Nonprofits are essential to the health and welfare of our citizens and also crucial to our economy. According to The Urban Institute, National Center for Charitable Statistics, more than 1.4 million nonprofits in the U.S. pay more than 8 percent of total wages earned.
In order for these essential charitable networks to remain healthy, they must protect themselves from the same and sometimes additional legal liabilities faced by any other sector.
“There is absolutely no reason a nonprofit operation should not carry insurance,” says Christine Papa, vice president of Hilb, Rogal & Hobbs of Southwest Florida. “There are many types of risks, and they need to be aware of the potential legal exposures that, with a large claim, could cause them to become insolvent.”
Smart Business spoke with Papa about the inherent risks faced by nonprofits and how the right insurance program can provide cost-efficient and comprehensive protection.
What are some common misconceptions of insurance for nonprofits?
The biggest misconception is that they cannot be sued. They can be sued just as easily as a for-profit business. Nonprofits defend themselves against many claims, especially in regard to directors and officers liability and employment practices liability. In fact, employees of nonprofits bring on about 80 percent of all claims filed against nonprofit organizations.
Another misconception about nonprofits is that they are all the same. Nonprofit organizations vary in size and in purpose, and each nonprofit provides a different service to the community; therefore, their risks vary.
Additionally, there is a misconception that a simple general liability policy is adequate insurance for a nonprofit. General liability is only one of the important insurance coverages needed by a nonprofit.
What are some unique insurance exposures for nonprofits?
Nonprofits need general liability coverage for their fund-raising activities. Golf tournaments, theater productions and other events can increase their exposure. Volunteers should be included as an insured under the general liability insurance. Most insurance providers that specialize in nonprofits include this, so volunteers are covered when they are working for an organization.
Many nonprofits have volunteers operating motor vehicles, and often have individuals driving their own vehicles. Others have employees going from home to home to visit with clients. Nonprofits could have an exposure from owned and/or non-owned vehicles.
Directors and officers liability coverage protects the directors, officers, managers and employees for claims against them resulting from a wrongful act. In concert with this coverage is employment practices liability insurance. With such a high percentage of suits brought by employees of nonprofits, this crucial coverage protects management from claims arising from wrongful termination, discrimination and harassment.
Additional unique exposures include professional liability coverage for nonprofits that perform counseling or have professional staff members; abuse and molestation coverage for organizations with exposures involved with caring for or counseling children; and crime exposures for nonprofit volunteers who handle money.
Finally, many nonprofits are not aware of volunteer accident coverage. This provides medical coverage, up to a specified limit, for volunteers. It’s written for a specified amount, and the premium is based on a maximum number of volunteers. This policy reduces the number of possible volunteer claims being filed under the nonprofit’s general liability and affecting their claims experience.
How can a risk management program reduce liability, exposure and costs?
Most nonprofits are on a very limited revenue stream, and risk programs help keep their insurance costs down. An effective risk management program identifies, analyzes, controls and administers risk to help reduce the potential hazards and exposures.
Programs are based on the size of the organization. Large, national nonprofits may have strictly enforced and designated programs, while smaller nonprofits may simply have their insurance carrier perform a loss-control inspection to provide them with recommendations to correct issues that could cause a future loss.
How can a nonprofit best determine its insurance needs?
Nonprofits need to choose a broker that has experience in insuring nonprofit organizations. A broker with expertise in that area knows what markets to approach to best service a nonprofit’s unique needs. There is no cookie-cutter approach to nonprofit insurance; every nonprofit is different in size and purpose, and it’s the broker’s job to help identify and develop a program that suits specific needs.
CHRISTINE PAPA is vice president, Hilb, Rogal & Hobbs of Southwest Florida. Reach her at (941) 554-3111 or firstname.lastname@example.org.