Why should you review your organization’s insurance coverage? It takes time, energy, effort, and often times a 3rd party. It’s a pain. I’ll be the first to admit that I’m terrible at looking at my own personal insurance policies. They are all setup on automatic payments and I dodge my agents calls when it comes time for renewal. So, to back up a bit, why should you listen to any advice I have to give about reviewing your organization’s insurance when I don’t look over my own insurance policy? There’s a few reasons, 5 to be exact.
1 – How much of your annual budget is allotted toward insurance?
d. All of the above
If you said anything other than “a” please call me right now! You are either way over insured, way underinsured, or just plain confused (which there is nothing wrong with, we are talking insurance here). Adequate coverage should cost about 1% of the organization’s annual budget, any less and your coverage may be lacking, more and you could be over paying, which is equally bad! (Crystal & Co. Survey of Nonprofit Risk Management).
2 – There’s another dark possibility when it comes to budget v premium: paying too much for too little. Just because you chose option “b” in that last one doesn’t mean you are better off. Is that 5% of the annual budget working for you, or your insurance company? We’ve seen on several occasions where coverage was not adequate and gaps existed, yet the organization was overpaying substantially. How could your organization benefit from getting 4% or more back into the budget? How could the community you support benefit from that?
3 – The BOARD. 63% of nonprofits reported a Directors’ & Officers’ (D&O) claim within the last 10 years. 63%!! That’s a huge number. That means out of the 1,571,056 nonprofits in the country, 989,000 of those filed a D&O claim. According to Insurance Journal, the average cost to settle a D&O claim is anywhere from $35,000 to $100,000. Even if we meet in the middle, at $67,500, to figure out how much has been spent on D&O claims, my calculator gives me an “e” in the answer. In other words, the computer is telling me it’s a lot. Trillions. So what’s your D&O limit? Do you have enough coverage to ensure that your board members will not be held personally liable in a claim?
4 – What is the extent of your risk? Only 22% of nonprofits employ a dedicated risk professional. To further that, only one in ten have conducted an independent assessment of their corporate risk and insurance program. Do you know what you are or are not prepared for? To give you one more percentage to kick around, 13% of the organization’s that have done an independent assessment, have not done it in over 3 years. What did your organization look like 3 years ago? Was it the same as it is today? Your insurance and risk management plans shouldn’t look the same either.
5 – Last but not least: rest easy. I’ve often heard of organizations not being able to provide a new service or activity because it wasn’t covered under their insurance, or it was going to cause a significant premium increase to add the coverage and it just wasn’t in the budget. I call those speed bumps, and we grind down speed bumps (not literally). You can call them hurdles, road blocks, walls to climb, the point is that your insurance policy should not get in the way, or slow you down, when it comes to fulfilling the mission of your nonprofit. If it does, call me.
I don’t know about you, but that was convincing. My agent is calling now, excuse me while I take this.