By Allen Laman
A challenging legal landscape, a persistent shortage of skilled professionals and alternatives to traditional insurance products are three areas impacting nonprofits today, according to industry reports, which also recently highlighted the headwinds that are creating a bleak future for many organizations.
Highlights of some of these publications are described in detail below.
“A shrinking number of insurers want to insure this sector,” said the Alera Group in its 2024 market outlook. “Some are withdrawing from the market entirely; others are leaving certain states or reducing their product offerings.”
Legal sector shapes negative outlook
In his Spring 2024 Nonprofit Market Update, Gallagher highlighted several legal factors that are causing nonprofits to find themselves in what management described as “worsening, uncharted waters in many ways for many nonprofits.”
In this update, Peter Persuitti, head of Gallagher’s religious and nonprofit practice, pointed to a setback in tort reform, social inflation, an increase in plaintiff’s attorney activity and a changing perception of fairness and due diligence on the part of jurors as factors driving the sector’s negative trajectory.
For example, as states remove statutes of limitations on reporting abuse, alleged survivors’ reporting of older claims has “led to a cascade of nonprofit bankruptcies due to their inability to fund mass survivor care,” Persuitti said in the report.
Meanwhile, Risk Strategies reported in its first outlook for 2024 that insurers are imposing higher premiums on nonprofits in light of potential litigation losses, noting that third-party litigation funding and verdicts in nuclear litigation make it “impossible to predict total claim costs.”
The insurance brokerage and consulting firm reported that in 2023, claims related to sexual abuse, wrongful termination and employment practices liability, as well as professional liability of occupational therapists and other care providers, increased.
The Alera Group reported that “despite the controls many nonprofits have put in place, the cost of insurance benefits continues to rise. Nonprofits serving youth and other vulnerable populations face the greatest challenges in securing insurance coverage.”
Talent shortage persists
According to HUB International’s 2024 Outlook, 73% of HUB nonprofit survey respondents ranked talent retention as their top concern, followed by talent recruitment at 63% and compensation at 62%.
This labor shortage crisis was examined last year by the National Council of Nonprofits. The industry-wide network of nonprofits reported that nearly three out of four nonprofits that responded to a national survey reported job openings.
The NCN found that 51.7% of respondents reported there are more job openings now than before the COVID-19 pandemic, 74% of respondents reported job openings in their program and service delivery positions, and 41.1% reported there are entry-level job openings.
“As nonprofits increase pressure on their existing staff and are forced to rely on less experienced employees, the risk of errors, accidents and compromised service delivery increases,” reported the Alera Group.
New approaches to renewal
NCN’s 2023 report finds that funding continues to be one of the biggest challenges facing nonprofits, with 70% saying their giving will decline or remain the same in 2023, and nearly as many expecting their donor base to decline or remain the same.
Meanwhile, HUB International reported in its annual outlook that “higher insurance costs are also hurting nonprofits,” adding that commercial auto insurance and abuse and harassment coverage will have the biggest impact on nonprofits’ bottom lines in 2024.
“Social inflation has caused insurers to reduce coverage amounts, leaving often expensive and extremely limited options for protection,” HUB said in the company’s Mid-Year Rate Report on nonprofits.
“Premiums for workers’ compensation, nonprofit D&O insurance and cyber liability insurance have stabilized, providing some relief to more demanding lines of business. Smaller, low-risk nonprofits are seeing premium increases of 5% to 10%, while larger nonprofits with complex risk issues are seeing increases of 10% to 15%.”
For companies that cannot secure attractive insurance options, risk pooling may be an option. In a separate article, Brandon Cole, area vice president at Gallagher, reported that nonprofits are beginning to partner with insurance captives and form risk pools.
“Such arrangements have not been popular in the past, but with budget-damaging cost increases, companies must get creative and look for other ways to manage the total cost of their risk,” Cole wrote in the article.
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