Learn what to expect in the challenging management liability insurance market for nonprofits.

Authors: John Farley, Taylor Quinn


The economic impact of global COVID-19 outbreak in 2020 had varying degrees of impact to organizations across the United States. Some industries such as technology and medical supply companies prospered, while others such as senior care providers and health systems suffered significant losses.

The COVID-19 impact on the economy cannot be understated, driving unemployment rates to historical highs, with April 2020 unemployment reaching 14.7%, according to the U.S Bureau of Labor Statistics' Economics Daily. While that rate has come back down to approximately 6% as of October 2021, there is still significant employment turbulence in the U.S. economy, and the recovery from COVID-19 can only be described as "sluggish."

The somewhat fast pace of economic decline and recovery has created an employment environment that we have not seen for quite some time. At the start of the pandemic it was widely expected that 2020 would result in a historically high number of employment complaints and litigation. In fact, many nonprofit director and officer (D&O)/employment practice(s) liability insurance carriers expected significant spikes in discrimination, harassment and retaliation claims. Their expectations were not unreasonable considering the difficult business decisions organizations were forced to make, including making reductions in workforce.

Underwriters increase scrutiny

The D&O market firmed significantly in 2020 for most nonprofit organizations. It is now an even more challenging market (particularly for the larger organizations) for the third sector, higher education and healthcare organizations.

Nonprofit D&O carriers are underwriting risks in great detail with intent to differentiate good risks from bad risks. Underwriting questions related to COVID-19 continue to complicate renewals. Underwriters want to understand the impact the pandemic had on their insureds. Two key questions underwriters are asking are "How did the insured organization respond to the challenges of the pandemic?" and "What was the financial impact of the pandemic on the organization?"

Underwriters are determined to fully understand the operations and leadership of the organization while asking many additional questions during the renewal process. D&O underwriters are also continuing to ask questions related to the privacy and security of information. The numerous ransomware attacks on organizations across all business sectors has caused D&O carriers to be concerned about the potential for those claims to trigger D&O policies.

Nonprofits face reduced capacity

With the challenging D&O market, we have seen a reduction in capacity being offered for most nonprofit organizations, particularly those more negatively impacted by COVID-19. Carriers once willing to provide a $10 million limit now may only provide a $5 million limit option at renewal. D&O carriers are unwilling to provide coverage enhancements granted in past years.

In fact, some carriers are pushing for very severe coverage restrictions on some accounts. Bankruptcy exclusions and Reduction in Force exclusions are just a few of the restrictive coverage changes some carriers are attempting to make. Some carriers are reducing the amount of third party coverage often found in EPL coverage sections of nonprofit D&O policies.

D&O insurers are continuing to take significant rate action to improve the profitability of their books of business. They are very much willing to walk away from long-standing clients if they cannot get what they believe to be appropriate and necessary premium and retention increases. What makes the current D&O market different than in past years is there are no alternative carriers stepping up to compete for that primary business.

Excess carriers raise rates

In the recent past, there has been an overabundance of aggressively priced excess capacity. That is no longer the case.

Excess carriers are raising rates and in many cases limiting the capacity they will offer on any given risk. When coupled with increases in the primary policy, this has resulted in some very large premium increases on larger nonprofit D&O placements, particularly for those nonprofits most negatively impacted by COVID-19.

2022 will continue to be a challenging D&O market for smaller nonprofit organizations not significantly impacted by COVID-19. Premium increases will be in the high single-digits or low double-digits for these organizations. Underwriters are asking many more questions of larger and more complex organizations.

They should expect double-digit percentage increases on renewal pricing with increases in retention levels, particularly for organizations in the healthcare and higher education sectors. D&O renewals increases in these two sectors will exceed 20% in most cases. Coverage will change, and carriers will try hard to pull back some coverage.

Organizations with past or current claims and/or financial distress should get out to market very early and provide a comprehensive submission for delivery to any available alternative D&O carriers.

Based on the highly nuanced nature of this market and the brokerdealer, it is imperative that you are working with an insurance broker who specializes in your particular industry or line of coverage. Gallagher has a vast network of specialists that understand your industry and business, along with the best solutions in the marketplace for your specific challenges. It is extremely important to start renewals as soon as possible, work with your Gallagher team with dedicated expertise in this space to deliver a comprehensive and professional submission to underwriters.

Please note: A client's risk profile is the primary variable dictating renewal outcomes. Loss experience, industry, location and individual account nuances will also have a significant impact on these renewals.

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The information contained herein is offered as insurance Industry guidance and provided as an overview of current market risks and available coverages and is intended for discussion purposes only. This publication is not intended to offer legal advice or client-specific risk management advice. Any description of insurance coverages is not meant to interpret specific coverages that your company may already have in place or that may be generally available. General insurance descriptions contained herein do not include complete Insurance policy definitions, terms, and/or conditions, and should not be relied on for coverage interpretation. Actual insurance policies must always be consulted for full coverage details and analysis.

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