There are two contextual rightsizing references required to fully appreciate this update.
- Our Gallagher Insurance Market Report Q4 2023, which features in 15 pages the broader, blended marketplace and benchmarking data to verify trends overall across all lines of coverage and all geographies of the US: It's a report that may be considered more optimistic than what our religious specialists are experiencing. But it's important to have the broader perspective, as we're in a world that's so interconnected that we can't isolate nor simply rest with one macro view. This detailed report points to some relief messaging, some capacity, some easing of pricing and turning the corner — and we value this broader perspective.
- The religious sector we serve, which is very diverse and is complicated by types of exposures and classes of business, jurisdictional considerations and legacy issues, as well as the heavy weight of public perceptions: Ministries are held to a higher standard of care. In terms of the Property and Casualty (P&C) insurance market, we're less optimistic overall; In fact, we continue to be in deteriorating, unchartered waters in so many ways for many faith-based organizations. Carriers are leaving classes of business (affordable housing, foster care, homeless shelter, and food banks) and parts of the country, and are laying off staff. Reinsurers are reducing umbrella limits and abuse coverages/limits/terms (occurrence vs. claims made). Carriers are in rating review or being downgraded. Faith-based organizations are even exiting certain vital human services markets due to unavailability and/or unaffordability of insurance premiums and/or funding requirements that contradict their beliefs, leaving significant gaps in our social safety net.
The first point speaks for itself; you can read that report separately. The second one needs some intentional study and unpacking to get faith-based leaders to a point of resourcefulness and hope, as that's what we need to confront the headwinds faith-based institutions are facing and sustain their impact in communities all over the world. Thus some commentary on the why and how follows.
Why the outlook is negative
Since 1988, when Roman Catholic dioceses and archdioceses had their abuse coverage cancelled, Gallagher has partnered with this constituency to use alternative risk financing, financing and self-insurance as means to secure reinsurance (captives, trusts and risk retention groups). Thirty-five years later, we continue to see the wisdom of breaking away and reducing dependency on insurance. The good news is that this "control of destiny" has proven profitable, giving control to faith-based institutions of all kinds to live out their convictions and approach claims as an opportunity for ministry.
Then, why do we continue have in this overall negative outlook for the religious sector? Several contributing factors are especially affecting houses of worship and agencies serving youth and vulnerable adults:
- Property — assets or liabilities? Property is the elephant in the room. We've experienced unprecedented losses among many of the church and commercial carriers in areas that were least expected, like the Midwest, Northwest, Northeast and central US. These non-catastrophic wildfires, freezes, floods and severe convective storms have all added to the demise of many years of overall profitable experience. When you add the catastrophic area losses, replacement costs (like kind and quality), code upgrades and the historical nature of some buildings, carriers are under water. Rates have been increasing year after year, with deductibles growing larger and the cost of property insurance, in some cases, beyond the ability of many smaller churches and ministries. In some cases, fewer attendees at services, poor maintenance, deteriorating structures and rising costs of coverage have added to the burden — a liability of sorts. The growing liabilities on carriers' balance sheets have led to rating reviews and downgrades for several of the limited number of specialty carriers in this market. The domino effect will be increased rates and exiting certain geographies — thus fewer options.
- Rollback of tort reform: States are opening up the statute of limitations for reporting abuse. Reporting by alleged survivors of older claims of abuse has led to a cascade of faith-based and secular nonprofit bankruptcies due to the inability to fund mass survivors. There's also been a rollback of previously limited punitive damages. For the most part, carriers are still offering occurrence coverages, so they may have dozens of years of potential liability that they must fund.
- Social inflation: Public perception is very negative of how "the church" has handled these abuse claims, leading to nuclear verdicts coming from old abuse claims (occurrence coverage).
- Increase in plaintiff attorney activity: The onslaught of reporting and headlines has led to plaintiff attorneys looking for survivors of abuse, especially from organizations that have substantial limits of coverage and any kind of proof of negligence. By using data, analytics and marketing, they secure more claimants.
- Changing jury view of fairness and duty of care: We now have exogenous forces affecting these loss trends, such as millennials on juries and litigation financing, which are also increasing factors in terms of prolonging the life and cost of claims. In addition, juries seem to be unwilling or unable to bifurcate their rage at instances of abuse that were covered up for decades from random criminal acts that an organization could not have anticipated based on all the reviews and background checks required to determine if an individual is likely to abuse.
How Gallagher is addressing the challenges of religious sector insurance
How are the Gallagher teams across the country collaborating with our ministry clients and programs?
- Data: We're focused on building the best data profile, especially emphasizing property appraisals and, depending on the location, secondary and tertiary levels of information — data is king. We're clearly defining the operational exposures and creating profiles that become more reliable than website cruising by underwriters. And to the point of "experience" (losses), what are our remediation efforts on a frequency and severity level of these claims; take them one by one?
- Continuing the same strategy and expecting different results is the definition of insanity: This point isn't just about repeating past years' insurance carriers, structures, terms and limits. We must examine every aspect of the insurance program, mindful that umbrella limits are more expensive, if they're even available. For single risks, the more you can secure coverage using an all-lines package, the more diversified the risk and potential profitability for carrier partners More benchmarking and analytical work needs to be done to get to appropriate limits. Youth-serving organizations are advised to reexamine the abuse insurance, terms and limits. We must balance the perspective of protecting our future with avoiding the potential of high liability limits serving as targets. Do these multimillion-dollar verdicts really "teach them a lesson," or do they drain precious resources that could be used to protect other children? Those in challenging catastrophe-prone areas (now expanded to severe convective storms, wildfire, wind and hail) must not only work closely on better data (insurance-to-value analysis), but also consider larger deductibles and government complementary programs such as the Federal Emergency Management Agency (FEMA) and the National Flood Insurance Program (NFIP) as sources of support.
- Excellence: We're working to get our ministries focused on stewardship or operational excellence (having a safety committee, for example) and making the risk management program a priority — perhaps board driven. Start by firming up and strengthening your safety committee. Insurance should always be secondary to risk management. Can our religious organizations get to a point of confidence to take greater deductibles? Building a culture of safety is a great start to reducing the total cost of risk and dependency on insurance per se. Can we create a story here that's compelling to underwriters and differentiates the risk?
- Start early with focus on market options: We have a remarkable portfolio of carriers, both admitted and excess and surplus (E&S) lines, and in many cases we represent their largest broker. We value longevity and market partner forging, but in this unpredictable marketplace, we believe we have to start earlier and cast the net wide. Some carriers see new business differently and perhaps more favorably than renewing business, which seems counterintuitive. Be careful when budgeting the total cost of risk projections in your planning, as premiums are a factor of rate (trending upward for the most part on most lines) and experience, and many carriers continue to look for rate increases.
- Building and growing programs: Gallagher's history as a program broker is proven and long-standing. In most cases, these programs have become empowering, equity-building profit centers, where the ministry has control of incidents/claims and may reduce the total cost of risk long term. There's power in aggregating, retaining expected losses, spreading risk and even in alternative risk financing. Working with more than 30,000 nonprofits, we see potential both now and in the future to create new programs for our insureds and grow the programs we already have. Find ways to come together and collaborate, and you will experience resilience and new paths to solution building.
"Risk" is a very common word these days, used to add color and challenge to our lives, our faith and our work situations, but today we know that risk has positive as well as negative connotations. Focused on our work, we manage risk in our organizations and with our staff and volunteers, both treating (mitigating) or avoiding negative outcomes and embracing opportunities (growth and impact). The discipline of enterprise risk management has brought science and scenario-building into our assessments strategically and operationally. We need to embrace these tools (RiskMap) and the partners who provide them, and continue on our path of excellence and "duty of care" in all we do.
For youth and vulnerable adult-serving ministries, we're especially encouraged by the noble work of the Evangelical Council on Abuse Prevention (ECAP), which takes the emphasis on youth-protection training to new levels by bringing greater transparency, accountability and stewardship to the forefront through child safety accreditation. This ECAP accreditation process builds layers of protection, resulting in peace of mind for leaders, parents and other ministry stakeholders.
Society needs our faith-based communities, given their vital role in helping people and solving societal problems — in being community. Build partnerships with your local authorities — police, fire, rescue — and other like-minded social service providers in your community. Let's not fear risk, but make sure we're proactive in all we do, for we can't totally avoid negative events or even fortuitous surprises, but we can certainly be better prepared, always. Insurance helps, we know, and that will always be the case.
Please contact religiouspractice@ajg.com to learn more.
