Evolving Risk Landscape for Nonprofits Reinforces Need for More Than Insurance Partner

Nonprofit organizations face an increasingly complex and evolving risk landscape today as they navigate changing regulations, heightened scrutiny, and cuts to funding.

One of the most significant risks facing nonprofits stems from mission creep, where organizations begin offering services beyond their core expertise, such as a disaster relief organization that begins offering counseling services, or a food pantry that expands into basic healthcare, according to a recent report by HUB, titled Nonprofit Leader’s Guide to Managing Regulatory, Fiduciary and Governance Risks.

“While these service offerings are well-intentioned, they can inadvertently create substantial liability exposures for nonprofits without proper credentialing, training, oversight, and risk controls in place,” the report said.

Today’s interconnected risks facing nonprofit leaders demand careful attention and risk strategy from their insurance partners. In an interview with the report’s author, Scott Konrad, HUB’s North American nonprofit practice leader, discusses a few of the most pressing issues affecting nonprofits and how insurance partners can help.

Scott Konrad: Nonprofits are getting squeezed by funding cuts and cost creep. Half of my clients were USAID-funded global organizations, so in one fell swoop, the faucet turned off and they were laying off 20% of the workforce. For your human services organization, it’s more of a trickle-down approach. The funding cuts are happening at the federal level, then it eventually trickles down to the city or the county, and then eventually to the organization. They can’t afford to continue with the same staffing or maybe they’re winding down programs.

Against the backdrop of all that, you’ve got cost creep. Employee benefits costs are going up. Labor costs are going up. Everything is going up. Insurance is the good news right now because we’re coming into a softening phase, which is good for buyers.

Now adding to the financial challenge is what I would call regulatory turmoil that some folks are experiencing. For example, I’ve got a lot of clients that are what I would call social justice or public advocacy type organizations. And these folks are calling me asking, ‘Hey, if we become the target of a governmental investigation, congressional investigation, if we’re subpoenaed … are we covered by our insurance?’

Konrad: Some of these folks are experiencing burnout. They are experiencing mental health issues, and they need proper coverage to address those issues. And then nonprofit workers bring problems home with them at night. Sooner or later, something’s going to give. And in a worst-case scenario, maybe they’re exiting the nonprofit sector (due to work stress and burnout). So, there’s more human need for services now, but you don’t have the people to do the job. Where does that lead you?

[HUB’s report noted that this current environment of staffing shortages is creating another opportunity for risk.]

Konrad: I don’t know that they’re new carriers. But what I would say, at least from my perspective, [is] some of them are hungrier than they ever were before. They’re very eager to work with us… So, we’re seeing more ramping up their business development efforts with us. And I think we’re seeing some mutation of appetites. For example, I was on a call two hours ago with one of the big household names in insurance. They play heavily in the nonprofit sector, but their appetite has historically been human services. … Now they are broadening their appetite to areas like arts and culture, religion, and social advocacy groups. So, that’s what we’re seeing. It’s not a seismic change in the business, but it’s a good thing for buyers.

Konrad: My advice would be the same … If you want to be successful in this sector, you need to immerse yourself in the industry. Immerse yourself in the sector to understand the big picture of what makes it tick, what are the strategic challenges that nonprofit leaders are trying to solve. Be able to talk in their language, not ours. The broker or agent who is just peddling product is totally missing the boat. … Folks are concerned about how they are going to get to the other side of this hot mess … [Funding cuts and other challenges] are leading more organizations to re-examine what they do so they’re trying to get back to their core mission. Over the years, maybe they’ve taken on more services, or mission creep, so they’ve broadened what they offer. But maybe what they need to do now is focus on what they always did best to get to the other side. …

The other piece of this is for organizations to just develop a plan to be able to manage any crisis, whatever comes down the pipe–whether it’s a funding cut, whether it’s reputational damage, whether it’s a cyber breach. The organization should figure out what its cataclysmic risks are, what is that handful of risks that would bring the organization to its knees and then say, “All right, how are we going to manage these risks?” And if they have a plan B for all those major kinds of risks, the likelihood that they’ll survive and be able to thrive is much greater.

The bottom line: this goes way beyond just insurance. And sometimes the answers come from our toolbox or from people that we know.