Zinkewicz, Phil

Risk management becomes more important as nonprofits face decrease in funding

The social services nonprofit 501(c) (3) market is growing, according to experts in the field. As the overall insurance market continues to soften and rates decline, carriers are looking for new premium dollars. Social services exposuresdrug and alcohol rehabilitation centers, organizations serving the developmentally disabled, emergency shelters, food banks and distribution programs, counseling centers, and so on-are becoming more attractive to standard companies than in the past.

Current economic conditions across the country, however, raise some serious questions as to the viability of this class of business. For example, how will funding for social service entities be affected by the economic downturn? Will new insurers entering the field cause market dislocations? Will their thirst for new premium dollars cause them to throw caution to the wind in terms of sound underwriting criteria?

Rough Notes interviewed three long-term players in the nonprofit social services arena to elicit their views on current challenges in the marketplace.

Howard Siegel, president of the Irwin Siegel Agency (ISA) in Rock Hill, New York, says that the social services market is flat to minus 5% and has remained so consistently for the past three years. The Irwin Siegel Agency is a leading insurance and risk management organization serving the human services field and arranging insurance for service providers in 49 states and the District of Columbia. The agency distributes its products exclusively through independent retail agents and brokers.

“New carriers have driven down pricing in this area,” says Siegel. “Standard companies that are looking to grow in social services are of concern to us because they don’t have to work hard to gain quick market share and because they don’t have the expertise we have worked for many years to develop. We have grown up in the field of social services. We can provide professional liability for therapists, psychologists and psychiatrists, which other companies cannot do. We can also assist in startup operations, and we have the capability to become involved in claims handling and some forms of litigation.”

Siegel addressed some of the more volatile exposures in social services. He says that the auto portion of insurance coverage is particularly troublesome. For example, “People have to be trained properly to drive special types of vehicles for the physically disabled and handle small vans, large vans and buses.”

Sexual abuse is a problem area, as is improper restraint. “People can become severely injured if they are not restrained in the right way. Social service employees need special training in this area. Litigation is a growing problem in the social services arena,” Siegel comments. “I’m not talking about the frequency of litigation, but rather the severity.”

Siegel says that his agency has added new classes to its program for the social services field, including Head Start programs, community action agencies, big brother/big sister-type organizations, boys and girls clubs, and nonprofit rural transportation for elderly or disabled. The programs are written through member companies of AIG. Features include:

* Comprehensive package policy including property, general liability, professional liability, abuse/molestation, crime, inland marine auto and umbrella

* Abuse/molestation limits of $1 million/$1 million in underlying coverage with umbrella limits available

* ISA support staff to ensure proper and timely claims handling

* Special events coverage included

* Attorneys who specialize in handling claims typical of the industry

Siegel says that the economic downturn is having a negative effect on funds coming into social service organizations. “Some federal and state programs are being tightened,” he says. “Social service organizations have to become more sophisticated in their fiindraising in their local communities. In addition, they need to concentrate more on risk management.

“Our risk management department continues to develop specialized resources to assist our customers in their endeavors to effectively manage risk and control losses,” Siegel continues. “In conjunction with AIG, we offer loss control training seminars and teleconferences that address important field-related issues. We have also built an inclusive video lending library containing information on field-related programs, including but not limited to vehicle safety, workforce issues, stress management, medication administration, fire safety and working with challenging behaviors.”

Nancy Williams, director of marketing for the NIF Group based in Manhasset, New York, considers her organization to be the largest East Coast wholesale insurance broker in the United States that specializes in social services. NIF Group is a market for most 501(c) (3) nonprofit organizations that provide social services to their communities, she says. “For almost 30 years, NIF Group pioneered the nonprofit social service niche and remains a preeminent player in this class,” says Williams.

Williams says that, while new players are coming into the business, social services is still a specialty niche. “In most states we can write physicians with nonprofits. Auto and sexual abuse are still huge coverage issues. Some of the new players cannot deal with these exposures.”

The NIF Group executive agrees with Siegel that these new players can cause some concern. “Any time you have additional capacity chasing a finite market, there will be market dislocations. We have to try to sell against that. But this type of soft market has been occurring since time began. You just have to manage your business better.”

Williams recognizes that funding for social service organizations has become a problem in the current economy. “Federal and local governments are tightening up. So is funding from the private sector. Social service organizations have to operate more efficiently and practice better risk management in this type of market. We work with a risk management firm that has done nonprofits for a good many years, and we get help from our carriers with risk management in areas such as fire safety and sex abuse. We also offer these services to our clients,” says Williams.

Judy Foulkrod, area senior vice president for Charity First Insurance Services, Inc., in San Francisco, says her organization insures nonprofits exclusively. “We have specialized in nonprofits since we began operations in 1985 in San Francisco. Today we insure more than 6,000 nonprofit organizations throughout the United States.”

Charity First is a wholly owned subsidiary of Arthur J. Gallagher & Co., ranked as the third largest insurance brokerage firm worldwide and fourth largest in the United States. Charity First is also an ELCA (Evangelical Lutheran Church in America) Advantage Partner and has been administering ELCA Congregations & Synods Insurance programs since 1991.

Foulkrod echoes Williams and Siegel in her assessment of current market conditions in the social services arena. The market is soft, she says, and capacity is readily available. She also agrees that funding has become a problem for social service organizations.

“As funding tightens, one of the fastest growing concepts has become social enterprise,” says Foulkrod. “Social Enterprises are businesses that generate income to support the nonprofit organization’s mission.”

Foulkrod also agrees that sound risk management can help social service companies get through difficult economic times. “We provide information on our Web site regarding proper risk control techniques,” she says. “We are developing a tool whereby we will be able to provide interactive online training for our insureds in areas such as sexual abuse prevention, driver training for special vehicles and other problem areas.”

Charity First also provides coverages and risk management services for organizations with international exposures, says Foulkrod. “Many nonprofit social services firms are becoming global in nature. Some organizations raise money here for charities overseas to build schools or provide wheelchairs. Some social service executives travel to conferences overseas. The standard general liability policy will not cover them in foreign markets. They need specialty coverages, and we have the capabilities to provide them.”

While social services is a growing market, it is also undergoing changes-and with these changes come challenges.

Copyright Rough Notes Co., Inc. May 2008

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