NFP insurance trends and how to slash premiums

Posted on 10 Apr 2024

By Matthew Schulz, journalist, Institute of Community Directors Australia

Lismore flood water rising
Floods on the eastern seaboard of Australia triggered a spate of claims worth more than $7 billion.

Not-for-profits have been hit by a spike in insurance premiums because of a perfect storm of extreme weather events, the rising costs of reinsurance, and the higher number of legal battles leading to big payouts.

Derek Turner
Aon's Derek Turner

But there are ways for NFPs to reduce their premiums and their risks too.

The Institute of Community Directors Australia recently hosted NFP Insurance Week in partnership with insurance brokers Aon, comprising a series of free webinars on a range of community-focused insurance matters such as protecting volunteers and events, the types of insurance needed by NFPs, cyber insurance, and using prize indemnity insurance for fundraising.

The Insurance Council of Australia last year found that premiums had risen as a result of inflation – which affected the cost of construction – and a massive spike in claims for weather-related disasters.

Aon’s senior client manager for not-for-profits, Derek Turner, said that Australia was second only to Florida in the United States for its number of weather-related insurance claims.

According to the Insurance Council, in 2022 there were more than 300,000 disaster-related claims in Australia from just four “declared events”, costing more than $7 billion in insured losses. Of that amount, $6 billion was from a single flooding event that affected northern NSW and southeast Queensland.

Not-for-profits are paying the price, and that trend seems likely to continue as the impact of climate change grows.

Mr Turner said Australia’s insurance industry was now in the seventh year of a “hard market”, which meant major challenges for the NFP sector.

“Big trends in the insurance industry are rising insurance costs as a result of reduced insurance profitability, resulting from natural disasters and claims payouts.”

Insurers had responded by increasing rates, increasing excess payments, reducing or refusing cover, and reducing the length of coverage, Mr Turner said.

Insurers now required more information about properties and assets being insured, he said.

“Within the not-for-profit space, it's changing requirements in regards to fundraising and government contracts as well.”

“Big trends in the insurance industry are rising insurance costs as a result of reduced insurance profitability, resulting from natural disasters and claims payouts.”
Hacker Data Cybersecurity shutterstock 356278754
Cyber insurance is a rapidly growing need for NFPs.

He said some organisations were now required to maintain higher liability limits to maintain contracts in relation to sexual abuse and molestation cover, for example.

At the same time, disability providers and religious organisations were finding it harder than ever to obtain such cover, with some insurers, such as Catholic Church Insurance shutting up shop

Mr Turner said cyber insurance should also be a consideration for NFPs.

“Cyber insurance is one of the policies where many not-for-profits and community groups don't feel like they have a need for the cover, but the example we always give is Optus [which lost] numbers and email addresses, which is the exact same data that not-for-profits and community groups have, just with far less IT infrastructure.”

Insurers now expected organisations to adopt multifactor authentication and boost their IT risk management practices or face higher insurance costs.

Mr Turner said that as Australians had become more litigious, “average insurance cost claims have just essentially tripled and quadrupled over [recent] years”.

As a result, liability limits were now rising too, to keep pace with rising claim payouts.

“The limit that you had five years ago may not be as suitable now,” he said.

Asked about how much NFPs should budget for rising insurance costs, Mr Turner suggested organisations should allow for premium increases of about 10% per year, depending on the cover and subsector.

He said directors and officers (D&O) insurance cover was growing at a rate of 5–15% generally, but up to 25% in some cases. In the general insurance market, increases were hovering between 5% and 25% too.

Yes, but how can we cut down our premiums?

Mr Turner suggested several methods to reduce insurance premiums, all of which essentially worked to reduce the insurer’s risk. These could involve:

  • ensuring your organisation has proper risk management policies and procedures in place, to avoid the chance of being refused insurance
  • following best practice to prevent incidents from occurring
  • ensuring your organisation maintains records of construction, occupancy, security and fire protection details of building assets, to give “the best chance at suitable cover”
  • decreasing “operational exposure” by changing organisational activities to avoid high-risk practices
  • reducing the number of people involved in events
  • reducing levels of insurance cover
  • packaging your insurance needs

Asked whether organisations could consider self-insuring, Mr Turner recommended against the practice, but said that such a strategy required careful consideration, including engaging professional risk management and business experts to assess the possibility.

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