofits that deal with younger and older populations, the beneficiaries of a lot of social service nonprofits.

Independent brokers are surprised by our quotes. We don’t follow the rising/falling rates business model. Our prices are stable and set with a long-term view in mind. We have a very high renewal rate because our members appreciate our focus on stability and expect to stay with us for a long time.

If an insurer is driven primarily by profitability or doesn’t understand how to underwrite, price, or provide loss-control to nonprofits, the rates that insurer offers will be too expensive. The only way to offer stable prices and not subject your policyholders to rate gyrations is to have expertise in nonprofits and commit to protecting them over the long-term.

IC: Why is IVANS Market part of your distribution and marketing strategy?

PD: There are many brokers looking for new markets. Our objective in using IVANS is to reach these brokers without burning a lot of fuel flying and driving to visit offices and conferences. We all need to do our part to reduce our carbon footprint. COVID-19 is showing us all how to use technology to conduct business in new ways.

Access IVANS Markets online or from within your management system to learn more about Nonprofit Insurance Alliance’s products and how they can benefit your digital agency.

Access to Markets, 2020, Agents