National Underwriter - August 15 2011

J DOUG TOBIN, assistant VP of Underwriting for 5 Star Specialty Programs, a division of Crump Insurance Services

J MELANIE HERMAN, Executive Director of the Nonprofit Risk Management Center

J RILEY BINFORD, CIC, Executive VP Charity First Insurance Services

E NEW JERSEY’S FIRST
LADY Mary Pat Christie
visits the Sussex County
Fairgrounds Greenhouse, where
NORWECAP’s “Arthur & Friends”
members grow hydroponic
microgreens year-round for use
in local restaurants. Named for
the nephew of Program Director
Wendie Blanchard, “Arthur &
Friends” empowers the dis-
abled by teaching meaningful
employment skills and the
opportunity to participate in
the N.J. marketplace.

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 des-
perate 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 organiza-
tions 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 Gro-
gan. “But we also have a child-care center,
residential housing and job-training pro-
grams; it really changes the appearance of
your organization to the point where the
carriers don’t understand.”
NORWESCAP looked into switching insur-
ance companies but decided the competition
was not better than its current program with
longtime insurer Philadelphia Insurance Cos.

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 affect-
ing the aging Baby Boomers: adult day care
and in-home care, says Jim Henry, an un-
derwriting manager with the Social Services
team of Markel Corp. in Glen Allen, Va.

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 level-
ing in price,” Henry says. “And in some
instances, for accounts with poor loss expe-
rience or unusual exposures, we are seeing
some price increases.”
A market hardening may also be hap-
pening in small pockets where catastro-
phes—like the damaging tornadoes ear-
lier 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 see-
ing 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. NU