Nonprofit Directors, Officers, and Insurance

A nonprofit’s insurance program needs a quality board.

And a quality board needs a quality insurance program.

Here are a few observations from my discussions with nonprofits:

  1. Board members are extremely paranoid.
  2. Board members are not at all paranoid
  3. Board members don’t mind spending money if they perceive value
  4. Board members select the cheapest option, regardless of value.
  5. Board members love making decisions about insurance.
  6. Board members love to just let the executive director make all the decisions.
  7. Board members truly care for the mission of the organization – and want it protected.

Sometimes the concern is cost. Sometimes it’s coverage. But either way, the board is vitally important to the process of finding and selecting quality coverage.

Photo Credit: EricDanPhoto via Compfight cc

Photo Credit: EricDanPhoto via Compfight cc

I’d like to briefly discuss both how boards can affect an insurance program and how they can be potentially dependent on it

How a Board of Directors Affects Insurance Coverage

While it seems that a board of directors simply signs off on an insurance proposal or evaluates and helps make a decision, the role of the board is much more key to the overall insurance picture than that.

When I am presenting an insurance application to the companies I represent, I’m put in a position of selling the nonprofit to the insurer. The better I can sell the nonprofit, the better the premium and the greater the coverage options.

Here’s where a board can make hay:

When there is a standard of excellence demanded by the leadership, the insurance markets open up. While it’s vital that an executive director, finance director, and even program management enforce best practices operationally, it’s up to the board to provide a check and balance to what those practices are and to encourage a culture of safety and cautious risk-taking.

The partnership between the board and the boots on the ground leadership can create a powerful synergy: effective yet safe and circumspect delivery of services.

Small nonprofits require this board input even more. Many founding executive directors have a vision, but truly need a multi-faceted board to uncover hidden safety, financial, and other risks.

In essence, a quality board helps us insurance agents argue for more competitive premiums and more complete coverages.

How a Board of Directors Are Affected by Insurance Coverage

I do not currently serve on a board of directors, but know this: I would require all relevant insurance coverages to be in place. The directors and officers policy is poorly named. It would address the boards business and management decisions (including employment practices), but it wouldn’t address all the claims scenarios that could possibly affect me.

Directors & officers liability does NOT cover a board for every possible claim (no insurance policy can claim that magical power).  But if your organization has the coverages in place to address the actual exposures, then the board members are most fully protected.

Members of the board can, though, be defended under the various liability policies available. For instance a general liability policy lists board members as insureds for a general liability claim. An abuse and molestation liability policy does also, as does a professional liability policy.

Board members can potentially be affected – their assets, their time, there stress levels – if the appropriate coverages are or are not in place.

Nonprofit Board Members and Insurance – Suggestions

If you are a board member…

  1. …understand that your influence on your insurance program goes beyond approving a premium.
  2. …understand that your exposure personally depends on having the correct protection in place to address your nonprofit’s actual risks, not just having a policy that is (unfortunately) called directors and officers liability.
  3. …understand that there is a huge connection between managing risk and executing quality programming.
  4. …understand that your ability to see things that your executive paid leadership might not see is a truly powerful role.

Questions

  • What do you see as a board’s role in risk management?
  • Is your board of directors concerned with safety, risk management procedures, and insurance or solely focused on development, fundraising, and programming?
  • I’d love any other insights you  might have as a nonprofit leader

Please answer in the comments below

(Note that all organizations are different. Discuss your unique operations with your insurance professional in order to evaluate your needs effectively. If you need help, please don’t hesitate to contact me.

 

 

 

 

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