Nonprofit and social service organizations are as plentiful and diverse as the world itself. To better serve communities, nonprofits must bend, mold and adapt to rapidly changing conditions and so must the insurance industry that serves this specialty market, the experts say.
“The nonprofit world has become so diverse; organizations are always reinventing themselves to access additional funding,” says Diane McDaniel, senior marketing analyst at Lovitt & Touche, an independent insurance agency based in Tempe, Ariz., that employs nearly 200 employees in three offices and writes more than $300 million in total premium.
That trend is different from the past when nonprofits were more “vanilla” in how they structured their programs and services, McDaniel says. “What I mean by that is they would say ‘OK, we are only going to handle homeless shelters, or drug addiction.’ But now we are seeing more cross-services, so they are helping the homeless but they are also treating drug addiction.”
The expansion in programs and services is needed in communities everywhere, McDaniel says, who handles marketing for Lovitt & Touche’s nonprofit renewal and new business for clients ranging from $50,000 in premium and up. “The consumer base for the nonprofit industry is definitely growing,” she said. “More people need more help.”
According to the National Center for Charitable Statistics (NCCS), 501(c)(3) public charities – which include everything from health-related, mental health, housing, youth, human services, recreation, food, employment, education and religious organizations – grew 29.7 percent in 10 years (2003-2013). The NCCS estimates there are now 992,543 public charities in the United States.
That’s a large market, which is one reason specialty agents and their carrier partners target the nonprofit industry. But that’s not the only reason.
Insurance companies and their agents enjoy working in this niche not only because it’s a growing industry but also because of the opportunity to help the people and organizations whose mission is to help others.
“There’s a lot of goodwill,” says Jamie Crystal, executive vice president and third-generation principal of Crystal & Co. based in New York. With 10 offices throughout the United States, Crystal & Co. ranks among the world’s largest family-owned insurance brokerage firms, writing more than $1.3 billion in P/C premium in 2013. Its nonprofit practice is the largest division within the company.
Crystal says that while many people view New York City as the nation’s financial services epicenter, not-for-profit organizations employ the largest number of people.
“It’s a big market,” Crystal said, whose firm writes more than 1,000 not-for-profit clients. “Most insurance companies I deal with really like supporting the nonprofit industry, just as we do, because if we can help these organizations manage their risk and have the right protection in place, that means in our own little way we are helping them to provide their services more effectively.”
With so much diversity among nonprofit organizations, the challenge for agents and brokers serving this niche then becomes finding the right “bucket” to fulfill their insurance needs, he says. That can be difficult as many nonprofit organizations reinvent their services constantly in an effort to seek new funding sources. The experts agree that agents, brokers and carriers serving this niche must be nimble and whole-heartedly committed to this sector to provide the right insurance protection.
Making sure that nonprofit clients have the right coverage and the right risk management in place has become more of an issue.
“We’ve seen a lot of not-for-profit organizations pushing to enter different programs to generate sources of funds, and there’s a danger of those organizations going outside their area of expertise and changing their risk profile,” Crystal says. He says it’s important that organizations ask whether they have the risk management controls in place to safely provide new services.
“For example, one of the organizations we work with that serves children decided they could also provide services for veterans. They asked us: ‘Are we covered?’ And we said: ‘Yes, you are covered but have you thought from a risk management standpoint how you are going to manage the new exposure of having children and adults in the same building?’ They hadn’t thought about that at all,” Crystal says. “In their zeal to provide these services and with this push to get revenue there’s pressure to provide services they might be fully capable of providing, but they may not have the risk management in place to safely provide those services.”
Jeff Kunce, a producer for Assured / Neace Lukens Insurance, who has been writing nonprofit human services organizations in Indiana for more than 15 years, says just about every nonprofit in his book of business is trying to expand services to add new revenue streams.
“The states are paying less and less through Medicare and Medicaid so these organizations have to expand their offerings,” Kunce said. “We have to educate them about those new exposures.”
To be successful, agents and carriers need to be completely dedicated to this industry and passionate about the mission of the nonprofits they serve, says Melani Conti, senior vice president/nonprofit practice director, at Heffernan Insurance Brokers based in Walnut Creek, Calif.
Serving the diverse nonprofit industry involves much more than just writing insurance, Conti says.
“A broker needs to be aware of what types of obstacles their nonprofit clients are facing, issues that are important to them, impending legislation, etc.,” she said. Then, the broker needs to have the resources available to address those issues either through their own insurance brokerage firm or through developed partnerships with other nonprofit specialists, Conti said.
Outside of traditional insurance-related services, nonprofits often seek out ancillary services from their insurance agents, according to Conti. “We have developed a wide range of partnerships with providers from attorneys, accounting firms, banking, staffing, even car donation specialists and more. We, as brokers, tend to become the resource for our clients for much more than just insurance. We need to be prepared to help them on many different levels.”
In the insurance world, nonprofits often get treated as “second-class citizens” but in reality not-for-profits are every bit as complex and challenging as for-profit companies, Crystal says. “Not-for-profits are frankly very complex and have very sophisticated needs. They have very similar risk management needs as for-profits from a complexity standpoint,” he said.
The ever-evolving risk profiles of nonprofit clients make give brokers specializing in the market an important advantage.
“I have cleaned up a lot of accounts that came from brokers that don’t have a specialty in nonprofits, and it costs insureds more in the long run, especially in Arizona because we do have some unique coverage issues,” McDaniel said.
McDaniel said that two years ago the state changed requirements for sexual abuse coverage being on a claims-made form to an occurrence form – a change that was mandated by the Department of Economic Security, which provides funding in this area.
“I have seen out-of-state agents that maybe did not provide correct coverage with the correct tail or correct nose and then we would have to go back to fill that gap,” she said. “It would cost the insured anywhere from $5,000 to $60,000 to go back and provide the coverage.”
Today’s nonprofits and social service organizations realize their need for specialists when it comes to insurance, says Steve Parkhurst, producer for Heffernan Insurance Brokers.
“They are definitely looking for specialists,” Parkhurst said. “They like to know that the resources and services are catered to nonprofits in general, and more specifically to their niche in nonprofits.”
Parkhurst said that it’s the specialization that often wins him the account.
“When I go in, that’s what I’m selling,” he said. “We have great relationships with the underwriters and carriers so we can get the price.”
The specialized resources and services often put his agency on top. “That’s how I sell … talking about the resources and services we offer.”
Agent specialists can also help drive changes in coverage and forms with traditional nonprofit carriers.
According to McDaniel, who handles a number of nonprofit behavioral health organizations at Lovitt & Touche, there’s a current shift in that sector to expand beyond behavioral health, adding basic primary healthcare services, as well. But covering professional liability exposures for primary health services is something traditional nonprofit insurers are uneasy about underwriting.
“The funding is pushing toward integrated health, so not only are they treating for behavioral health, like seriously mentally ill or drug addiction, they are also treating people for primary medical needs at the same time and they get more funding for that,” she said. While the move is good for the nonprofit providers, she says it’s been somewhat difficult to get standard market insurance specialists to buy-in.
“Nonprofit carriers really do provide everything – property, auto, general liability, professional … but it has been somewhat difficult for the standard markets, the markets that have been in nonprofit for a long time, to provide that primary medical because they are just not comfortable with it,” McDaniel said. Many of the forms now actually exclude primary medical, she says.
It’s a different exposure and coverage has been difficult to find in standard lines, but it’s an issue that’s not going away, she says. Integrated services – behavioral health and basic primary health combined – are the future for this segment, McDaniel says. If traditional nonprofit insurers continue their hardline stance to refuse coverage on primary medical malpractice, they could lose market share in that area, she adds.
Michael Liguzinski, division president, specialty human services, Great American Insurance Group, understands the need to be flexible in today’s diverse nonprofit world. “As we’ve seen over the years, nonprofits are always adjusting how to best serve their clients,” Liguzinski said. “Because we have expertise that focuses on the non-profit marketplace, we are nimble and able to adjust to various trends.”
Liguzinski says Great American always tries to evaluate the changing marketplace, including looking at new classes of coverage and determining the best way to utilize expertise to serve the needs of behavioral health organizations as they include primary healthcare.
Crystal says it’s natural for the industry to be somewhat reactionary. “Look at how they handled religious organizations and sexual abuse coverage,” he says. First they eliminated coverage; then figured out how to write it. “I think there is a constant catchup from the insurance companies to try and stay current,” he says. “But they are certainly relevant and the effort is there.”
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- How Agents Help Nonprofits in Hard Times
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