3 Key Risks Shadowing Nonprofits
Hardening or transitioning insurance markets will be impacting the risk management tactics and strategies for public and private entities in 2020 and probably for years to come. There are a number of reasons why markets are shifting.
One macro reason is that insurers were reducing insurance rates in a number of lines for years. Some kind of shift had to happen for underwriters to find ways to profitably write business. It was either that or get out of markets altogether.
Within lines and economic sectors, there are other events which are impacting carrier performance and underwriting appetite. For nonprofits, there are three key areas where risk managers and their risk mitigation and transfer partners need to be on their toes. They are sexual abuse claims, commercial auto and cyber.
1) The Risk of Reviver Statues
One key development for nonprofit leaders to be aware of is changes in the way state governments are handling sexual assault and abuse cases involving minors and other vulnerable populations.
The State of New York got everyone’s attention in August, when its Child Victims Act became law. The new law repeals the statute of limitations on child sex abuse lawsuits for one year. New Jersey passed a similar law this year.
A plethora of lawsuits against alleged abusers and the institutions believed to have shielded them followed. Insurance underwriters with nonprofit books inevitably reacted.
“What we have seen in the market is several carriers have decided not to offer coverage for childcare establishments and other entities that would be affected by these reviver statutes,” AmTrust’s Robert Pizarro, a vice president, commercial specialty lines.
“As a result of that shrinking capacity in the market we’ve been presented opportunities to be a little more tactical in terms of how we approach the market as well, knowing that exposure exists,” Pizarro said.
In other words, nonprofit leaders can count on terms, conditions and underwriting appetite for professional liability coverage to be shifting substantially.
A number of states are considering doing what New York and New Jersey have done. In fact, Illinois passed a similar law five years ago.
Even with that much lead time, Pizarro said there is still not enough data from Illinois to help underwriters determine how best to price professional liability coverage for nonprofit leaders in states with active reviver statutes.
“I don’t think we have enough data to make a decision in terms of whether that has really affected our frequency or severity in those particular states,” Pizarro said.
That being said, Pizarro advises that nonprofit institutions do have avenues, in addition to buying what cover they can afford to buy, to better manage this reviver statute risk.
Background checks for childcare providers and other professionals who come in contact with underage populations is one solid measure, he said.
“Background checks are probably one of the more effective measures in mitigating any risk as a result of sexual abuse and molestation exposures,” Pizarro said.
“Policies and procedures are also important,” Pizarro said.
A consideration such as avoiding any circumstance where an adult caregiver is alone in a one-one situation with a child is one such procedural element.
Carriers and brokers should be well-equipped to vet the policies and procedures of their insureds. They can offer constructive criticism where needed and see that those policies are revised to make the institution and its clients safer.
“Especially on those more complex accounts that may have that exposure, we’re seeing loss control become a much more important component of the underwriting process,” he said.
2) Commercial Auto
The risk management community is counting on technology in trucks and cars to eventually smooth out the accidents that occur from a variety of human failings behind the wheel. Onboard telematics that can alert a driver of impending risks is one such tool.
Eventually, it’s hoped, autonomous vehicles will so remove the risks of human behavior from transportation that losses will be staunched substantially.
But in the current moment, loss frequency involving trucks and cars is trending in the wrong direction.
Events like an over-worked overweight truck driver who suffer from sleep apnea falling asleep at the wheel, or a distracted pizza delivery person who runs into another driver while staring at their directions on their cell phone are examples of these types of incidents.
The losses are daunting and the insurance markets are reacting. According to a report by USI, insureds with a good loss history seeking primary auto liability coverage are looking at rate increases of between 5% and 10%. Excess auto is up between 15% and 20% and international liability auto is up more than 15%.
The technology in cars is distracting. It also costs more to repair and replace then that good old 1964 Ford Fairlane.
Primary markets are shrinking from covering auto, and lead umbrella insurers are requiring higher attachments.
“In our commercial auto book, we are trying to get rate,” said Pizarro.
The small businesses that AmTrust insures are impacted by this and so are nonprofits, he said, and should plan to be so for at least a few years to come.
But that doesn’t mean insurers can’t pitch in and help their clients in this area in other ways.
“We’re not afraid to make the investment in loss control because it makes our client and our insureds a better risk,” Pizarro said.
“That’s definitely something we want to be on top of,” he said.
As the risk of cyber-attacks proliferates and insureds and insurers scramble to keep up, the public sector on the community level and nonprofits may find themselves particularly vulnerable.
“The smaller nonprofits that may not be as sophisticated with their IT structure, to me, they are probably the most vulnerable,” Pizarro said.
“I like to share the story that I was part of a small nonprofit in Akron, and we were subject to cyber extortion threat. Ultimately, they held our data at ransom,” he said.
“I think we’ve done a good job with our cyber products to let our insureds know that they have a partner in this, in the event of a breach,” he said.
Nonprofit leaders, unless they are particularly lucky, often make decisions with the reality that they don’t have large budgets for IT, risk management, or insurance.
Thus, said Pizarro, they might be operating under the assumption that they cannot afford much assistance from risk management partners. That may or may not be true.
“Cyber liability, especially on the policy side, is still evolving and you have different coverage forms,” said Pizarro.
Cyber coverage is so complex, he said, that not only are busy nonprofit leaders at a loss to understand it at times, so are the agents charged with bringing the product from the carriers to the nonprofits.
“As agents, it’s difficult to determine what’s covered and what’s not,” he said.
“It’s also difficult to differentiate between the breach response or loss prevention services that are available for those insureds and explain it to a nonprofit,” he added.
“I think they (nonprofits) view the product as “A” they don’t need it, and “B” it might be cost prohibitive. In reality, I think more carriers are trying to provide at least a modest amount of coverage to protect even the smallest nonprofits,” he said.
“We feel that we’re offering something that even a small nonprofit can afford,” he said. &