Gallagher believes an insurance crisis is NOW for many nonprofits. As such, we have implemented short term adjustments to our approaches for carrier submissions, data analytics and risk management. Longer term strategies for alternative risk financing include looking at pooling groups of nonprofits to help them prepare for the worst, weather the current storm and come out better than expected in the long term.
Key factors driving the current market conditions include:
- Larger verdicts, increased litigation and expense and society’s shock has escalated the value of harm. “Loss creep” and “social inflation” have new nuances and applications for us in the insurance world, specifically the nonprofit sector.
- Carriers are paying closer attention to schedules, applications, loss runs and supplements.
- Lengthening renewal cycles; to adjust, Gallagher now begins the renewal process earlier but increasing needs of carrier management approvals results in carriers frequently requiring longer times to provide quotes.
- There is a ‘not one size fits all’ reaction to pricing and terms and the market is not hardening consistently. Certain geographic areas like the Northeast, Southeast and Texas are experiencing reduced limits, as much as 40% rate increase or even non-renewals. Other areas or ‘clean accounts’ (i.e. no losses) may see increases of about 5%, whereas nonprofits with losses may see rates increase more than 15%.
- Certain dependable, specialized carriers are strategically deciding to exit the nonprofit class of business overall, specifically around segments like camps and treatment centers among others.
- The property market continues to tighten at a faster pace as catastrophic losses caused by wind, flood, fire, hail and/or earthquake hit carrier balance sheets that have assumed more net than in former years, and as a way to stay competitive in pricing. The nonprofit sector also needs to pay more attention to coverage enhancements like extra expense, business interruption and code upgrades which may be compromised in an ever increasing rate competitive situation.
- Sexual abuse coverage is getting more news coverage as victims come forward. As carriers with occurrence coverage rethink that potential unlimited exposure to the past on their balance sheets (distinguishing the unlimited nature of occurrence as a look-back coverage vs. claims-made coverage being limited to claims reported in that policy year), and reinsurers dramatically increase rates, we can see there is much at play. We will see some carriers moving to claims-made coverage, revisit policy form language for tightened up wording (and reducing coverage) and reduced limits to avoid potential targeting by plaintiffs. Some carriers will not give any sexual abuse coverage in an umbrella policy. Excess monoline misconduct coverage is very expensive and requires minimum premiums that are significant.
- Auto losses continue to deteriorate. Nonprofits with large auto fleets will see umbrella pricing increase dramatically, while at the same time there will be reduction of limits offered.
- Certain parts of the country like California and New York are witnessing a frequency of EPLI claims which means D&O Management Liability rates are on the rise.
- Umbrella coverage overall is being revisited by carriers, especially as more experience limit type losses and as limits are being reduced (often viewed by plaintiffs as targets). In many cases carriers and reinsurers are looking only to be a quota-share on the excess, not provide it alone or only provide at minimum premiums. Social inflation is partly to blame for this.
- Crime coverage is stressed as carriers continue to non-renew and no longer offer coverage, and some nonprofits struggle to maintain financial controls and deal with cash at events.
- Cyber risk is a reality for nonprofits as they move to compete and make an impact with social media and new ways of engaging donors. The good news is that most coverage is affordable, and best if coupled with impressive pre- and post-breach services. The bad news is that few nonprofits take this coverage seriously enough.
- Workers compensation, often a challenging line of coverage especially for nonprofits that require heavy lifting and movement from their employees, is compounded by medical inflation. The long tail between reporting and settling a liability claim is actually seeing some rate decreases where it is warranted, as in excellent loss ratio.
The broader insurance industry disruption is impacting all classes of business, and clearly the nonprofit sector is not immune. In fact, Gallagher suggests that this sector is under the microscope, not only from the consumer, donor and beneficiary of services’ perspectives but from the insurance underwriting community. Underwriters are scouring the websites of nonprofits, researching certain types of risk and especially trying to better understand the liability exposure and limits in particular. The convergence of this scrutiny along with the overall market firming in property, D&O, liability, auto, crime and sexual harassment mean that this is not business as usual, and we need to take all precautions to get ahead of any headwinds. We are not seeing new market partner entries at this time; rather some constriction of appetite, increased rate and further restricting endorsements and requests for more information. We are seeing more nonprofits move to alternative risk, consider forming captives, risk purchasing groups or even co-mingling their P&C loss fund (retentions) with their medical stop loss in a captive.