Nonprofits Growing Fast, But Still a Tough Classto Cover

Nonprofit organizations are among the fastest growing sectors of the U.S. economy and while many companies try to steer away from writing policies for nonprofits, there are a few that thrive on the business.

Those who do focus on the class or on segments of the class agree that nonprofits constitute a complex and tough line of business whether social service organizations, group homes, schools, community organizations, art galleries, religious institutions or more. Most agree that the secret to success lies in underwriting expertise and program administration.

Perhaps one of the toughest lines within the class is the broadly defined social services organizations—groups whose sole purpose is to offer help and support where it would otherwise be unavailable. Such organizations include community action agencies, head-starts, passenger transportation services, meal delivery services, youth and senior programs, and childcare organizations, as well as groups involved with handicapped individuals.

A major pro-vider of such coverages is Texarkana-based Care Pro-viders Services Inc. Bob Nasits, president, says his company will only write coverage for non-profits that fill a social service function. “We don’t do churches, symphonies or galleries,” he explained. He believes his company is successful partly because it specializes.

Nasits said there is a disinclination on the part of the vast majority of standard companies to write social service organizations for several reasons. “A lot of them involve passenger-carrying vehicles, so you’re getting a relatively low premium for a relatively high exposure,” Nasits said. “You could have six, eight, 10, 15 passengers killed or injured.

“Plus, a lot of social services organizations are into oddball-type things, either in the fund-raising arena or just in the different programs they insure,” Nasits offered in an earlier interview with the Insurance Journal. “For example, we looked at one that was building homes for the poor, and they were using prisoners that were released during the day for the work-duty programs. They were under no particular supervision other than [that of] the social organization.”

Other problems can arise with D&O. “About 90 percent of the D&O claims are in the employment practices-related area,” Nasits said. “Often, social service organizations try to spend as much money as they can on the services they provide, and they tend not to spend extra money in human resource directors…But there’s no lessening of the desire from the employees to sue…That’s why we now provide our own human resource services for our clients.”

In addition to providing protection for volunteers through a volunteer accident policy, Nasits said volunteers are automatically added as additional insureds under a general liability policy. “There are also some auto implications for liability for volunteers operating their own personal vehicles for the insured organization. That is a separate coverage under the auto policy,” he said.

The marketplace for nonprofit coverage is also changing, according to Nasits. Care Providers, an exclusive program administrator for ACE, has experienced a 600 percent increase in submissions. Part of the increase is due to continued expansion. It now operates in 27 states, and part of the increase is due to the number of standard markets that have exited the marketplace.

“We have to shop the coverage around now much more than in the past,” he offered, adding that the trend would likely continue well into next year.

Nasits said he is seeing standard carriers pulling out of the nonprofit social service market altogether. Many are not renewing and most of those are carriers that had written coverage during a softer market. The hardening market makes the risks far less attractive for those who do not specialize in the class. “The class does not generate enough premium.”

He related his company’s prior experience with writing assisted living facilities as an example of how the market can respond to a tough class. He said Care Providers had written policies for assisted living facilities “but we no long do because there was no reliable method for determining when a resident was no longer suited for assisted living but should be moved to a nursing home.” He said the circumstance caused too much exposure to loss. “As a consequence this has become a very hard line to place.”

Not all lines are quite so difficult to place, but nonprofits are considered a challenging class nevertheless. Much like for-profit businesses, nonprofits require the basics-property, liability, auto, and workers compensation plus others as necessary. Because of the special nature of work performed, nonprofits may require specialized protection such as sexual abuse and molestation, professional liability for counselors and therapists, and errors and omissions. Most carriers also require coverage for volunteers.

San Francisco-based Charity First, a subsidiary of Arthur J. Gallagher & Company, the world’s fourth largest insurance brokerage, manages some 10,000 accounts nationwide, of which more than half are volunteer and community service organizations.

“We’re not aware that any of the major players are shying away from writing nonprofits,” said Cindy Hawley, senior vice president of Charity First. She said Charity First, a managing general agent that only writes nonprofit coverage, has as strong an appetite for the class as ever. She does suggest that many are in the process of repositioning themselves as the market is changing.

Houses of worship
One of the most specialized lines in the nonprofits class involves churches and other houses of worship. Ron Walker, senior vice president at Texas American Insurers, a leading writer of coverage for churches, agrees that markets are tightening. “We are seeing premiums up from 10 to 20, percent which is due to the general hardening and due also to changes in the property reinsurance market. I think part of the current market, especially property, is due also to the mold issues,” said Walker.

He explained that because of the concern with mold, adjustment time for claims is now taking up to a third longer than previously. “The adjuster needs to be more thorough on his initial inspection, and then remediation is taking longer and re-inspections are more common,” he said.

Dale Zellmer, director of the Nonprofit Insurance Division of Houston-based Henley, Williams & Associates, also a division of Arthur J. Gallagher & Company Group, said he agrees that at least in the church insurance sector the market is also shrinking as well as hardening. “We are finding that placing insurance is becoming tougher.” He said premiums are up anywhere from 5 to 25 percent, depending on losses and the region in which the buildings are located.

In an increasing number of cases, churches that have experienced losses, property or otherwise, are finding that they may have to settle for less than desired coverages. “On the property side I would agree that reinsurance is causing the market to shrink.”

Henley Williams and TAI are both major writers of church coverage in Texas along with the leading direct writer, Church Mutual.

Zellmer said there is also a reluctance among underwriters to cover church property that sits in coastal areas or that exists north of I-20 where hail storms occur with some frequency.

Walker agrees that property coverage in damage-prone areas is tough to place. “Churches have a lot of roof area and this is susceptible to a lot of damage during hail storms.”

He said he doesn’t see evidence that Church Mutual has been writing much in the Dallas-Fort Worth area for the past couple of years, especially following the severe damages from the 1995 hail storms. “And Guide One, a major carrier of church-related coverages based in Des Moines and a market for TAI, is restricting property coverage in north Texas, which is likely driven by reinsurers who are shying away from that line.”

Perhaps the most challenging area for coverage within the class is Director’s and Officer’s liability coverage. Not only can it be hard to place, but also it is frequently overlooked or omitted by many organizations. (See related story on page 48.)

Today, more than 1.4 million nonprofits operate in the U.S., with over 47,000 new nonprofits created every year, according to the Texas Association of Nonprofit Organizations. Including volunteers, almost 10 percent of the American workforce is employed by the nonprofit sector. In Texas, the nonprofit sector includes more than 35,000 tax exempt organizations.

With the size of the class and the prospects for growth, nonprofits may indeed seem a likely target for coverages. But given the complexity and challenge of the exposures involved, it is not a sector to be undertaken without proper preparation.