Evolving insurance needs for nonprofits

Expansion and increased diversity of nonprofit organizations is creating the need for more diverse insurance programs.

By Eddie Eugenio — Vice President, Payne Financial Group

Today’s nonprofits are changed and still changing. In fact, they only vaguely resemble the organizations started one or two generations ago. In their role today, nonprofits provide for a multitude of needs, including emergency funding, services for the blind and hearing impaired, emergency housing, child care, computer training, credit and debt counseling, employment training, travel assistance, drug and alcohol rehabilitation and more.

Even the nonprofits whose names have stayed the same for years are different today — they are providing for new clients, expanding services and finding additional ways to help their communities. As nonprofits continue to evolve to meet the needs of others, they have become more complex and sophisticated.

This exposes them to changes in the types of risks and threats they face.

Traditional types of insurance policies are available to safeguard basic claims for both nonprofit and for-profit entities. Traditional policy coverages include:

• Property. Provides recovery for the loss of real or personal property, including loss of use, additional expenses and more.
• General Liability. Protects against claims for bodily injury, property damage or personal injury.
• Automobile. Covers claims for bodily injury, property damage, uninsured motorists and vehicle damage.
• Directors and Officers. Helps safeguard against claims brought against the leadership of an organization for non-bodily injuries or property damage, incidents that could place directors and officers personally at risk.
• Crime. Helps provide peace of mind and monetary assistance during the instance of employee theft, burglaries or robberies.

While traditional coverage is essential, it does not address many of the new risks and threats faced by today’s nonprofit organizations. With new threats in the industry, additional plans are available, including coverage for:

• Cyber Liability. The computer age has brought this relatively new exposure to the marketplace. This liability is created when an outside individual or group penetrates the firewalls of your organization’s computer system to obtain personnel, donor or business records of your organization. An additional risk rises when individuals within an organization collect sensitive information and then use it, sell it or release it to the public online. This action will inevitably bring litigation that can be extremely costly.

  Most nonprofits do not have the financial capacity to have the most up-to-date software systems or firewalls to prevent this from happening. It is possible to prevent these types of violations, but it takes risk reduction training, up-to-date software and more.

  When confidentialities are breached, new laws require the organization to notify all violated parties, further increasing monetary losses for the nonprofit. Additional lawsuits are likely to follow this loss of personal information, making cyber liability coverage important to have, especially if your organization interacts with donors.

• Key Individual Replacement. Strong leadership is essential for any successful nonprofit. And no company wants a gaping void in a senior position. In addition to known and planned-for turnover, sometimes the unexpected happens and an organization is left suddenly vulnerable. Has your organization considered how it would attract a new executive director or other key personnel?

  Key individual replacement insurance can provide a nonprofit with peace of mind and financial security during the time needed to recruit replacements for key individuals.

• Image Restoration. Nonprofits use their resources, name and mission to promote the services they provide. Bad publicity can jeopardize funding, events planning and even survival of an organization. Image restoration insurance can provide a valuable tool for “righting the ship” in times of negative publicity.

• Fiduciary Liability. This area of exposure is little known, but can put an organization and its employees in harm’s way — and can be financially devastating.

  The Employee Retirement Income Security Act (ERISA) mandates that extreme care be exercised in the management, investment and disbursement of employee benefit funds set aside for benefits, such as 401(k) plans and profit-sharing plans. For any fiduciary person within the organization this is considered a personal (versus corporate) responsibility by federal law, which also puts the fiduciary’s personal assets at risk. Fiduciary liability insurance is specifically designed to provide protection to the fiduciaries of any type of nonprofit organization.

Typically, nonprofit organizations are not thought of as “targets” for lawsuits, but they are certainly not immune to claims and losses. Asset protection is needed for nonprofits, especially in the evolving world of online giving, identity theft and more. It’s important to ask yourself which assets your organization can afford to be without. In today’s world, it’s important to protect your nonprofit, as well as the people you serve.

Eddie Eugenio is a Vice President for Payne Financial Group. He can be reached directly at eeugenio@pfgworld.com.