Insuring social services

Program manager NIF Group brings experience and focus to a challenging class

By Phil Zinkewicz

Social service programs are a vital part of the American culture. They demonstrate our concern for the poor, the ill and the needy. In the wake of natural catastrophes—hurricanes, tornadoes, earthquakes—social service programs emerge to provide much-needed assistance to those who are left homeless and without the wherewithal to provide sustenance for their families. Moreover, social service providers are not there to judge others. The drug addict or alcoholic is someone to be helped in overcoming the dreaded addiction with medication and counseling, not someone to be lectured to.

In the insurance industry, social service programs are considered to be among the more volatile exposures. Some carriers shun these risks, and some agents and brokers who are inexperienced in this area may be wary of entering a potential minefield of claims. One program administrator, however, has spent the last 30 years concentrating on social service programs and has successfully developed the expertise needed to serve this market profitably.

In the late 1970s, during a hard insurance market, Michael Orlando was an underwriter for a surplus lines agency, North Shore Excess. The firm was a subsidiary of The Facultative Group of Great Neck, New York, which in turn was owned by Foremost Insurance, an insurer of mobile homes. The hard market forced the parent company to divest itself of the Great Neck operation. North Shore had a book of $4 million in excess and surplus lines business.

Orlando was offered the book of business and took it. In 1977, he formed the North Island Excess and Surplus Corporation in Manhasset, New York, and began building a specialty operation offering products liability, professional liability and medical malpractice coverages to nonprofit organizations.

That operation was eventually renamed NIF Group, and today the firm with a staff of 130 is recognized as a premier provider of insurance for nonprofit social service organizations. NIF finished 2006 with written premium of more than $200 million.

“When Mike started up his company, there was a growing need for funding for social service programs,” says Dan Mogelnicki, senior vice president of underwriting at NIF Group. “Mike recognized that these new social service organizations would need insurance. At first he underwrote these risks on an individual, open brokerage basis. But after building a portfolio of nonprofit social service accounts, he approached several carriers with a program concept for social service organizations. It included all lines, across the board. In 1978, he signed the first contract with a specialty insurer.”

Nonprofit pioneer

Today NIF Group is a market for most 501(c)(3) organizations that provide social services to their communities. In fact, the company is recognized as a pioneer in the nonprofit social service niche and remains a preeminent player in this class. According to Mogelnicki, the kinds of risks that typically fit NIF’s program are drug and alcohol rehabilitation centers; facilities for the developmentally disabled, including residences and workshops; homeless shelters; special needs schools, including schools for persons with disabilities; Goodwill entities; federally funded health clinics; mental health facilities; sheltered workshops; vocational training organizations; boys and girls clubs; senior day care; family service leagues; and multi-service community action agencies.

“These are risks that present very specific challenges to underwriters,” says Mogelnicki. “We have to be aware of the exposures that exist in a given nonprofit organization so that we can provide the appropriate coverages while controlling losses. Our goal is to write coverage for a social service organization so that it has the protection it needs, while still making a profit for the insurance carrier. We research our risks very carefully,” he says.

Drug and alcohol rehabilita-tion centers, Mogelnicki comments, are an example of a social service exposure that needs particular attention. “Many of these operations are residential, and of course need the more basic property and liability coverages, such as fire and theft, and general liability insurance to take care of the usual slip and fall exposures,” he says.

“However, there are other very large exposures because of the high degree of medical services provided as addicts go through the detoxification process,” Mogelnicki continues. “There is often the administration of methadone or other drugs used to wean users off the addiction. A medical oversight function could lead to a malpractice exposure. Often counseling is provided, bringing about a professional liability exposure. Some of these centers use automobiles or vans to transport clients or render services off-premises. Those vehicles need to be insured.”

Boys and girls clubs are another social service exposure that requires careful underwriting attention, according to Mogelnicki. “The key here is that the duty of care that is owed to the children is very high, so there is a high degree of liability. When providing insurance, we must understand the nature of the services being provided to the children. We must also take into consideration the screening process that the facility uses to hire employees. There are the issues of potential child abuse and molestation to address. Again, there are transportation vehicles to think about. By the way, the auto portion of any social service entity is usually a loss leader.”

In almost 30 years of writing its social service program, Mogelnicki observes, NIF has found that the auto portion of the program has always presented the highest number of claims and, in many years, the highest dollar amount of claims.

“This is also an area where risk management is essential,” he says. “Driver training, driver selection, proper maintenance of vehicles—all these things keep claims down. And claims are of paramount importance to a social service organization, especially the way they are handled.

“There is the risk to an organization’s reputation to think about,” Mogelnicki continues. “Take allegations of sexual molestation at a social service entity, for example. The problem that arises is that, when such an event occurs, it is usually something that receives a good deal of exposure in the press. If not properly handled, such allegations can significantly tarnish the reputation of the nonprofit entity. If its reputation is tarnished, private and public funding might not be forthcoming.”

NIF’s primary market for its social service insurance program is Safeco Insurance Company. “Formerly, we had Safeco for about half of the country on the East Coast,” says Mogelnicki. “Earlier this year, we expanded our partnership with Safeco so that now we are countrywide. Coincidentally, we had already opened a West Coast office with plans for expansion, so the timing was ideal.”

Partnering with agents

The core of NIF’s philosophy, Mogelnicki says, is to operate solely through independent agents and brokers. “As program administrators, we know who our customers are. Without the agent and broker, we would not be as successful as we are.”

The NIF executive says that half of the company’s business is produced by agents who are highly specialized in the social services area, and the other half comes from agents who may have only one or two of these risks in their entire book of business.

“Sometimes nonprofits are so focused on the services they provide to individuals and families that they forget about insurance,” Mogelnicki comments. “They spend less time and less available resources on certain risk management aspects. Here, the role of the independent agent is absolutely critical. The agent brings the insurance and risk management expertise to the table and even helps to organize the portfolio of exposures so those exposures can be adequately addressed.”

Mark Maher, president of NIF Group, who has been with the company for about 18 years, says that NIF works with more than 2,000 independent agents and brokers across the country. “Agents and brokers are the backbone of our organization,” he asserts. “We believe that the independent agency system is the best mode of delivery for insurance products. In the area of social service programs, the role of the agent is even more important than with the average commercial account. Nonprofits rely on independent agents and brokers to a much greater extent than other commercial insureds.”

Steven White of Parker, Smith & Feek, based in Seattle, says his agency has enjoyed a good relationship with the people at NIF. “They treat their producers very well,” he says, “and recognize how important the agent and broker is to their particular niche.”

What does the future hold for NIF? “We are going to further establish ourselves as a national program administrator specializing in the social services market,” says Mogelnicki. “We are going to do this through print ads in insurance publications, hard paper mailings, e-mail blasts and visits to producers around the country. Our visits to producers are particularly important because they are the ones that will get our products to the actual insurance buyer,” he says. *

For more information:
NIF Group, Inc.
Web site: www.nifgroup.com