The human and social service non-profit sector is navigating a shifting insurance landscape as standard carriers adjust their programs, leading to reduced limits, increased prices, and non-renewals.
One of the most significant disruptions has occurred in California, where Nonprofits Insurance Alliance of California (NIAC), a major carrier focused on nonprofits, has made substantial changes.
Dennis Fox, principal and senior vice president, broker at Brown & Riding, discussed the impact of these changes and how nonprofits are adapting by turning to the excess and surplus lines (E&S) insurance marketplace.
"Surplus lines insurers fill the need for coverage in the marketplace by insuring those risks that are declined by the standard underwriting and pricing processes of admitted insurance carriers," he said, citing the Wholesale & Specialty Insurance Association (WSIA).
As a result, retail insurance brokers are increasingly working with wholesale brokers to secure coverage for their clients.
One of the key challenges for nonprofits transitioning to the E&S market is the lack of package insurance products.
"Standard carriers are known for offering multiple lines of business under a single insurance policy, commonly referred to as a package policy. Packaging these coverages simplifies insurance management for insureds, often at a discounted rate,” Fox said.
"When insureds are non-renewed and move to the E&S marketplace, they lose the convenience of a package policy," Fox said. "E&S carriers typically focus on singular coverage lines due to the complexity and difficulty of placement. What was once a single standard policy may be replaced by up to four or five different policies, often with different carriers."
This fragmentation can complicate policy coordination and increase administrative burdens for non-profits.
A shift in the rating basis further complicates the transition. “Standard carriers rate primary liability exposures for human and social service organizations based on metrics such as the number of dwellings, square footage, payroll, and revenue,” Fox said. “When these accounts are non-renewed or excess limits are reduced, E&S carriers use different rating metrics, including revenue, the number of beds, and the number of visits."
This change requires insureds to provide different applications and additional underwriting information. "For example, underwriters may need to convert square footage data from the expiring standard carrier policy into the number of outpatient/office visits or bed count if there is an overnight exposure," he said.
Policy terms and conditions can also differ significantly between standard and E&S carriers. "Apart from price, terms and conditions often reveal the most significant differences between standard and E&S carrier policies," Fox said.
"This is a major change that insureds must carefully consider," Fox said. "In some cases, an insured may be able to retain their expiring policy if the reduced limits still meet contract requirements." He advised brokers to thoroughly review all contract obligations to ensure compliance with minimum insurance limits.
Limit reductions have also become a pressing issue. "Over the last two decades, standard carriers have consistently offered primary and excess quotes for human/social service organizations, often providing excess limits up to $10 million," Fox said.
“Recently, due to industry-wide large-limit losses, these limits have been reduced – first to $5 million, then $2 million, and more recently non-renewal of all entire excess policies for certain classes of business.”
In some cases, carriers are not offering any excess limits for high-risk coverage lines, such as professional liability and sexual abuse and molestation (SAM). "While E&S carriers may be willing to replace these reduced limits, they often cannot provide all the necessary limits," Fox said.
The financial impact of shifting to the E&S marketplace is another major concern. Fox advised brokers to retain standard market quotes when possible, even if pricing increases.
"We advise our trading partners that retaining a standard marketplace quote, even with price increases, typically provides the best terms and pricing compared to E&S options," he said. "Historically, standard marketplace pricing has been a fraction of E&S marketplace costs. Placements in the E&S marketplace can be three to 10 times more expensive than expiring standard market policies."
E&S underwriters also frequently decline accounts that still have access to standard market options.
"The accounts we work on generally involve cases where no standard market option exists," Fox said. Given the significant cost difference, insureds must be prepared for higher premiums and adjusted coverage terms.
To navigate these market shifts, Fox emphasized the importance of partnering with experienced wholesale brokers who specialize in placing non-profit risks. "Generalist wholesale brokers often lack the expertise and carrier relationships needed for effective placement," he said.
Setting expectations early is critical, especially in terms of higher pricing and different terms in the E&S marketplace, in addition to vetting wholesale partners carefully.
"Ask wholesale representatives to share examples of similar placements they’ve handled. Confirm access to limited-distribution markets specializing in these exposures. Request supplemental applications tailored to E&S carrier requirements,” Fox said.
What are your thoughts on this story? Please feel free to share your comments below.
