Social Services Agencies, and Insurers, Looking to Grow

This is shaping up to be a watershed year for nonprofit and social service organizations. Major changes loom, especially with the new Trump Administration that is aiming to slash federal spending. The organizations are adjusting by turning more to private donations and expansion into other service areas, where they potentially face new opportunities and risks.

Insurance producers specializing in nonprofits are both concerned and encouraged.

“Federal funding might be drying up, but we don’t see nonprofits leaving us or failing because they’re going out of business,” said Riley Binford, executive vice president at Charity First Insurance Services Inc. in San Francisco. “We just don’t see that.”

What Binford and other specialists in this sector do see is a nonprofit industry adapting to survive in current market conditions.

Brian Norman, president of Norman-Spencer Agency Inc., a national property/casualty insurance provider, says organizations aiding individuals with food insecurity in particular face a tough road. “More than 90 percent of food bank resources come from the federal government,” Norman said. “They have been advised that the new administration may cut that (funding) by greater than 40 percent …. How as a country can we turn our backs on hungry children?”

Trump’s budget proposes eliminating discretionary funding for at least 19 federal agencies and 61 other programs, including cutting funding for:

• Corporation for National and Community Service, which funds AmeriCorps, Senior Corps and the Social Innovation Fund;
• 21st Century Community Learning Centers, which supports community learning centers that provide before-and after-school programs for children, particularly those in high-poverty areas; and
• Community Services Block Grant, which funds projects aimed at reducing poverty in communities, including projects focused on education, nutrition, employment and housing.

“Clearly, there’s not a huge pot of new money coming into the world of behavioral healthcare in terms of funding whether it’s federal, state or local government money,” said Nicholas Bozzo, president of Negley Associates, an underwriting management firm for behavioral healthcare agencies and social services organizations. “It’s forcing people to do more with less, which is increasing the risk exposure and putting pressure on insureds’ budgets.”

While they may have fewer public dollars to support their communities’ needs, social services agencies are getting more support from private donations but whether those donations will fill funding gaps remains to be seen.

Americans are embracing philanthropy at a higher level than ever before, according to W. Keith Curtis, Giving USA foundation chair and president of nonprofit consulting firm The Curtis Group.

Donations from America’s individuals, estates, foundations and corporations topped $373 billion in 2015, setting a record for the second year in a row, according to “Giving USA 2016: The Annual Report on Philanthropy for the Year 2015.”

Donations for 2014 and 2015 grew a combined 10.1 percent.

The nonprofit/social service sector has indeed been growing over the past decade, according to the Urban Institute’s 2016 Nonprofit Almanac. The number of employees increased 14.0 percent from the 2003 to 2013.

A major driver of this employment growth is the increased demand for healthcare and social services. More than half of all nonprofit workers are employed by the healthcare and social assistance industry (54.8 percent), which includes hospitals, mental health centers, crisis hotlines, blood banks, soup kitchens, senior centers and similar organizations. In 2013, this industry employed over a million more nonprofit workers than it did in 2003, showing the largest absolute growth in number of employees of any nonprofit subsector.

According to Norman, nonprofit and social services organizations are continuing to adapt by looking into new areas to serve.

“We see nonprofits expanding their services into areas outside of their typical area of specialty,” he said.

“Human services agencies and nonprofits across the country have recognized crucial needs in the communities they serve, and are responding with an expansion of their services, allowing them to help their consumers in new and different ways,” said Scott Grieco, president, middle market for The Hanover Insurance Group (see his article on page 28).

“Whether it’s a community counseling center that is now offering physicals or an early-intervention program that has added a dental clinic, many nonprofits have expanded their missions to include medical services as a complement to their traditional social, counseling and support focuses.”

Norman notes that this growth can bring additional risk as they expand into unfamiliar areas of expertise.

Some insurers see the nonprofit and social services sector as an attractive market at a time when they themselves are looking for places to grow.

“It’s a good time to be a nonprofit, for sure, as far as insurance goes. It’s very competitive,” said Binford.

“The insurance industry is now in a place where more people are looking for growth and they are looking to get a better return on their capital,” said Negley’s Bozzo.

“It’s a big issue right now,” he said. “You have a lot of insurance providers that focus on the world of social services; it’s a big space.”

But Bozzo worries that some of the providers entering the market and driving down prices may not be in the market for the right reasons, at the right price or for the long haul. They may see that there are a lot of potential clients, but may not understand the level of difficulties in certain risk profiles.

“There are too many generalists starting to play in very difficult areas of the social services/behavioral healthcare field,” he said. “What you have going on is people who have historically just been in the world of benign social service who are now venturing into areas that are upstream, or higher on the food chain in terms of risk profile and severity potential,” Bozzo said.

“What they don’t realize is there is a tail to this business. While they are making money now, in five, six or seven years from now when claims develop on this business they are going to be surprised at the results. The price they are currently trying to write this business at is not sustainable.”

Going downstream to a more benign social service exposure is easy, but going upstream to a more difficult class is tough, he added. “Unfortunately, they are going to learn the hard way.”

As an example, he cites the current push in the social services arena toward integration of primary medical care and behavioral medical care.

“Now you are dealing with traditional medical malpractice and no longer just behavioral healthcare,” he said. “New people jumping into this market is driving rates down in the wrong areas.”

According to Binford, in most lines of coverage for social service accounts, insurance rates tend to be “flat to maybe even a decrease in some areas.”

Mike Liguzinski, divisional president, Specialty Human Services, for Great American Insurance Co., describes the current market for social service organizations as “mildly soft.” He says there are still areas where rates are slightly increasing or flat, except commercial auto where rates are on the way up. “Lower gas prices, more cars on the road, more auto accidents, and distracted drivers are driving that trend,” Liguzinski said.

Bozzo said on a rate per million concept there’s more premium involved in the more difficult classes of risk such as child welfare or in tougher classes of business where there might be a larger doctor population than counselor population. “Doctors have a higher degree of risk because the standard of care is higher and expectations are higher,” he said.