Arranging coverage for the providers of social services

I'd like to be able to say that as a shrewd and well-organized agent, I woke up one morning many years ago and decided, “Today I'm going to get into the social-service agency niche.” Rather, the truth is that one of my accounts happened to be a sizable social-service provider in the New York City area, and through it I gained referrals to several similarly large organizations. Eventually, I did wake up one morning and realized that I'd become a specialist in this market.

And I'm glad I did. Given that large social-service agencies can pay $100,000 or even much more for insurance, this niche can generate significant revenue for an agency, although it also requires constant vigilance. I have comparatively few social-service clients, but they account for a third to a half of my production. Servicing them also often takes up half of my day. It's time well spent, however, in terms of helping these organizations perform their valuable work while also benefiting our brokerage.
Plus, I simply like to stay involved. While I do have support for servicing accounts, I still keep in close contact with clients. I feel that's important to retaining their business and obtaining referrals from them.
The services provided by my social-service clients can be described as transitional housing. This encompasses shelters for the homeless, victims of domestic violence, mentally challenged individuals and substance abusers. It also includes foster homes and even certain types of correctional facilities (e.g., alternative environments to prison for youthful offenders). Some operations go beyond transitional housing into low-income housing for people who have “graduated” from a facility. They may still receive some social services, but they also have jobs, pay rent and have resumed their places in society.
At first glance, coverages for the agencies' exposures mirror those of typical commercial or residential establishments. Nonetheless, there are a few significant differences. One is in regard to professional liability. Rather than only temporarily house and feed people, social-services agencies also attempt to break the cycle of behavior or circumstances that brought people needing food and shelter to the agencies in the first place. So they provide learning centers for job-skills training and GED classes, babysitting to enable parents to look for jobs, personal counseling and other services designed to help people enter the work force. The counselors, social workers and teachers providing these services need professional liability coverage. Additionally, many social-service agencies directly or indirectly provide varying types of medical care, so doctors, nurses, psychiatrists and technicians also need coverage.
Another specialized coverage is sexual molestation and abuse insurance. People living and working in transitional housing interact in close quarters, and there is heightened risk of allegations of sexual molestation under such circumstances.
Social-service agencies typically engage in a lot of fund-raising activities and sometimes require special events coverage in connection with them. Also, to attract prominent individuals to sit on an organization's board of directors–a goal for most social-services agencies–they must be able to offer them adequate D&O protection, since such individuals can be held personally liable for claims. Frequently, employment practices liability insurance is made part of the D&O coverage. EPLI certainly is necessary, since social-service agencies run the same risk of litigation charging discrimination, wrongful termination or sexual harassment as other employers do–if not more.
Working with underwriters
As might be expected, the loss experience of transitional housing agencies often falls well short of the ideal, so underwriters are cautious. We have to be thorough in collecting information for submissions. On the property side we ask clients for a list of the locations and values of any buildings they own and the value of their contents. On the liability side, we need a description of building occupancies and the types of programs operated at each. If a building is residential, we need to know the number of units or beds it has. If it is used for offices, we need to know its square footage. If it is used for summer camps, we need to know the number of “camper days” (the number of campers multiplied by the number of days) the agency conducts. We may be able to obtain some of this data from social-service agencies' Web sites, which often contain tremendous amounts of information.
Underwriters like to see employee handbooks, safety manuals and risk management manuals. Sometimes we help agencies obtain them.
Extensive employee background checks are crucial; in fact, professional liability and sexual molestation coverage usually is conditional upon them. Anyone interacting with children–security personnel included–needs to be fingerprinted. Given the vulnerability of transitional housing residents, all personnel serving them must be screened thoroughly.
The auto liability exposure is also considerable. A social-service agency might own 15 vans, each capable of carrying 12 to 15 people, so driver information, including MVRs, will be closely examined. Descriptions of the vehicles–year, make, model, where they're garaged–are necessary. Location can be a factor. If those 15 vans are being driven daily in the congestion of New York City, the rates will reflect the heightened risk of accidents.
Carriers aren't shy about sending out inspectors for site visits. If they make a recommendation for mitigating a risk, they want confirmation that it has been taken seriously. Failure to correct routine hazards like poor lighting in a stairwell or broken curbs shows that maintenance isn't a high priority, and the underwriter will calculate accordingly.
Above all, underwriters require five-year hard-copy loss runs. If a client's loss experience has been poor, the broker must be prepared to show the specific steps the client has taken to ensure it will improve. For example, perhaps there have been losses at a location that wasn't well maintained or supervised. If that location has been sold, or if the activity that led to claims no longer takes place there, the broker can point this out to the underwriter and a fair premium can be reached.
For the broker, staying on top of their clients' loss experience is crucial. When there are claims, the broker should have a game plan for responding to them–small claims cannot be allowed to become big claims. The broker must ensure that the adjuster gets all the information he or she needs, that accurate information from witnesses is collected, and that communication is maintained between insured and insurer.
We conduct quarterly claims audits with the senior staff of our social-service clients. A claims manager from our agency also takes part. Our goal is to obtain information from these meetings that will help the insurer's adjuster close claims, because the longer they remain open, the higher the eventual loss often will be. We also work with insurers to see that reserves on clients' losses are reasonable and are reduced when the data indicate they should be. Managing clients' claims is a year-round job–and the only one our claims manager has. A broker can't wait until three months before renewal to look at claims and expect to keep an account.
Social-service agencies face many exposures, some quite unusual. Consequently, a program is often the best option for covering them, since coverage is customized to insureds' risks. Conventional programs usually include property, general liability, auto liability and sometimes professional liability insurance. Coverage generally is provided on admitted paper. Absent unique circumstances, an insured often can qualify for more underwriting credits–and hence obtain a lower premium–by obtaining coverage through a program than by purchasing policies separately. The program markets I've used to insure social-service agencies include NIF Group, Philadelphia Insurance Co., AFC Insurance and AIG. I have good relationships, built on trust and credibility, with key underwriters at all these markets, and those relationships are vital to my success.
Naturally, every client wants to save money, but predictable expenses are particularly important to social-service agencies, since most have tight budgetary constraints. If you're unable to place a social-service agency with a program–perhaps the agency's loss experience has been adverse–and have to resort to the E&S marketplace, you may be hard-pressed to put something together the client will consider affordable or even desirable. First, you might not find all the coverages you need; second, clients may have to accept deductibles as high as $25,000, as opposed to having no deductible at all. Social-service agencies like their insurance costs to be fixed. Rather than try to budget for a deductible that they may or may not have to absorb, they want to pay a premium and have the carrier cover 100% of all losses.
A program generally isn't sufficient to cover all of a social-service agencies' needs. Often the D&O and EPL coverage must be arranged separately. Agents can turn to any number of insurers that offer D&O for nonprofit organizations. Programs don't include workers compensation insurance either, since the exposure for social-services agencies differs little from that of other employers and will be reflected in individual employee class codes. A broker can turn to markets like Liberty Mutual, AIG, Wausau and Zurich to obtain this coverage separately.
Social-service agencies tend to be stable clients. They are sophisticated enough to take a long-term view of insurance and to believe in partnering with insurers. They rarely jump to another broker just to save a little premium. They expect their brokers to be vigilant, however, and to inform them of new products and otherwise look out for their interests.
In our experience, social-service agencies more often move their accounts because of dissatisfaction with a broker than with price (although we do monitor price closely). Since the programs are almost always well-written, competing for an account can't often be done on the basis of finding gaps or catching errors in the current coverage. Occasionally sexual abuse insurance will be absent or buildings will not have been appraised for years, but there are few “aha!” moments when looking at existing policies. Rather, convincing a client to move their business generally is a matter of solving a particular problem for them.
Say an agency has a large fleet of vans in New York City, and the current insurer has doubled the premium. If you can be innovative, and realize that an auto insurer with more transportation capability is a better fit for that particular line of coverage than the program the prospect currently is in–then you've shown you can solve a problem. The social agency develops a level of trust in you, and the following year you might be given the opportunity to compete for the rest of the client's account.
Indeed, the existence of a problem is one of the key things I look for before deciding to put in the time and effort necessary to compete for an account. Another thing I need is the opportunity to work with competitive markets. Sometimes social-service agencies, when entertaining proposals for their business, allocate markets to their current broker and an additional one. If I'm not allocated competitive markets, it will be impossible for me to create a proposal with competitive coverages and price.
In my experience, the market for social-service agencies always tends to be harder than the insurance market in general. Back in the 1990s, insureds became accustomed to steadily decreasing premiums. When the hard market hit, it was really pronounced for social-service agencies. Premiums became a significant part of their budgets, as well as an important priority for CFOs, who assumed the lead role in working with insurance brokers. Most have kept it. Today, while it's possible for social-service agencies to obtain lower premiums on renewal, rate reductions are not nearly as steep as they are for some risks.
Indeed, insurance for social-services agencies is unlikely to ever become a “commodity.” Therefore, the keys to success for brokers likely will remain in-depth knowledge of the field, a level of service that pleases clients and leads to referrals, and excellent relationships with specialty underwriters.
Or, to put it another way, when I wake up tomorrow morning, I'll still be glad I'm in this niche. William Dobson is senior vice president in the New York, N.Y. office of Risk Strategies Co. A broker since 1977, Mr. Dobson had previously worked for Sedgwick CMS before joining Risk Strategies in 1998. The company, formed by Michael Christian in 1997, has 100 employees in six offices nationally. Headquartered in Boston, Risk Strategies has an annual premium volume of $275 million, largely in commercial lines.