By Pamela Davis
What does fairness in insurance pricing mean? If your organization has never had a claim, why should you ever have to pay more for insurance? You came to NIA because our nonprofit’s mission is to provide a stable source of reasonably priced liability and property insurance. Doesn’t that mean your premium stays the same? Those are very good questions.
First, I want to acknowledge that many nonprofits have been treated unfairly by the commercial insurance industry. So, you have good reason to be wary.
It was this unfairness and instability that motivated me to create Nonprofits Insurance Alliance (NIA) 34 years ago. And, during that entire time, I have been doing my best to make sure we charge fair prices for the risk of each nonprofit.
But that doesn’t mean prices never increase. Even as a nonprofit ourselves, we have to keep up with inflation and changing societal views.
Nevertheless, except for some targeted increases related to specific nonprofits, as well as the escalating cost of handling employment practices for everyone, NIA’s pricing has remained steady overall.
Inflation, Rising Costs of Claim Settlements
In particular, during the COVID-19 disruption, when commercial insurers were dramatically raising prices, we knew that nonprofits were already struggling, and NIA resisted the overall increases that were universal across the commercial insurance industry. NIA also worked with hundreds of our members who struggled to make premium payments during this time, so they could keep their doors open and continue serving their communities. Other insurance companies simply nonrenewed coverage.
Last year, we continued to absorb inflationary increases to protect our members, but it is now clear that some overall increases are warranted. But, what about those of you who have never had a claim? Why should you get an inflationary increase?
Insurance works through the law of large numbers. We never know who is going to have a claim in any particular year, and the premium we charge you reflects our best estimate of the risk that your organization poses relative to your peers.
All claims are simply costing more to settle. So, everyone needs to share a modest cost increase if we are going to be able to use the law of large numbers.
Reinsurance
There is another factor that needs to be considered. All insurance companies, including NIA, purchase reinsurance for large claims. (Reinsurance is where an insurance company transfers part of its risk to another insurance company).
We engage a reinsurance broker who works with dozens of global reinsurers and does their very best to get us the coverage we need at a price that makes sense. However, this year, there has been a major dislocation in the reinsurance industry.
Even though we are a good account, reinsurers are insisting on price increases for all insurers. The average property catastrophe increase reported by some was 50%! Due to our strong financial position and claims management, NIA fared better than most insurance companies at our January 1 renewal, but these are real additional costs that we must absorb.
Transparency in Pricing
Because we never want to surprise you, we want you to know that later this year, we will need to impose an inflationary increase for most of our members of around 10%.
Some may be a little less, depending on the coverages you purchase from us. Others may pay more, based upon claims history, high hazard operations and/or lines of business.
Our entire mission is to provide affordable, stable coverage for our 24,000 nonprofit members and we hope you know that we have done everything we can to hold the line on premiums.
But our commitment to stability includes charging premiums that reflect the cost of risk — both now and in the future. Even our best efforts to forestall any increases have been thwarted by the persistently higher costs of handling claims on behalf of our members.
There is nothing more important than your trust in us to protect your organization, and your trust is earned through honesty and transparency. Our commitment to offering fair and affordable insurance premiums, broad policy coverage, and free risk management services does not waiver. We look forward to serving you and your organization for 34 more years.
