The last several years have been especially challenging for nonprofit organizations as they struggle to balance budgets while preserving their missions and fostering growth during a COVID-19 “new normal” that continues to change.
There are many other issues as well: Instances of fraud and embezzlement, leadership indiscretions, abuse, employment-related offenses and other incidents have been ruinous even to nonprofits with the sturdiest of reputations.
Yet many nonprofit executives consider simply buying insurance their main risk management strategy, viewing it as a static commodity. This attitude overlooks opportunities to discover and insure all the risks nonprofits face.
The following best practices can guide nonprofits toward a specific posture that best suits their needs and ability to thrive.
- Always consider the big picture. Aside from insurance premiums, the cost of a nonprofit organization’s risk includes direct costs like out-of-pocket deductibles and self-insured retentions, settlements and judgments that exceed available insurance limits and uncovered claims.
Although harder to quantify, common indirect costs include absenteeism, declining efficiency and morale, turnover, reputational damage and loss of donor confidence.
All risk management initiatives must take this bigger picture into account and operate in tandem to combat all these costs. Conferring with a broker will help reveal the extent of risks and costs.
- Develop a risk management strategy. Commercial insurance is a mechanism to pay for bad things that happen. Risk management, however, is a systematic process that starts with identifying and assessing hazards and operational, financial and strategic threats that confront the organization. A corporate safety policy, employee handbook, code of conduct and property safeguards such as alarms and sprinklers are all tools for avoiding and reducing risk.
Every organization enters into contracts, whether as a provider or purchaser of goods and services, and every contract involves risk. Transferring risk to others through indemnification and insurance language can help insulate the organization and protect its own experience. Finally, the organization should consider retaining a level of risk that’s reasonably predictable and affordable, instead of “trading dollars” with commercial insurers.
These mechanisms operate in parallel to reduce the organization’s total cost of risk, but they require expert help to plan and manage.
- Look beyond the ordinary. Most nonprofits have traditional insurance such as commercial general liability (CGL) protection against general liability for property damage or bodily injury arising from premises or operations. But as the risk landscape has expanded and changed, policy language has become more restrictive, leaving organizations potentially exposed in instances involving professional services, abuse, online content, and data breaches. Whether by modifying the standard CGL policy or arranging separate protection, each of these risks demands a specialized solution.
Nonprofits conducting international travel, operations, or commerce have additional needs, as domestic property and casualty insurance policies generally only cover claims brought in the U.S. or Canada. Occupational injuries abroad and local liability for premises, operations, or vehicular accidents must be separately addressed through an international package policy.
- Sweat the Details. No two insurance policies are created alike, but they are all legal contracts, interpreted by its fine print: declarations, insuring agreement, conditions and exclusions. Know exactly what’s covered and what your policyholder responsibilities are. Take time to review every policy to ensure it’s consistent with what you asked for.
- Avoid a bidding war. The fair measure of value in insurance is seldom the lowest cost, but the quality of service when needed. Whether through word-of-mouth, informal discernment, or request-for-proposals (RFPs), select your insurance advisor for its understanding of your business, industry expertise, integrity, value, scope and quality of market relationships and availability of services to reduce your long-term cost of risk.
With the right strategic partner as your counselor and advocate, reexamine your internal operational risk profile at least annually at each renewal, and have your broker canvass the insurer marketplace every three to five years to ensure optimal protection and value.
Contact your HUB Nonprofit expert for more information on securing the right coverage for your organization’s nonprofit risk.