What You Need to do About Insurance
By Melanie Herman, Nonprofit Risk Management Center
Not every nonprofit needs every type of insurance. But every nonprofit board should consider its insurance needs and the resources needed to protect the good health and mission of the organization. We offer 8 tips on insurance issues to get you started.
1. Examine exposures first. Rather than start with looking at the current insurance policies, begin by looking at how your nonprofit is exposed to possible lawsuits and losses. While lawsuits against nonprofits are relatively uncommon, the most common types of suits against nonprofit boards are ones that allege wrongful employment practices (such as wrongful termination), sexual harassment, or retaliation. Which of your activities are more likely to lead to lawsuits, damage to reputation, finances or property?
2. Make sure your organization is working with an expert it can trust. An insurance agent, broker or consultant can provide valuable advice and practical help on coverage for your nonprofit. Seek someone experienced with nonprofits, and familiar with the work you do (or committed to learning about it). Your advisor should live up to the promises he or she makes, give prompt and credible answers to your questions, take the time to understand your organization and seem genuinely interested in helping you. To avoid awkward situations, and to prevent a potentially dangerous conflict of interest, choose someone unaffiliated with your nonprofit.
3. Have an annual report to the board on insurance and risk. If you don't have a board Insurance or Risk Management Committee, be sure that insurance review is assigned to another committee, such as the Finance Committee or to an individual board member. Though insurance policy language can be hard to swallow, and even harder to understand, it's important that someone from the staff or board read the policy from beginning to end, including the policy exclusions, endorsements and definitions.
4. Read the laws. Ask the Risk Management or Finance Committee to look at the language in your state volunteer protection laws as well as the federal Volunteer Protection Acts. Remember that none of these laws provides absolute protection against suits alleging wrongdoing on the part of nonprofit board members. For more information about the federal Volunteer Protection Act, see www.eriskcenter.org/docs/protection.cfm. State laws differ and some states do a better job than others of informing the public; find the link to your state's laws atwww.eriskcenter.org/docs/s_state.shtml.
5. Reduce risk as well as buy insurance. Just as car insurance isn't a reason to drive recklessly, nonprofit insurance is only one element in risk management. The board should consider conducting a risk management audit, or simply identifying ways to reduce risk. There may be simple ways to increase building safety, to improve personnel policies, strengthen compliance with personnel policies, improve performance evaluations, or to screen staff and volunteers more thoroughly.
6. Talk over the various types of insurance and do what you can, when you can. No single insurance policy covers all exposures and some are more important than others, depending on an organization's circumstances. For some, a property policy covering buildings and personal property against accidental loss is most important. In another organization, a policy providing protection for volunteer injuries may be of first import. If you can't afford all of the coverages you'd like your nonprofit to have, start with the policy you consider most important and add others when you can.
7. Consider Directors & Officers (D&O) liability insurance. While many suits against nonprofits are brought against the nonprofit corporation as well as individual managers and board members, in a few cases suits are brought solely against board members themselves. Many small nonprofits don't buy D&O insurance simply because they can't afford it. In other cases, the board may decide that the risk of a lawsuit is too unlikely, or that there may be other ways to finance defending the board and the organization. Whether or not you have D&O insurance, there are board practices that reduce the likelihood of a suit, such as preventing conflicts of interest, recording "no" votes in the minutes, and ensuring that the organization's employment policies are consistently applied. For more about D&O insurance, see the "Insurance FAQs at www.compasspoint.org/genie
8. Test the market. Every three to five years consider "shopping" your insurance program. Invite several brokers or agents to submit proposals, or ask the broker to obtain bids from several insurance carriers. Doing so will give the board a basis for comparison and a sense about whether you're paying a fair price. At the end of 2001, experts are predicting that insurance will become more difficult to buy, premiums will become more expensive and new exclusions and restrictions are likely to appear. This might be a good time to consider changing to a different carrier or to review your overall insurance program.
Original publication date: 11/01/2001
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