Inflation, talent shortages, and the threat of cyberattacks are creating significant exposures for leaders of non-profit organizations today, making directors and officers (D&O) liability insurance a critical source of financial protection.
Nicole Murphy (pictured), non-profit D&O product manager at Travelers, spoke to Insurance Business about the risks facing non-profits and charities.
Getting money in the door amid a potential recession and record inflation has been one of the biggest challenges for non-profit organizations, according to Murphy.
“If money is not coming through their door, their focus gets taken away from the mission, and they might not have the resources to completely focus on their services,” she said.
Lack of resources could force employers to lay off employees or cut their pay, leading to potential lawsuits. Non-profit leaders and their organizations can also suffer reputational damage for failing to perform their duties.
“Some might not have the resources for fundraising. They might experience a dip in membership if they’re a membership organization,” said Murphy.
“Sometimes, non-profits dip into their net assets or equity that are earmarked for other purposes and use them for their operations. You might have seen that a lot during COVID, and that’s when a claim can come in against them.”
Non-profit leaders need to be creative and establish different revenue streams beyond patronage or memberships, she stressed.
Apart from financial worries, training and retaining the right people and managing cyber risks are among the most pressing challenges of non-profit organizations.
At the same time, increasing political division has also become a source of liability concerns.
“Depending on the type of non-profit, they may get more heat,” Murphy said. “The ‘Me Too’ movement has definitely affected non-profits.”
In terms of talent, getting the right board members is essential, and many organizations are focusing on diversity within their workforce.
During the pandemic, employment liability claims rose after mass furloughs and layoffs in the non-profit space, according to Murphy.
Mismanagement and breach of contract claims also cropped up where directors and officers weren’t to prepare their organization for tough financial times and relied on single revenue streams.
“Directors and officers can get sued for not doing their fiduciary duty, but really it is mismanagement and not preparing the organization for tough times,” said Murphy.
Finally, the Travelers PM highlighted cyber risks as a top concern for non-profit organizations.
While all organizations can be targets for cyberattacks, non-profit organizations are especially vulnerable because they harbor a wealth of personal information from donors and members, while also having fewer resources to deal with threats.
“They often don’t have the money or proper infrastructure to train people on phishing schemes or to protect their websites,” Murphy pointed out.
Many cyber insurance coverages offer pre-breach services to bolster non-profits’ cyber security and risk management today. Murphy stressed that policyholders should take advantage of the resources that their carriers offer.
“I know it is cost prohibitive for some, but they almost can’t afford not to [have cyber insurance] because that could completely shut their doors if they get sued,” she said.
D&O insurance prices have fallen noticeably following years of hard market conditions. But Murphy said this dynamic isn’t carrying over to the non-profit side.
“I think rates aren’t dropping as much as in the private space,” she told Insurance Business. “The prices are pretty competitive in the market because the rates were pretty competitive to begin with.”
Murphy encouraged brokers to highlight the importance of non-profit D&O liability insurance to their clients.
“It’s not just the organization but their personal assets at risk if they’re held liable. Aside from asking for the broadest coverage that they can get, it’s important to look at exclusions that are on the policy,” she said.
Additionally, non-profits need to consider comprehensive coverage that includes employees and volunteers.
“They can get claims for discrimination and harassment in the form of third-party claims, so making sure it’s not just directors and officers, but they’re covering their employees and volunteers is important,” Murphy said. “It only takes one person bringing in a claim to deal reputational damage to an organization.”
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