Ultra-low premiums for nonprofits: Too good to be true?

Three good reasons to look beyond price in 2011

By Riley Binford

Six months into 2011, it's clear that the property/casualty industry continues to experience "more of the same": super-soft pricing combined with increased availability of coverage and limits. From a price perspective, this is great news for the often cash-strapped nonprofit and social service sector. For an agent or broker, however, it can be challenging to advise nonprofit clients in the art of prudent insurance buying, especially when facing the myriad carriers and coverage options available today. Here are three good reasons to look beyond price as the sole determining factor when choosing a carrier.

1. Inexperience often means uncertainty. As in any soft market, we're seeing a slow creep (which lately seems to have advanced to a full sprint) of standard insurance carriers reaching beyond their normal markets. In an effort to gain additional premium, many carriers have expanded their underwriting appetite to include nonprofit organizations and social service agencies. But as recently as just a year ago, many of these same carriers would not have touched this class. And to meet investor expectations, their pricing is extremely aggressive and, in some cases, appears to be below cost. One must ask: What will happen to these low-cost carriers, many of which have no experience in this specialized niche, when capital dries up?

2. Low rates now could lead to big increases later. When analyzing the pricing variances among the many carriers that offer insurance programs for the nonprofit sector, agents need to consider the risks associated with working with low-cost carriers in this soft market. Will those carriers decide to pull out when the marketplace takes a turn and begins to firm up? Will those carriers that have recently begun servicing nonprofits be in it for the long haul? Will the carrier renew your client next year, demand a significant rate increase, or decide to get out of the nonprofit or social service market altogether?

3. Do you need an insurance partner or an insurance policy? When looking at the low-cost carriers, compare their services with those offered by other carriers in the nonprofit market. Do the low-cost carriers provide loss control and risk management services to your client?  What kinds of online, "self-service" resources do they offer?  Help your clients by determining if there's more than just an insurance policy behind their purchase.

Choosing carriers that are financially stable, have consistently demonstrated underwriting discipline year after year, and enjoy a long-standing, trusted reputation in the nonprofit and social service market will improve the chances that the carrier you choose to work with today will be there for you and your clients tomorrow.

Here are a few tips for selecting the carrier that's right for your nonprofit clients:

• Make sure to research how much experience the carrier has in this specialized niche.

• Make it a point to know the carrier's reputation for handing claims and dealing with customers.

• Research prospective carriers' ratings with A.M. Best and other rating agencies, and also research these agencies' long-range outlooks.

• Trust your gut. If a standard carrier is offering coverage or pursuing a class of nonprofit business that has traditionally been served by the nonadmitted marketplace, proceed with caution—this class has been in the nonadmitted market for a reason.

Aligning with a strong, reputable carrier that understands the nonprofit and social services business and has experience in your client's specialty market will decrease the chances that your client will find itself under-insured and thus under-protected tomorrow.

For more information:

CharityFirst

Web site: www.charityfirst.com

The author

Riley Binford is executive vice president of CharityFirst, a San Francisco-based managing general agency that has provided insurance for nonprofit organizations since 1985. Today the agency writes more than 5,000 nonprofit organizations throughout the United States. Through the agency's insurance partner, St. Paul Travelers, CharityFirst provides a wide variety of standard and specialized insurance coverages for nonprofit organizations.