Nonprofit organizations are a loyal bunch, often sticking with their insurance agents and brokers for years.
But there is room for new agents who can help nonprofits fill some coverage gaps, cope with political changes anticipated in 2017, and offer some professional business advice, according to two insurance brokers who are specialists in this market.
Sheila Shaw, senior vice president, and Brad Storey, vice president, risk management, both of Irwin Siegel Agency Inc., a program administrator for human and social services programs based in Rock Hill, New York, say that while the current insurance market for nonprofits remains competitive, there are signs the landscape for nonprofits will change this year.
For most of 2016, pricing in the property/casualty market for the nonprofit sector remained soft. As the year progressed, it got softer, said Shaw.
“By the end of the year it was pretty competitive in the nonprofit marketplace,” she said. “I expect that it will continue to be competitive in 2017.”
Thus far, 2017 has brought a slight change. “We’ve seen it tighten, harden a bit so that’s encouraging news,” Shaw said.
Part of the recent change has to do with a challenging commercial auto insurance market. “A big part of the social service/nonprofit business is auto related so we are seeing rate increases on that part of the book across the industry,” Shaw noted.
Even though commercial auto premiums are trending up, other lines are not. Unless the nonprofit organization is entirely transportation focused, such as peri-transit, rural, or emergency transportation, there’s still capacity.
“Right now,” Shaw said “property is really profitable, general liability is really profitable, so we just push rate into the auto line where it’s needed.”
Need for Cyber
Cyber liability is one area where the nonprofit sector remains underinsured or not insured at all.
“We are just starting to get insureds to see that they need this coverage,” said Shaw.
Like other businesses, nonprofits are coming around to realizing the need for cyber liability especially in today’s active online fundraising environment, according to Storey.
“There’s a much larger push in the sector for online presence particularly for fundraising and for organizations that have foundations,” he said. “That trend makes the call for cyber coverage even louder.”
According to Shaw, it’s important when they are writing new business in the nonprofit segment for agents to review the organization’s employee controls. “Are they doing the right background checks? Are drivers screened properly? Are they running MVRs [motor vehicle reports] and do they have controls for drivers such as driver training?”
Funding issues are potential red flags in the nonprofit world. “How funding (or lack of funding) might be impacted has always been an issue,” she said. “When funding gets cut (nonprofits) have to cut programs, risk management practices, or even cut staff.”
A period of shrinking federal funding can be an especially perilous time for nonprofit social service organizations. “Typically, when funding cuts occur, there’s a period of time when the organization is trying to manage through the cuts. In my experience that becomes the most dangerous time,” Storey said. “That’s when we start to see staff-to-patient ratios get off-kilter. If those ratios are not met, it’s viewed by the legal systems as a breach of standard of care, which does not help in the defense of claims.”
Since many social service nonprofit providers are reimbursed based on services delivered, ancillary roles such as training directors and safety directors can be some of the first positions cut. “These positions are not reimbursed (directly) for services. Those non-revenue generating positions are typically the first ones to be let go in the event of funding cuts,” said Storey.
Federal Influences Ahead
Funding cuts could be a huge issue in 2017 as the Trump administration seeks to change Medicaid. The Republican plan to replace the Affordable Care Act includes giving each state a fixed amount of federal money in the form of a block grant to provide health care to low-income people on Medicaid. That worries Storey.
“Block granting to organizations through Medicaid is basically handing over a large chunk of money to the states and allowing the states to apply those dollars how they see fit,” Storey said. That tactic has never been favorable to social service organizations in the past, he said.
“In states where Medicaid expansion was offered (32 states, including the District of Columbia) I don’t think we will see as many ramifications in those states,” he said. “However, in states that did not opt for the Medicaid expansion, block granting may have far more ramifications for those service providers in states throughout the Midwest and the Southeast.”
Traditionally funding for human services is heavily reliant upon Medicaid. “It’s never really seemed to go in their favor when Medicaid was block granted to the states so that is something that is going to have significant impact going forward,” Storey said.
The future of the Affordable Care Act could also have a substantial impact on addiction treatment nonprofits. “There is an abundance of money in ACA for addiction treatment and it is a segment rapidly on the increase with new startup addiction treatment organizations,” she said.
If the new administration changes the ACA’s coverage for addiction treatment, nonprofit organizations could be in trouble, Storey said.
Storey also believes the fate of the Obama administration’s Federal Labor Standards Act overtime rule is something to keep an eye on. The rule would double the maximum salary cap to $47,892 a year for full-time executive, administrative and professional workers to be exempt from overtime pay requirements. The rule was blocked by a federal judge in November and the Trump administration is expected to eventually kill it. That could affect nonprofits in all sectors, Storey said.
Success in the Nonprofit World
To be successful in nonprofits, Shaw advises agents to get involved. “Focus on accounts in your area where you can volunteer or sit on boards,” she said. “You have to get in there and get to know them.”
Also, she advises agents to specialize within the sector. “That brings real value to the table from a risk management perspective and that’s how to be successful with the nonprofit account,” she said.
Many nonprofits, especially smaller organizations, need their agent or broker to guide them in managing operations as well. “The level of business acumen that a broker can bring to the table for those organizations who haven’t ‘professionalized’ some of their business operations is a huge asset,” he said.
That’s where a good agent can add value.
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