“Social-service providers are lured in by the prospect of a significant increase in revenue, but oftentimes they lack the requisite experience to avoid catastrophic losses and unflattering media coverage,” Siragusa says.

Some other social-service insureds are trying to increase revenues in ways that go far beyond normal fundraising activities like golf outings, bake sales and benefit dinners—replacing these innocuous events with more hazardous activities. “We have seen requests for events allowing attendees to participate in everything from bulldozer races to NASCAR-style pit crew tire-changing competitions,” Siragusa says. 

Such ventures into unknown territory may be a liability that's not really worth taking on, says Riley Binford, executive vice president at Charity First Insurance Services Inc. of San Francisco. Charity First has been an MGU program manager for Travelers' social-services business for 25 years.

“Is it jeopardizing your current insurance program?” Binford asks, describing the question social-service providers need to ask before embarking down this path. “Because if you love your insurance program, you don't want your carrier telling you, 'We're going to cancel your insurance because you're getting into a [dangerous] operation.'”

Charity First recently had to turn down a children's group home that wanted to raise funds by farming out its youth clients—aged 15 years and up—to work at for-profit construction and janitorial companies.

“They were essentially becoming a construction and janitorial employment agency,” Binford says. Morality issues aside, it was just an unacceptable risk. “From an insurance standpoint, they were no longer eligible for coverage.” 

Coverage Cutbacks
Some nonprofits are dropping or reducing coverages, or cutting salaried positions to save money—and as a result are increasing exposures dramatically, says Doug Tobin, assistant vice president for E&O, D&O and EPLI at 5 Star Specialty Programs in Chicago, a division of Crump Insurance Services. 5 Star has exclusively managed Liberty Mutual's Nonprofit Executive Advantage program for the past 18 months.

“Organizations are really looking at financials,” Tobin says. Losing an executive director or similar high-ranking position can free up a lot of money. But it also opens the organization up to EPLI claims, which can run as much as six figures to defend and settle.

“We've seen a little trend of claims along those [lines], and they tend to be the costlier claims: employment practice or wrongful termination, or if they're a contracted employee, contractual violation,” Tobin says.

Most nonprofits have to provide evidence of insurance for general liability and personal liability to receive government funding, but some are looking at dropping D&O and EPLI or reducing their limits in these areas, says Pam Eudowe, vice president at Mercator Risk Services, a wholesale excess-and-surplus broker arm of New York-based underwriter Preferred Concepts.

“People get a little nuts; they feel desperate and do things out of desperate need,” Eudowe says. “It can cause a loss for that social-services organization.”

Without D&O and EPLI, these organizations are actually putting personal assets on the line, she says: “It is concerning to us that they can't pay this small $1,000-a-year premium.”

EXPERIENCE COUNTS
Nonprofits can get into some complicated risks—especially the larger groups, which can have several different types of activities or operations—which is why agents and small brokers need to turn to experienced carriers. ”You need to be working with somebody that understands nonprofits,” Binford says. 

NORWESCAP, the Northwest New Jersey Community Action Program in Phillipsburg, N.J., has covered a multitude of needs for low-income individuals and families for more than 45 years, in six counties, making its insurance needs complicated and highly specific.

“If we were just a food bank, it would be very easy to underwrite because it's one risk,” says Associate Director Patrick Grogan. “But we also have a child-care center, residential housing and job-training programs; it really changes the appearance of your organization to the point where the carriers don't understand.”

NORWESCAP looked into switching insurance companies but decided the competition was not better than its current program with longtime insurer Philadelphia Insurance Cos. 

“Nonprofits are very complex organizations; the risks are not the same in any two organizations,” notes Melanie Herman, executive director of the Nonprofit Risk Management Center in Leesburg, Va. The Center has been advising social-services clients for more than 20 years, serving such organizations as Big Brothers Big Sisters of America, Care for the Homeless of New York City, Girl Scouts of the USA and The Salvation Army.

DESIRABLE CLASS
Yet despite all the complications and emerging risks, nonprofits are also a very desirable class of business with carriers, Herman says. “Fifteen years ago, it was 'social-services organizations are very risky.' Now, all of the major players would tell you it is a very desirable, profitable class of business to write. The competition is fierce,” she says.

Insurers see nonprofits as great risks because their leaders “are almost innately conscientious,” Herman says. Nonprofits are also seen as clients whose premiums are likely more than their potential claims.

“People tend to think twice about suing a nonprofit,” Tobin points out. There are very few lawsuits against nonprofits for financial claims, with nine out of 10 lawsuits against a nonprofit employee-related. 

Growth areas in social services include home healthcare and, to a lesser degree, the hospice and substance-abuse sectors, Siragusa says.

Others are seeing growth in areas affecting the aging Baby Boomers: adult day care and in-home care, says Jim Henry, an underwriting manager with the Social Services team of Markel Corp. in Glen Allen, Va.

“We are seeing some merging and consolidation of entities and, in general, insureds are adding programs and services in order to maintain or expand their pool of clients,” Henry says. “This could mean more large-account opportunities for agents, but fewer prospects.”

PRICING PICTURE
Pricing for social-service accounts has been soft for many years. Yet, there are signs that this niche is firming.

“Recently, there has been some leveling in price,” Henry says. “And in some instances, for accounts with poor loss experience or unusual exposures, we are seeing some price increases.”

A market hardening may also be happening in small pockets where catastrophes—like the damaging tornadoes earlier this year in Texas, Oklahoma and Missouri—have hit hard.

“The current trend is to try to get 3 percent to 5 percent pricing increases on smaller nonprofits,” Binford says. “We're seeing that with most carriers across the country. But while most of us are trying to get a little increase, it's not happening; we're just beating each other back down. There's a lot of wishful thinking going on at this point [in regards to rate increases].”

In his view of the market, Jason Tharpe, a vice president at Aon Affinity, a managing general agent doing exclusive underwriting for The Hartford's nonprofit D&O products, says, “Cover keeps getting better; we're seeing pricing starting to get up a little bit.” 

Aon Affinity has been offering D&O to nonprofits for 30 years and now wants to break into the package business, offering combined property, general liability and professional liability.