Nonprofit Insurance: The Definitive Guide (2018)
This new guide is the easiest way for leaders of nonprofits to quickly build their confidence in nonprofit insurance conversations.
The best part?
Everything on this page will help further the mission of your nonprofit today.
Comprehensive information about nonprofit insurance is difficult to find. My experience working with nonprofits both professionally as a broker and personally as a volunteer inspired me to write this guide as a resource for others.
So, if you want to enhance your nonprofit’s mission with a better understanding of nonprofit insurance – keep reading!
Let’s dive right in…
Context Of Risk Management
As you know, every organization must overcome risks as they pursue their mission.
Businesses may try and avoid risk, but for nonprofits, risk is central to their mission.
Nonprofits should approach risk through three steps: evaluation, mitigation, and transfer.
We will address all three of these in this guide.
There are seven categories to evaluate in a comprehensive nonprofit risk management review.
Evaluations must include consideration of property, income, liability, people, governance/fiduciary, collaboration, and mission/reputation risks.
As you read this guide, let your mind wander and relate these seven categories to your own organization.
Uncertainty strikes dread into even the heartiest organization.
To combat this, utilize a living strategy and work proactively with your risk management adviser to assure the continuity of your mission.
Property is classified into two categories – tangible and intangible.
Some examples include the building you occupy or own, vehicles, financial assets, and contributors’ personal data or records.
Accurate inventories should be kept up to date for use during a claim situation. In addition, I would suggest that you conduct a video tour of your premises and store a copy offsite or in the cloud.
Poor economic conditions, accidents, and inaccurate business judgment are all situations nonprofits must confront. Cash flow is an obvious income risk. But what about the due diligence you complete for donations? Has that process been reviewed?
For example, when a property is donated to your organization, what hidden costs are there? Are you prepared for the taxes and maintenance? What about if an heir claims ownership of the property or if the land is unknowingly polluted?
Even with the best intentions, organizations are found legally responsible for harming an individual, another organization, or society itself.
Some uncertainties to consider include: compensatory damages, injunctions, and defense expenses – regardless of your organization is found to be at fault or not!
Proper record keeping is a must for your organization to establish timelines when a claim situation occurs.
Be sure to annually review organizational bylaws to account for new policies and regulations.
At the center of every nonprofit is a resilient group of dedicated people.
Employees, volunteers, contractors, clients, special donors, government officials and public or private organizations all play varying roles within your strategic plan.
Uniform practices must be established for all interactions and communications.
Pay special attention if your organization works with vulnerable populations (any social group with increased susceptibility to risk). This includes individuals with disabilities, children and dependent adults.
It’s important to know that the courts and insurance companies expect organizations in this space to hold themselves to a higher standard.
Claims and lawsuits look negatively upon organizations that do not take into account appropriate considerations regarding age, health, power and socioeconomic status.
Governance & Fiduciary Risks
The central governing body of a nonprofit organization is the elected board of directors.
A board has the legal responsibility to oversee and protect the nonprofit’s assets while providing vision and guidance.
Actions of the organization are held directly against members of the board.
To attract and protect prominent board members, nonprofits must carry appropriate directors and officers insurance.
Moreover, it is important to know that members of the board are held to the legal standard of a reasonably prudent person when being evaluated on their actions.
Additionally, the board is held to a duty of loyalty. This requires that organizational interests must supersede those of personal interest while acting on behalf of the organization.
By failing to stop themselves from voting on topics where a conflict exists, directors expose themselves and the organization to claim situations.
Teamwork is the backbone of a nonprofit organization.
However, increased collaboration brings increased uncertainty.
Office-sharing arrangements, communal events, co-sponsorship, and shared expenses may all be beneficial; when engaging in any of these activities, however, an organization must be aware that they are inherently risky.
In a collaboration, memorandums of understanding should always be used to set clear guidelines.
Mission Risks & Reputation
In the age of social media and 24/7 news cycles, it is now more important than ever to ensure your organization operates within the scope of its mission.
When trying to secure human resources, grants, and contracts, a strong reputation is key.
PR strategies for responding to a crisis must be prepared to mitigate the risk of damaging your reputation.
It’s always wise to speak with your risk management adviser before starting new projects.
As a nonprofit, it is crucial to attract and maintain high performing volunteers.
The best way to do this is through risk management.
Limitations on your ability to screen and train volunteers create a situation with high uncertainty.
Both long-term and “done-in-a-day” volunteers come with unique risks for on-boarding and retention.
Organizations must have standard procedures in place that address the concerns of both exposures.
One best practice for your organization is to only retain data that is essential to the volunteer’s performance. Holding on to extra information creates a number of additional liability exposures.
Remember, specialized credentials, or background checks must be kept in a secure and locked location.
Protecting the organization that you worked so hard to build doesn’t need to be a challenge that you face alone.
Effective mitigation helps ensure peace of mind and confidence to achieve bigger goals.
Working with a risk management adviser is key to implementing a proactive mitigation process.
Annual audits of organizational policies, procedures and projects must be completed. Through a comprehensive program such as Nonprofit Prime, your risk management adviser can help you identify gaps in your mitigation strategy and offer suggestions on how to close them.
Thoughtful planning will help mitigate high-risk activities, but what about mission-critical risks that can’t be avoided?
This is where nonprofit insurance becomes important – transfer risk away from your organization and into the insurance pool.
When it comes to insuring your organization, after evaluating and mitigating your risk, a risk management adviser is your best asset. Transferring key exposures from your organization into the insurance pool provides peace of mind you can rely on.
As the insurance market continues to grow, new products become available and old policies are re-written.
The following list provides a macro overview of the coverage you may want to consider:
This is the first line of defense an organization will acquire. Protect your organization against claims for bodily injury, or property damage, as well as advertising and personal injury.
This policy provides reimbursement to the owner of property in the event of damage or theft. Property can include a physical building or tangible assets.
This policy protects your organization against costs due to injuries or property damaged sustained by others in an automobile accident. Coverage is available to protect owned, hired, or non-owned automobiles.
This policy provides protection against catastrophic losses.
For example, you’re hosting the annual gala at your venue and a guest slips and falls on a spilled drink. They go flying into the air, breaking an arm, and taking the one of a kind centerpiece down with them.
The piece was loaned to your organization to help with fundraising but the artist is now suing for property damage on top of the guest suing for their slip and fall injury.
An umbrella policy would be able to help cover the costs of any personal injury lawsuit for the slip and fall, as well as the secondary lawsuit for property damage to the centerpiece.
Directors and Officers Liability:
This coverage protects directors and officers against legal action due to alleged wrongful acts as leaders of the organization.
Coverage can extend to defense costs arising out of criminal and regulatory investigations/trials as well.
Intentional illegal actions are typically not covered under this policy.
Errors and Omissions Liability:
This coverage protects organizations against claims made by others for inadequate work or negligent actions.
Truly essential in the digital age, this coverage helps organizations with costs of recovery after a cyber security breach.
Comprehensive coverage includes protection for a data breach, cyber forensics, notification, legal assistance, public relations, credit monitoring and regulatory concerns.
Employment Practices Liability:
EPLI provides coverage to employers for claims made by employees. Examples include discrimination, wrongful termination, harassment and other employment issues.
This policy covers money or other property loss when an organization is targeted by embezzlement, forgery, robbery, or securities theft.
Several classes of property fall under the category of inland marine. These include: property in transit, property in your temporary care, property that stays in a fixed (but movable) location, property that moves around (work tools or machinery), property that aids in the transfer of information (accounts receivable, computer equipment), and unique or valuable items.
Provides wage replacement and medical benefits to employees injured while on the job.
This is state-mandated coverage for any organization with employees.
A program organized by the Social Security Administration to provide income protection for workers. This coverage insures against injuries that prevent work permanently or for long periods of time.
In conclusion, this summary of coverage is intended to provide the necessary framework for discussing your nonprofit’s insurance.
Still, the intricacies of insurance span well beyond the scope of what this article allows.
I encourage you to speak with a risk management adviser to determine the most appropriate coverage for your organization.
Ready To Get Started?
Click the link below to schedule a free nonprofit insurance consultation with ZRM Brokerage and enhance your mission today.
Be sure to ask about our unique Nonprofit Prime Program – a free risk management strategy created exclusively for nonprofit organizations working with ZRM Brokerage.
Please let me know if this guide was helpful in the comments below and thank you for reading!
All the best,
President – ZRM Brokerage, Inc.
No part of this guide may be used without express written permission from the author.
© 2018 ZRM Brokerage, Inc.