Few independent agents recognize that they can make profits from not-for-profit organizations, says Dan Mogelnicki, president of Manhasset, N.Y.-based NIF Underwriting Facilities, a program administrator and wholesale broker with a specialty in the social services arena. Yet, Mogelnicki says “the nonprofit social services niche provides the independent agent with the opportunity to shine by doing what they are best at doing.” And after all, there are more than 1.5 million nonprofit organizations in the United States today — a sizable market by any means. In this exclusive interview with Insurance Journal’s Andrea Ortega-Wells, Mogelnicki explains why the nonprofit social services market can be challenging, rewarding and profitable all at the same time.
Tell me a little about your background in social services.
Mogelnicki: NIF administers several very large programs, including a public entity program and our social service program. We’ve been around for 30 years and everything we do is through independent agents. The appetite for the social services program is very wide. We write risks such as mental health facilities, drug and alcohol rehabilitation centers, facilities for the mentally retarded and developmentally disabled, homeless facilities, battered women’s shelters, counseling centers, crisis centers, and many others. There is a mix of residential, outpatient, and counseling and office exposures. The average size account in our program is in the range of $50,000. We do write some million dollar accounts but we also write some $10,000 accounts.
Describe a typical social services exposure and what their program might cover?
Mogelnicki: Let’s take for example a drug and alcohol rehabilitation center. These centers would in many cases entail a residential exposure where they would take in consumers that have an addiction problem and put them first through a detoxification program. Now that program in and of itself has very large exposures in that there is a high degree of medical services rendered including the administration of various drugs. There could be a medical oversight function that presents a medical malpractice exposure. Then there is the overall professional liability exposure with respects to counseling and other services provided. It could be alleged that the services were provided incorrectly thereby causing some bodily injury or mental injury that many times can result in professional liability claims.
Obviously there are aspects of premises liability. Think about the drug and alcohol facility where you have residential so there’s normal tripping and falling hazards. Or even an out-patient exposure where you have consumers walking in, getting some counseling services and leaving the premises. Some entities might have multiple facilities. Many of them have very large property portfolios. Some own and some lease the premises. But nonetheless, a high degree of property insurance is called for and is necessary to be able to provide adequate limits. Many would also have an automobile exposure. They might need to render services to clients off premises and in order to do that they will have private passenger vehicles, or most often nine to 14 passenger vans.
Why do some nonprofits need an independent agent more than others?
Mogelnicki: Many times the insurance aspect is forgotten about and that’s where the role of the independent agent is critical. These nonprofits might be concentrating their efforts on delivering the services that they provide to their consumers. Thereby it leaves less time and less available resources for certain risk management aspects. In those types of accounts the role of the independent agent is absolutely critical. While the executive directors might be quite excellent at delivering the services that are their calling, they might overlook the impact that their activities have on their insurance program. The agent will bring the expertise, bring the risk management and will even help to organize the portfolio of exposures so those exposures can be adequately addressed.
Are nonprofits at more of a disadvantage when communicating risk to front-line staff than traditional businesses?
Mogelnicki: I think it occurs everywhere but I think the problem is more acute with nonprofits because the nature of the nonprofits is that they are concentrated on delivering their services and the risk management aspect sometimes suffers. So involvement of an independent agent in this process is key. Some facilities have a risk manager, but this is rare. Most times, the finance manager will take on the insurance buying function. It’s a challenge to inculcate risk management into this process. And the main thing is that the message has to be delivered to the management of the nonprofit and they need to recognize the importance of disseminating the information to all of the staff. The staff not only includes the professionals that deliver the service but also includes folks such as the maintenance people. (Communication) applies to every level of organization, not just the management, not just the professionals, but to all levels of employees, including clerical, supervisory and maintenance.
Do agents generally specialize in the social services arena?
Mogelnicki: We find that 50 percent of our business comes from agents that are highly specialized in this area, and the other half of our book comes from agents that may only have one or two of these risks in their entire book of business. What’s interesting about it is that there are so many nonprofits out there … there are a few independent agents that recognize they can make profits from not-for-profits. But we find that half of our business comes from agents who do it because they feel they are giving a community service because they are writing a nonprofit that’s in their town or they have a family member that’s involved, or they are on the board of directors.
What is the most common type of insurance claim in social services?
Mogelnicki: Contrary to popular perception, the highest degree of exposure in terms of loss frequency is not sexual molestation but rather the auto. In our 30 years of writing the program, the auto portion of the property/casualty portfolio of coverages has always presented the highest number of claims and in many years the highest dollar amount of claims. That being said, this is also an area where risk management comes in play — driver training, driver selection, proper maintenance of vehicles. After that, the next highest category is regular general liability trip and fall claims. Facilities that provide therapeutic and medical services owe their clients a high degree of duty of care, which increases the professional liability exposure. Often times, these claims can result in losses that are hundreds of thousands of dollars. And obviously you always have some property losses and occasionally an employee dishonesty loss although that is somewhat rare.
How do claims, whether serious or not, affect a nonprofit?
Mogelnicki: The issue of claims is critical for a nonprofit, especially the way it’s handled. There are several reasons, but the most important reason is because of the risk to their reputation. We do occasionally see some claims in the area of sexual molestation. The problem that arises is that when an event occurs it is usually something that gets a lot of press and can significantly tarnish the reputation of the nonprofit entity. Many of these agencies get their funding through private and public donations and if their reputations are tarnished then it makes the fundraising much more difficult. So in handling claims it is extremely important that the insurance carrier respects the privacy issues that are necessary and tries to swiftly handle the claim.
How important is the agent’s involvement in the overall claims process?
Mogelnicki: The independent agent’s involvement in the claims process is critical. They are the liaison between the insured and the insurance company. It is important that an independent agent involve themselves so that a comfort level is secured between the insured and the claims adjuster. For our program, we’ve been handling these types of claims for many years, and we recognize that it’s best for all parties involved for claims to be settled judiciously and quickly and with as much sensitivity as possible. And we foster a very good and close working relationship with the insured. But we always involve the independent agent because that communication is so important to make sure the information flows to settle the claims quickly. We strongly recognize the value of the independent agent in this process.
Are market prices softening in the social services arena?
Mogelnicki: For the most part, there is not an excessive amount of carriers that write this type of risk. Most of the carriers that write this class have been in it for quite some time. Occasionally we see carriers that try to dabble in it and they quickly learn that it requires a high degree of underwriting and specialized expertise and take their lumps and back out. But for the most part it’s a very healthy competitive marketplace with an occasional insurance carrier that may be more aggressive at times than others.
Do you have one word of advice for agents who maybe new to writing social service agencies?
Mogelnicki: NIF believes that the independent agency system is the best mode of delivery for insurance products. The nonprofit social services arena is an area where the expertise of the agent is called for to a much higher extent than a normal commercial account. Therefore the nonprofit social services niche provides the independent agent with the opportunity to shine by doing what they are best at doing. It is a class where their services are most appreciated. It is a class where their professionalism has a significant impact on how the insured’s operations are run and can survive in the event of a problem. Nonprofits rely on the independent agents to a much higher extent than a normal commercial risk. This will be seen as an opportunity for those shops that know they are very good at providing enhanced professional services.
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