Nonprofits across the United States are facing increasing challenges getting insurance coverage as many carriers pull back from the market. Pamela Davis, founder and CEO of Nonprofits Insurance Alliance (NIA), says this shift leaves organizations vulnerable just when they need support the most.
According to Davis, insurance companies are losing interest in nonprofit coverage because it’s not very profitable, even though nonprofits play a vital role in their communities. She points out that the market feels unstable, leaving many nonprofits without the insurance they require to keep running safely. The problem often comes down to individual decisions made by underwriters and brokers, not broader market trends.
Davis highlights that the funding uncertainty nonprofits already face makes insurance struggles even tougher. On top of this, local governments are demanding coverage limits and policies from nonprofits that simply don’t fit the current market or aren’t available at all.
Despite the crucial services nonprofits offer, especially in areas where other sectors don’t step in, the insurance world hasn’t adjusted its approach. Davis notes that for-profit insurers look for quick returns and enter or exit markets based on profits, while nonprofit needs only grow steadily, no matter the insurance cycle.
She also criticizes insurers who publicize small donations to charity but withdraw significant insurance capacity. These gestures don’t address the pressing need for stable coverage that nonprofits depend on.
The COVID-19 pandemic made this issue even clearer. Many nonprofits had trouble finding coverage just as their services, like food banks, were more critical than ever. NIA remained in the market during the crisis, providing a special add-on policy for COVID-related claims, which although never used, helped nonprofits keep operating with some peace of mind.
Davis likens insurance for nonprofits to electricity – usually unnoticed until it’s gone, but essential for everything they do.
Alternative options, such as risk retention groups and captive insurance, have emerged but are not cures for the market’s wider problems. NIA itself is a risk retention group, but Davis warns these models can’t fix challenges tied to costly reinsurance and an unpredictable legal system. Rising reinsurance costs and a tough judicial environment make it harder and harder to secure the coverage funders demand.
A troubling trend is nonprofits being pushed into the surplus lines market, which is designed for unusual or high-risk cases. Davis is strongly against this, stressing nonprofits don’t belong there and shouldn’t have to face the added difficulties it brings.
While alternative insurance structures show some promise, they come with limits such as a lack of capital and scale. Nonprofits do not have the same financial resources as big companies to raise funds for these options.
Until the insurance industry addresses these legal and financial pressures, Davis believes nonprofits will continue to face a broken and fragmented insurance market. This leaves organizations exposed just when their work is most needed by the people and communities they serve.