Nonprofits are finding themselves increasingly locked out of the insurance market, as carriers shift focus and retreat from a segment that offers little profitability but outsized community impact. That trend poses a growing risk, according to Pamela Davis (pictured), founder, president and CEO of Nonprofits Insurance Alliance (NIA).
“It doesn't feel like there's a lot of security in the market for nonprofits,” Davis said. “It's just been a tough market overall and continues to be a tough market for nonprofits.”
The insurance industry’s appetite for nonprofit risks appears to depend less on market conditions and more on individual underwriting decisions and broker relationships. That has left many organizations - already navigating unpredictable funding and rising service demands - without the coverage they need to operate.
“Nonprofits are vulnerable enough,” Davis said. “They have a lot of vulnerability and uncertainty in their fundraising and how they're going to be funded through government grants.”
She pointed to mounting pressure from municipalities and counties, which, in response to shifting judicial trends, are requiring nonprofits to carry limits and coverages that are “not appropriate for the market, not available in the market.”
Despite the essential services nonprofits provide - particularly in areas where government and the private sector don’t engage - the insurance industry has not adapted to support them in any consistent way.
“I keep hoping that there is more recognition within the insurance industry of the need for more stability in the insurance coverage that's being provided to these organizations,” Davis said. “But I don't really feel that is happening because the model between the for-profits and nonprofits is fundamentally just so different.”
The issue, Davis said, is structural. For-profit carriers operate in cycles, retreating or re-entering the market based on pricing opportunity, not social need. Meanwhile, the demand for nonprofit services doesn’t fluctuate on a cycle - it only grows.
She also criticized industry PR efforts that highlight charitable donations while pulling back capacity. “I see insurance companies advertising or getting in the press for making $10,000 and $20,000 donations to the nonprofits in their communities,” she said. “But then I see that those very same carriers are not providing insurance capacity, which is really what the organizations need.”
COVID-19 only deepened the cracks in the system. Davis recalled how brokers called her directly, unable to place nonprofits that had been operating for decades.
“If you don't help, I don't have any place to put this organization,” she remembered hearing. “And it's providing key services… food banks and other really key services to people in a very scary time.”
While most organizations moved to remote work, many nonprofits had no choice but to remain in the field. NIA stayed in the market, offering a pandemic-specific supplement with sub-limited protection for alleged COVID spread. The add-on was never used, but it gave nonprofits and their funders enough assurance to continue operations.
“Insurance for nonprofits is almost like electricity,” Davis said. “Maybe for a lot of organizations, you don't really notice it so much until it's not there. And then when it's not there, it affects everything.”
While risk retention groups and captives are gaining traction, Davis was clear: they can’t solve every problem, including problems caused by the civil justice system.
“We are a risk retention group,” she said. “But I don't think that the commercial insurance industry is going to change. I think, if anything, the cycles are going to get more extreme… with climate change, if you can't get property insurance reliably and predictably, it's going to make all of the coverages slightly unpredictable.”
That unpredictability is amplified by rising reinsurance costs and a deteriorating judicial environment. “We can't fail to look at the impact of the judiciary and judicial system and that impact also on the reinsurance market,” she said.
Davis said that even NIA struggled to obtain adequate reinsurance capacity to meet the high limits now required by funders. “We got certain capacity, but many of the organizations were required to have higher limits by the funding sources that they had.”
In the absence of stable coverage, nonprofits are increasingly being pushed into the surplus lines market - a development Davis strongly opposed.
“I fundamentally believe that nonprofits should not be being forced into the surplus lines market,” she said. “That is for very unusual or difficult risks or new risks or emerging risks. And that is not the nonprofit sector, but that is where they're being forced.”
Captives and RRGs may provide some relief for certain sectors, but they face their own limitations - chief among them, capital and scale. “We don't have the stock markets that we can go to raise more money for surplus,” she said.
More worryingly, Davis warned that too much hope is being placed on these alternative structures. “Some people are putting a little bit of undue hope on the ability of the alternative market - particularly captives - to solve the problem when it's really more structural in terms of what's happening with the judiciary.”
Until the broader industry reckons with the legal and financial pressures it has passed on to nonprofits, Davis believes insurance access will remain fragmented - and the nonprofit sector will be left exposed, right when it's needed most.
