Houses of Worship and the State of Insurance

A recent Insurance Journal article decried the state of insurance for churches and it’s mostly about their property insurance issues and we all know that the property insurance space has struggled in recent years, especially in storm-prone areas. But why would churches in particular have property insurance issues, and is there anything that can be done about it?

Insuring churches is generally done by people who identify themselves as churchgoers, believers, or insert religious affiliation here. Many of the larger countrywide insurers will write churches, often on modified commercial policies, with extensions of coverage and exclusions that the insurance companies deem necessary for the risks posed by a church.

Many churches tend to avoid those policies in favor of companies that market directly to churches, including Church Mutual and GuideOne. Other companies focus specifically on the churches and ministries of a specific denomination or religious group and there are of course, other solutions, but let’s deal with the central theme of the article, property insurance for churches is getting harder to obtain, keep, and afford.

The Role of Governance

The article makes the point that churches are generally unregulated and unregulated entities are difficult to insure. I’m going to disagree with that assessment. It’s not a lack of regulation that makes churches difficult to insure. What makes a church difficult to insure is the church’s governance structure. Maybe that seems like I’m parsing here, but let me explain.

Some churches are a part of an organized denomination. Think about the United Methodist Church, the Assemblies of God, and the like. Their churches operate with a degree of autonomy, but they are also responsible for following their denominational rules, guidelines, and dictates.

Some churches are a part of an association. Think about the Southern Baptist (and other Baptist) Convention. They tend to have much more autonomy at the local church level with some guidance and recommendations from their convention. Many times, even the convention dictates aren’t binding on the local church.

There are a great many churches that are completely independent, which is to say that the church is not aligned with any denomination or association. These independent churches may be members of a fellowship, which provides some relationship support for the pastors and staff at the church. They do not answer to any organization or church about how they operate. They do what they believe is right and go from there.

Within a church, there may be different styles of governance. Some churches have committees that meet and make recommendations to the church, and the church votes corporately on their recommendations. Other churches have a leadership team, which may be called a board of deacons or elders. This leadership team will often make decisions related to the business of the church with or without input from the congregation. Some churches operate under the leadership of a pastor (or team of pastors) who will conduct the business of the church with or without the input of the congregation.

All of that is to say that an insurance agent who works with a church may have to deal with different issues depending on the church. The church may have denominational constraints when it comes to its insurance purchases. The church may have recently had a leadership turnover for several reasons, including members who move on, board members who choose not to run for reelection, and pastors who leave and are replaced (or the church is in the process of replacing).

All of that adds up to uncertainty for the agent who is working with a church and the insurance companies who are writing the policies.

The Role of Organic Growth

Nope. This isn’t about the growth of the church (in people particularly). It’s (in part) about how churches tend to grow their buildings organically, which is to say that when the building gets too small, they tend not to look for a bigger building or another property where they can build a bigger building. They tend to find ways that they can add on to their building, or buy nearby buildings to meet their needs.

Going back to individual church governance, when a church feels a space crunch, they tend to try and figure out what the next thing to do is by asking internally. The idea is that the different experiences and common goals within the church should be enough to figure out what to do in any situation. That often leads to adding to the building.

I know of one church that needed a small expansion so they built a space on the back end of the building which provided for three things. The first was a hallway to access the space. The second was a series of rooms, which were used for Sunday School space. The third was to provide indoor access to the restrooms. Yes. The last time the building was expanded, they added restrooms that you had to go outside to get to.

Also, when you look at church buildings, some of those buildings were built last year, some of them were built for a different purpose than being a church, some of them were built 50+ years ago, and many of them need some kind of work, which the church congregation either is unaware of, or unable to afford. That maintenance work ends up being deferred or worse, half-done by someone in the congregation who watched their daddy do the same work 30 years ago.

The other role of organic growth comes from the truth that many churches do not carry much for cash reserves and because of that, and a desire to steward their resources well, they decide to handle much of their building work internally. Many churches, especially in generations past, have had members who knew how to work on things, even if they weren’t licensed contractors.

So you have the problem of buildings that get older, maintenance items that may be deferred due to time, money, and people issues, and work that often is done by the congregation, and you begin to see the underwriting issues that can arise when writing a church’s property.

The Role of Reputation

This might be a surprise to many, but the insurance industry doesn’t have a great relationship with churches. It shouldn’t surprise anyone because the same people who have been told for years that insurance companies are trying to do you wrong are the people who make the insurance-buying decisions within churches.

Unless the church has a close relationship with their insurance agent, they don’t even have the reassurance that they are doing business with a company that is looking out for them. Even if their insurance agent is someone that they trust, many of these agents for the church-specific insurers are captive agents who may only have access to one market. Many churches don’t have anyone inside with insurance experience beyond being a customer, let alone a risk manager who can guide them through the process.

What can we do?

This is where the insurance agent can and must come alongside the churches, as any good agent would for any of their other customers. Churches have specific exposures that are similar to and different from other commercial insureds. Agents may need to be brave enough to tell their church clients that they need to make some repairs or pay someone to do the work to make life easier when they are trying to buy insurance.

It’s also helpful, especially in a hard market to be proactive with both the church and the insurance company. How many market segments are having trouble in the current market cycle? Churches are going to be very much like other market segments.