Specialty Lines Markets

Helping agents and brokers find profits in nonprofits

In a down economy, social services is a good market

By Dave Willis

The social service insurance business is alive and well. “The market has been very good,” says Randy Hedlund, CPCU, ARM, program director for NSM Insurance Group’s Addison, Texas-based Care Provider Services unit. While there’s still some softness for new business, price strengthening is starting to occur, he adds.

“The need for services from nongovernmental agencies has led a number of insurance companies to say, ‘We see it’s a growing, dynamic market and we want to be in it,’” notes Mike Mullens, program manager of London American Risk Specialists’ Social Services and Elderly Care operation in Dallas.

Contrast that with earlier this decade. “The average price for a skilled-nursing facility in Florida a few years ago, if coverage was even available, was $10,000 a bed,” he adds. “Now it’s less than $1,000.”

Much of the market is handled by specialist retailers. “They do this day-in and day-out,” Hedlund notes. Still, generalists play an important and growing role.

“We’ve seen an increase in applications from agents and brokers just starting out in the social service field,” says Sheila Shaw, vice president of underwriting for Irwin Siegel Agency (ISA) in Rock Hill, New York. Many applications come from retailers with just one or two such accounts, she adds. “They are learning and working with our underwriters to understand the coverage and forms specific to this field.”

Nancy Williams, vice president of marketing and sales for NIF Group in Manhasset, New York, has observed a regional uptick in generalist activity. “If you look in the Midwest, for instance, agents who used to write manufactur­ing are now going for nonprofits and health care because of the economy.”

Changes and challenges

Economic factors affect social service providers, too. Government funding, individual donations and support from organizations like United Way are, in many cases, down, notes Hedlund. A number of states have fallen behind on Medicare expense reimbursements, something Mullens says has worsened since mid-2008. “This has caused cash flow problems for nursing homes.”

Even foundation giving is off. Portfolios for such organizations, which normally make grants based on a percentage of invested assets, have been hit hard, Hedlund adds. “Their donations are going to be reduced accordingly.”

“The effects have rippled across the country, to virtually every class of business and every person,” says Howard Siegel, Irwin Siegel Agency CEO. Organizations are revisiting every aspect of their business, he adds, even as line items such as energy costs, health insurance premiums, and the cost of living in general continue to rise. “Social service agencies are seeking relief wherever they can,” he adds, including insurance.

Consolidations and service cuts are starting to materialize. “There are redundancies,” explains Jane Gordon, executive vice president of Bethlehem, Pennsylvania-based AFC Insurance. This could mean fewer opportunities for agents serving the business.

Still, there are silver linings. “At the end of the day, some of these agencies will come out stronger and able to provide better services for less money,” Gordon notes.

“During difficult economic times, unemployment rates rise, which could allow social service agencies to recruit higher quality employees,” says Siegel. “Also, many organizations could see a rise in volunteerism.”

The effect of economic challenges actually can place greater demands on many nonprofits. “I believe we’ll start to see an escalation in problems that require social service agencies to respond, and to respond quickly,” Gordon notes.

Changes faced by social service organizations will likely affect how their insurance is handled. For instance, business retention could well be a challenge, particularly for retail specialists. “With ‘Main Street’ busi­nesses closing their doors, contractors going out of business, restaurants and franchise giants falling apart, retail insurance agents and brokers are losing business,” Siegel notes. “They’re seeking opportunity elsewhere, exploring the potential in nonprofit organizations.”

Diligence is required, especially in assessing and taking on risk. “People like me who are underwriting on behalf of others must make sure we aren’t sacrificing quality underwriting for market share,” explains Mullens, who writes a considerable amount of business with Lloyd’s of London. “We need to make sure these organizations can pay their bills and cover out-of-pocket expenses for deductibles.”

Opportunities and advice

Today, a number of partners are poised to work with retail agents and brokers. “Agents who want to be involved in this niche will have a plethora of products to offer prospects or existing clients,” notes Mullens. These could represent dramatic improvements in coverage, cost and limits compared to what has been available within the past several years.

Agents have good reason to pursue the market. “This is a growing segment, even in a poor economy, because of the greater need for services,” NIF Group’s Williams says. “Nonprofits are a customer group that values their agent. They tend to rely heavily on agents because their primary focus is their mission.”

Budget cuts lead prospects to consider options. “Clients are looking to save money,” NSM’s Hedlund notes, “so they’re probably bidding their insurance and are receptive to agents talking to them and offering alternatives.”

Still, there’s more to it than price, ISA’s Siegel says. “Experience and knowledge of the field is vital to being successful in this niche.” Sometimes this exists at the retail level. Often, though, retail agents rely on wholesalers. “Our underwriters and risk managers, who have years of social service knowledge and field involvement, work with independent agents and brokers to educate them on common exposures, along with special coverages designed for this niche,” he adds.

“Clients and agents need to seek a market with capabilities and products they want,” adds Hedlund. “It’s possible to remain competitive even in a market where pricing is going up. Agents definitely want a partner that is stable.”

Mullens agrees. “The retailer needs to make sure the general agent and insurance company they work with are tenured in the business, know the business and truly specialize in providing insurance products to the social service industry.”

Involvement sometimes requires a mindset change. “It’s a different type of insured than agents typically deal with,” explains Williams. “These are people focused on their mission of helping others.

“Agents working this niche are likely to work with their nonprofits on fundraisers,” she adds. “Nearly all agents that write nonprofits try to participate as much as they can in supporting the nonprofit, through golf outings, galas, any kind of fundraising event.”

Opportunities exist everywhere. “New brokers that want to grow in this segment should explore ways within their communities to build their involvement,” says Siegel. This breeds familiarity, he adds, as well as trust.

Familiarity comes in other ways. “Read the publications the clients read,” advises AFC’s Gordon. “Really understand their needs and issues.” Then deliver expertise.

“Offer suggestions and solutions they might not have thought of,” she adds. For instance, many insurers support “going green.” A social service agency may be interested in the concept but may not understand ordinances and associated insurance issues. Agents can share coverage options that, in the case of a drastic property loss, could help clients rebuild in a more environmentally friendly manner, she suggests.

Claims focus is another way to deliver extra value. “When nonprofits have a claim against them, quite often their mission comes into question,” explains Williams. “You need to have a lot of sensitivity when adjusting that claim when there is an allegation of wrongful care.”

ISA’s Shaw sums it up quite well: “Protect clients with more than just the insurance coverage. Agents and brokers who ensure the well-being of their social service clients will always be most successful.”

Help along the way

Resources exist to help retail agents and brokers serve the segment. “Explore programs available through a trusted partner,” advises Siegel, “one with experience and one that focuses on cultivating new relationships with brokers and agents. These relationships can be an agent’s best resource.”

Adds Gordon, such partners can, “help with risk management—they have selling advice and tips, and they help agents understand what’s happening in a particular segment. They offer loss control prior to writing an account and after writing an account. “

“We have a broad array of coverage and abilities,” adds NSM’s Hedlund. “We will go out with agents and brokers and sit down and talk to a client, if that’s what they want.”

Partners also offer resources online. “If you look on our Web site, you’ll find ideas for funding, resources for agents, and access to additional information on helping nonprofits,” Williams says. “By helping our agents help the nonprofit, we improve our value.”

ISA takes online resources a step further. The firm is engaging in online conversation and community with nonprofit and insurance professionals using social networking and social media (see sidebar below).

Resources—and the retail agents who tap them to serve clients—bring clear benefits for social service organizations. “While the insurance product is important to them, social service professionals tend to depend on their agent more than other clients might,” says Williams. “Certainly, they value their agent more.”

Still, it’s no cakewalk for retail agents and brokers. “They must be dedicated and willing to go after this business,” Gordon explains. “They need to speak the language, build trust and operate with transparency. The right agent, the one who really speaks to nonprofits, is going to come out the winner at the end of the day.”

The author
Dave Willis is a New Hampshire-based business and insurance writer and frequent Rough Notes contributor.