NFPs feel the squeeze on funds, staff, insurance

Sector spells out the resource vs demand challenge

Mission Australia chief executive Sharon Callister said organisations were facing stiff headwinds.

“Our frontline staff have seen an increase in the number of people seeking support from our homelessness and housing services, with demand increasing by 26 per cent over the past three years.”

The organisation expected that trend would continue in 2024.

“We’re heading into 2024 with the perfect storm of insufficient social and affordable housing, tough economic conditions causing living and rental costs to rise, low levels of income support, and people facing challenges like domestic and family violence, mental health concerns and natural disasters. Australia’s homelessness crisis has escalated to a chronic emergency,” Ms Callister said.

David Crosbie, CEO of the Community Council for Australia, expected to see “many charities face increased costs, pressure and uncertainty in income streams and reduced access to volunteers.”

Many were faced with demand for their community services that exceeded their capacity to meet it, he said.

While the sector needed more support to help communities, he said, “the trend is not to genuinely value and invest in the capacity of charities and community groups that are working at the heart of our communities, there in good times and bad, building the social connection that is at the core of resilient communities.”

“In another year when all charities and community organisations will yet again be asked to ‘do more for less’ we are overdue for real reform on key issues like pay what it takes.”

Infoxchange chief executive David Spriggs said his organisation’s Ask Izzy app had registered a record demand for frontline services.

“We know that inequality is deepening as the cost of living continues to rise,” Mr Spriggs said.

“We see the impact this has on the community by the increase in service demand on Ask Izzy, that has seen monthly search volumes for emergency relief, food, housing and mental health support services hit record highs in 2023.”

Mr Spriggs said the government would need to work more effectively with the sector to address the growing challenge.

The head of fundraising at Médecins Sans Frontières Australia, Tom Duggan, said the cost of living was also affecting the ability of organisations to generate donations.

“All the current signs suggest the cost-of-living crisis will stay with us well into 2024. One of its key impacts on Australian non-profits has been on fundraising: people are less likely to give, and when they do, they are giving less.”

Read more about the fundraising trends here.

Futurist and strategist Simon Waller, whose interest in the sector is spurred on by his role as president of the Mt Martha Basketball Club on the Mornington Peninsula south of Melbourne, agreed that rising inflation, growing demand for services and recruitment challenges would dominate NFP agendas.

And he predicted the global political situation would continue to have an effect on donations and government funding.

“For government-funded NFPs it is likely that funding will be tight, as all levels of government attempt to reduce inflationary pressure and levels of debt.

“Global instability is likely to continue to increase, and with it, the number of worthy needs for people to support. Unfortunately, this can cause inaction due to the sheer ‘overwhelm’ people experience.”

He believed the overwhelm issue was also also making it harder to attract volunteers.

“In addition to competition between worthy NFPs looking for volunteers there is also general life pressure which is leading to people retreating to a smaller group of friends and family,” he said.

Challenges for smaller organisations are complex

Margaret Tipper, the company secretary for the Western Sydney Regional Information and Research Service (WESTIR) and president of the NSW Local Community Services Association, said services in her region were facing a mix of challenges.

Among those issues was the fact organisations were “still dealing with the long-term ramifications of covid-19 and other natural disasters: not only on our clients but our staff.”

In the past year, there had been growing requests for “basic assistance” to counter cost-of-living pressures, with more clients presenting with complex mental health and other issues where they were unable to get assistance from other avenues.

At the same time, high levels of competition for funding had been detrimental, with a drop in the quality of care for clients, she said.

“I think that many services may start calling out poor service delivery. Learning how to do this in an ethical way is being discussed by colleagues,” she said.

Staff retention a top challenge amid funding pressure

WESTIR’s Margaret Tipper said that staff in the sector were struggling to make ends meet on award wages.

Some staff were telling managers “they cannot afford to stay in the sector as living costs cannot be met by the SCHADS [Social, Community, Home Care and Disability Services Industry] award”.

She said she knew of at least two employees who had left the sector in December for that reason.

Ms Tipper also nominated funding contract renewals by the NSW and other governments, and the impact of industrial relations law changes, particularly the introduction of restrictions to fixed-term contracts, as issues at the front of mind for NFP leaders.

She said fixed term contracts “has not really been well thought out by the [federal] government and the Fair Work Commission in relation to how this affects project funding in the community sector”.

Australia’s charity peak body, the Community Council for Australia, believes the move to restrict fixed-term contracts could put greater pressure on not-for-profit budgets.

New workplace laws introduced last month largely ban fixed-term contracts longer than two years.

But the Community Council for Australia (CCA) says most of the organisations it represents are reliant on funding agreements that last for two years or less and that the changes had sparked uncertainty in the sector. It is expected to raise the issue with the Fair Work Commission directly in February.

Mission Australia’s Sharon Callister agreed that funding arrangements would be at issue in 2024.

“With some government funding bodies not meeting the full cost of service delivery, and issuing short-term contracts and repeated contract extensions, this will remain a challenge into the new year. We will continue to advocate for governments to improve service and workforce sustainability and fund the full cost of running vital services to help build a more resilient sector and to achieve real, lasting impact on social issues like homelessness.”

“This would enable our compassionate and skilled frontline staff to meet more of the increasing demand and help as many as we can.”

Ms Callister said Mission Australia would be working with others in the sector to win a better deal.

“In 2024, alongside our sector colleagues, Mission Australia will continue to focus on the need for far more investment in social and affordable housing, as well as homelessness and other community services, particularly those focused on prevention. We will also advocate for improving the fairness of service contracts.

Insurance costs to keep rising as climate threat grows

The senior client manager for not-for-profits at insurance broker Aon, Derek Turner, said Australia was now in the seventh year of an insurance “hard market”.

Inflation, interest rates and reinsurance costs rates were continuing to rise, while coverage terms were changing, excess payments were increasing, and coverage was shrinking.

“With insurers increasing rates and limiting cover, NFPs need to understand and prepare for the impacts of this hard market,” Mr Turner said.

He said a major cause of the rises was recurring natural disasters such as bushfires, storms, cyclones and floods. Over the past five years these had resulted in billions of dollars’ worth of claims.

“To put this into perspective, major global reinsurers such as Swiss Re reported a net loss for the first nine months of 2022, the first time in their history.”

In response, insurers had increased all their rates to compensate for losses, while demanding more details about properties and assets being insured.

He said with more bad weather expected through 2024, insurers were now restricting and limiting cover to properties in flood- storm-, and fire-prone areas.

He said to prepare, not-for-profit directors and managers should ensure they were able to provide the additional required information about the construction, occupancy, security and fire protection details of assets, “to ensure they are giving themselves the best chance at suitable cover”.

In addition, NFPs located in high-risk areas should focus their attention on good risk management, especially where they faced the possibility of being refused insurance.

Other significant developments in the insurance industry for NFPs include the growing cybersecurity threat, and changes to child sex abuse cover.

With cybercrime now the fastest growing crime in the world, Mr Turner said insurers were increasingly expecting organisations to adopt multifactor authentication and boost IT risk management practices, to avoid higher insurance costs.

He said in some risk categories, insurers had exited the market. Catholic Church Insurance, for example, shut its doors last year after more than a century.

He said the church-owned company had closed under the weight of payments linked to historical child sexual abuse. He said thousands of NFPs, including disability providers and religious groups, had been left to scramble for alternative cover.

NFP legal expert Emeritus Professor Myles McGregor-Lowndes agreed that the hardening insurance market “was really starting to bite not-for-profits and charities”.

He said the wind-up of Catholic Church Insurance came shortly before the High Court found there would be no time limit on historical sex abuse cases, following a ruling on a 55-year-old incident. He believed some church dioceses could face bankruptcy as a result.

This article first appeared in our monthly leadership newsletter, Community Directors Intelligence, in a not-for-profit trends edition predicting the big issues facing community directors and senior managers in 2024.