Weathering the Hard Market: How to Take Control of a Nonprofit Organization’s Insurance Coverage  

The non-profit insurance space has been in a hard market since the third quarter of 2019. For some organizations, the concept of a hard market might seem academic. But it has practical implications, especially for nonprofit and human service organizations.

January 11, 2024 / CSkidmore

The non-profit insurance space has been in a hard market since the third quarter of 2019. For some organizations, the concept of a hard market might seem academic. But it has practical implications, especially for nonprofit and human service organizations.

For example, new laws and expanded statutes of limitations related to abuse and molestation claims have placed added risk on such organizations. Related cases are also being tried in court before more sympathetic juries resulting in nuclear verdicts that are challenging for nonprofit organizations to pay.

In fact, because such facilities care for vulnerable populations, they already assume significant risk that carriers are trying to limit. So, how can organizations who need insurance to safeguard their operations and residents minimize the hard market’s impact without sacrificing their missions?

In this article, we’re going to dive into the implications of the hard market. You’ll learn:

  • What is a hard market in insurance?
  • How to take back control during the market.
  • Steps you can take to find great coverage at a reasonable price during the hard market.

What is a hard market in insurance?

The hard market occurs when rising insurance prices prompt carriers to raise rates and restrict coverage. There are several factors that play into a hard market, on both the property and casualty sides of insurance.

During the hard market, it is important to remember that carriers are businesses. They must prioritize their profitability and risk exposures in order to serve the greater good.

Several factors including social inflation, economic uncertainty, and changes in legislation have all contributed to the number and cost of claims carriers must process. To avoid impacting their long-term profitability, carriers must respond by raising prices and limiting coverages in high-risk situations.

Policy changes to watch out for during the hard market

As nonprofit insureds contemplate adjusting their insurance portfolios, they need to be wary of the additional restrictions carriers may include with hard market insurance policies. These limits can place unknown risk on organizations as recent law changes that could reveal gaps in coverage.

Many states across the U.S. have considered or are considering changing their laws regarding child abuse and molestation. For example, The State of New York enacted the Child Victims Act in 2019 in which victims of child sexual assault can bring about civil lawsuits up until the age of 55 rather than the previous age of 23 .

To help reduce carrier risk, a typical nonprofit organization may be presented with an occurrence policy. This is different from the claims-made policy the organization already has in place.

While the organization may see a savings, an occurrence policy will only cover claims made from the day the policy becomes active. Meanwhile, a claims-made policy with a defined retro date would cover claims made from that retro date forward.

As an example, if a nonprofit goes from a claims-made policy with a retro date of January 2010 to an occurrence policy, they will have a more than 10-year gap in coverage. To avoid making this change unknowingly, insureds should speak to an insurance professional who specializes in human services organizations to ensure they receive proper guidance.

Exclusionary language rises during the hard market, too

Exclusionary language is often more frequent in the hard market, too. Carriers are looking to reduce risk and to do so may include restrictive language in the policies they write.

It is not uncommon for carriers in the hard market to write a policy upon renewal that excludes a large facet of operations. Nonprofit leadership should be thorough in understanding their coverage and renewal options to ensure they do not assume risk that could cost them thousands, even millions down the line.

How to ensure the best hard market insurance coverage

For now, the hard market is the status quo. However, there are steps insureds can take with their insurance agent or broker to ensure they have the best coverage at the best price, now and in the future when the market eventually softens:

Step 1: Identify loss drivers

Figure out where the organization is seeing the most losses or highest probability for a loss during the hard market. Perhaps a specific facility is prone to more slip and fall claims while another struggles with large auto fleet claims.

Knowing where the organization is vulnerable is a vital first line of defense to understanding the problem. This knowledge is also where you start when making a plan to address it.

Step 2: Strategize, implement and adjust

Consider what mitigation strategies the organization can implement to limit its existing risks during the hard market. For example, if slip and fall claims are an issue, exploring solutions like no-slip vinyl flooring.

In some cases, a mitigation strategy may need to be adjusted after it is put into practice during the hard market. If existing efforts to reduce risk are not moving the needle, strategize with a trusted insurance agent or broker who might be able offer valuable risk mitigation ideas that apply to the situation at hand.

Step 3: Document

Record all the data that comes out of these strategy planning efforts including when they were implemented and how they’ve impacted the organization. Highlight the successes during the hard market.

Having a comprehensive analysis of an organization’s risk mitigation strategy will help a carrier understand what risk they are assuming if they provide coverage. It can potentially help the organization secure lower premiums, as the carrier will be more familiar with the organization’s nuances.

Step 4: Be ready for renewal

During the hard market, it is key to begin this process well before renewal time. As carriers are experiencing an increase in claims, they may require more time to underwrite policies.

Organizations that implement risk mitigation strategies and provide value prior to renewal time will better their chances for preferable renewal outcomes.

How to take back control during the hard market

Nonprofit decision makers may feel powerless in the hard market, but the key to weathering the storm is to take control. It is important for insureds to understand their options and the potential implications.

Before considering any changes, nonprofit leadership should brush up on their state statutes and funding partner requirements to ensure they stay in compliance. Strategies to consider during the hard market include:

Increasing deductibles

One of the most common strategies nonprofits take to withstand the hard market is to lower insurance deductibles. Property deductibles during a hard market insurance period are often considered based upon a client’s recent reduced loss history. 

However, before jumping to increased deductibles, be aware that casualty claims were reduced throughout COVID-19 lockdowns. This skewed insureds recent loss history during the hard market period we’ve faced.

As claims pick back up and statutes of limitations expand, nonprofits should conduct a deductible analysis of claims between 2016 and 2018. Omit the hard market insurance period of 2019 through 2022 to give yourself a fully developed outlook of their position.

Lowering limits

Lowering limits could reduce premiums, but it may not be the right answer now. If you’re insured in the hard market, consider a few factors before you expose yourself financially.

To have a benchmark, nonprofit leadership should ask their brokers to provide a comparison of their insurance limits. During the hard market, it’s best to set this based on human service organization peers with comparable budgets and operations.

From there, leadership should look at their claims and loss history. This can ensure lowering limits does not increase financial exposure with hard market insurance.

Finally, leadership must think about their organization’s risk tolerance in the event of a large loss. Can they withstand the added risk in the hard market? Are they considering more aggressive risk management strategies?

Limiting risk

The most effective strategy nonprofits deploy to reduce premiums during the hard market is downsizing or outsourcing their risk. There are a few ways to explore this option, with fleet operations being the best example.

Say an organization operates 100 vehicles and 30 of those are on regular, planned routes. It may be best to outsource those 30 vehicles and transfer the hard market insurance risk to a third-party company.

Similarly, if an organization has 30 vehicles that are not in use, nonprofits should remove those vehicles from their list. Less insured assets means less premium during the hard market.

Your Ideal Partner in Hard Market Insurance

The hard market can make insureds feel isolated when it comes to their insurance. But by arming leadership in human services organizations with the necessary education and resources to make informed decisions, they can better position their organizations to secure adequate, effective insurance coverage that does not sacrifice their purpose.

No one can predict when hard market insurance will soften. Some pockets of the hard market could even see a slight reduction in premiums.


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