Non-Profits: A Risky Business?

One of the items a Board should review annually is its insurance coverage. As a board sets program goals, fund raising goals and direction for the organization, insurance is a necessary consideration. There should be a review of types of insurance as well as the discussion of balance of costs to the risk to the agency and the impact those costs may have on delivery of service to agency clients. Insurance, you ask? What in the world does a non profit need with insurance? Well, let’s start with Directors and Officer Liability (D&O). No matter how small the agency is, this type of insurance is necessary. This is the policy that covers board members, officers, volunteers and employees. As the brochure for one company who provides D&O coverage says: “ Just because an organization does good works doesn’t mean it will never be accused of doing wrong.” In fact, as you consider whether you should join a nonprofit Board, ask whether there is D&O insurance for the Board.

I like to break the rest of the insurance needs into building/property and staff. Under building issues there are many things to think about to determine the balance of risk. For example, do you rent or own the agency office? What kind of assets does your agency have? New computers, new phone system? These days some agencies might investigate Equipment Data Processing (EDP) that covers hardware, software, manuals, peripheral equipment. It also may include mechanical breakdown or on-premise electrical disturbances. This is something that nonprofit Boards never had to face decades ago – Now it makes good business sense to review assets and weigh the value of insurance. Another practical insurance may be general auto. Does you agency own and operate vehicles? If staff and volunteers use their own vehicles for agency business, some agencies consider carrying “hired and non-auto” coverage. This protects the agency in excess of the driver’s limits should there be an accident.

Then there are an array of insurance options that are driven by staff. First, if there are 3 or more employees in the agency, worker’s comp is required – another example of the cost of during business.

There are numerous benefits that an employer can choose to offer employees. In this day and time, many nonprofits find that attracting and keeping good employees demands that they develop a package of employee benefits. The most expensive, health coverage, is probably the biggest challenge to a Board of Directors to fund. It is important for the Board to have a clear and open discussion about agency goals, budgetary impact of the employee benefits and the importance of benefits to the overall issue of employee morale. When a Board begins to investigate this issue, look for a presentation that gives you several choices so that the Board can weigh the benefit to staff against the cost to the agency and balance that with the cost of meeting the agency mission.

Another big discussion should be around retirement benefits for staff. There are 403(b)’s, 401 (k)’s, SEP’s and straightforward IRA programs. Is the Board ready for this offer? The discussion will include cost to agency, administrative costs, employee investment. Again, finding good outside advisors helps a Board deliberate the question and find affordable solutions.

In addition, there are several other types of insurance that an agency may consider. One is group life and group disability. In an agency with a number of young employees, no one seems to be thinking about life insurance or disability. This coverage may be a good inexpensive offering that may be paid by the employer as a benefit that may be appreciated when salary increases are not in the budget. Or it may be part of the health package that a Board develops for staff. Finally, many agencies that provide professional services such as counseling or health services will be responsible for the professional liability of their professional staff.

All in all, a board needs to have a strategy for insurance coverage. The insurance issues that deal with property are cut and dry, but the coverage that is defined as employee benefits demands Board discussion and planning.

To prepare for this column I visited with Rob Cranford and Jim Rasmussen of Morrow Insurance. They offered some good advice. The issues of insurance will drive your budget and they caution that your insurance decisions must be made with good business sense. The decisions should reflect Board goals. Jim works with clients developing benefits for employees. He says, if there are benefits that a Board wants to offer staff, start slow, and plan for growth in benefits costs. You don’t ever want to take benefits away!

March, 2004

Note: Rob Cranford died several years after this interview. Our community named an award to honor the memory of the Cranfords and their service to our community. In January, 2013 I was privileged to receive the Rob and Ginger Cranford Community Service Award for “outstanding contributions to the people of Henderson County.”

March 2004 Non-profits- Risky Business-

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