Author: Peter A. Persuitti
The third sector – both secular and faith-based – is very diverse and broad in exposures, but overall is not immune to the challenging insurance market. In fact, such an adverse insurance environment hits Nonprofits even more, given the expectations of society and ‘duty of care’. The COVID-19 pandemic has added a bifurcation of those essential Nonprofits that continued to serve and those that had to shut down, but all are burdened with reduced revenue and increased expenses related to safety. COVID-19 has not masked the fact that we continue to see plaintiffs pursuing litigation of mostly older Sexual Abuse and Molestation (SAM) claims, and headlines of bankruptcy and cyber breaches for Nonprofits continue. Several Nonprofit carriers are parsing their books of business, now excluding certain exposures such as foster care, residential services, affordable housing, etc.
General Liability and Auto Liability
General liability and auto liability continue to see upward premium pressures and a reality that is causing many insurance carriers to reduce limits offered. We’re seeing that Nonprofits are taking on limits that could become targets of larger settlements. Certain areas are experiencing more pressure than others, such as:
- Certain classes of Nonprofits working with youth and seniors, the vulnerable, and exceptional in the human services arena.
- Nonprofits that purchase higher or Excess Liability limits. This is among several distressed areas overall for nonprofits and for the broader marketplace. Individual carriers putting out millions in limits are now under scrutiny from within, given a number of reasons including social inflation (increased verdict amounts), lack of adequate premium to fund catastrophic losses, reduced capacity and increased cost of reinsurance.
- Entities with losses, which may find it difficult to purchase coverage at any price – especially losses related to third party contracts.
- Many insureds that have had to reduce limits while paying the same or even higher premiums.
- SAM continues to be a highly scrutinized area by underwriters; limits are almost unavailable at any price. Strong risk management policies and procedures must be in place to earn this coverage. This trend is complicated further by statutes of limitation developments (window legislation) in many states. Will we see more carriers move from occurrence to claims-made coverage?
Auto Insurance Specifically
Transportation is a key activity for many Nonprofits that not only engage employees but also boards and volunteers to serve on behalf of the Nonprofit. Not only does auto insurance premium continue to escalate but we are seeing this area as a key driver of catastrophic losses, and thus the need to analyze higher limits – which can be unaffordable or not even available. Some Nonprofits are also dealing with an aging workforce of drivers, which creates further risk if not coupled with proactive training and due diligence.
Property, Including Builders Risk
The pricing of this property insurance continues its upward trend with most insureds seeing double-digit premium increases, year over year. Nonprofits continue to utilize deductible increases and reductions in limits to offset premium and rate increases. We expect this trend to continue, and recent storms and catastrophic losses will continue to put pressure on this line. We also are seeing some reduced appetite by carriers for Nonprofits that lease out property to third parties.
Worker’s Compensation
While worker’s comp is currently the line of coverage with the least upward pressure, expect changes to come as covered COVID-19 claims increase. Laws extending the presumption of coverage continue to develop across the states.
Cyber Liability
We believe that cyber coverage will see the most upward pressure in the near future. Many Nonprofits have not considered cyber coverage in the past. We are seeing sizeable losses reported as many Nonprofit staff work remotely, use technology to solicit funds, and manage key data on donors. In fact, we just read of a $7.5 million data breach (endowment) of a large metropolitan Nonprofit. Expect increases here – premium and deductibles.
Crisis Resilience Coverage and Consulting Services
Crisis resilience coverage continues to be of high interest to Nonprofits; there are good affordable alternatives available.
Special Note of Interest – Cost Pressure in the Nonprofit Sector
As Nonprofits continue to work through the current economic and pandemic environment, many are facing 20% to 30% revenue reductions with no backstop in place. COVID-19 has increased operating expenses overall and we have encouraged all of them to pursue PPP and FEMA funding (while the window is open). Nonprofits of all types and sizes are desperately seeking cost reductions and seriously slashing budgets. It is more important than ever for entities to focus on their total cost of risk and not just the line item of insurance costs. We know that reducing loss prevention or risk management efforts now may result in higher claims later. Similarly, purchasing the lowest priced (brokerage) service or insurance coverage now without careful review of the overall impact can have long-term financial and operational consequences.
For more than 50 years, Gallagher’s Nonprofit insurance team has helped the third sector weather market cycles, economic downturns, and societal changes. We can help you through these hard times, too. Gallagher’s long history of utilizing alternative risk financing has certainly positioned some Nonprofit clients today with more stability in pricing long term and we see this growing in the future. Today we have even more tools and analytics to empower both individual risks and like-minded Nonprofits to come together and finance risk in new and impactful ways, even expanding the eye to another large fixed cost – health and welfare.
