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Nonprofits: Three Things to Watch

Nonprofits face many of the same threats as their for-profit counterparts.
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The median online contribution made to nonprofits last year was $178, according to Blackbud. And because the average donation amount made online is higher than offline, nonprofits want the digital dollars to keep flowing.

But with each click of the “Donate Now” button, personal information exchanges hands. Are your nonprofit clients protecting their cyber exposure?

While cyber is grabbing a lot of headlines, it’s not the only evolving exposure affecting nonprofits. Here are three trends to watch in the nonprofit space:

Cyber exposure is big—and getting bigger. Even the smallest nonprofits are starting to realize they are not immune to the cyber threat. “It’s one of the biggest exposures we see,” says Jason Tharpe, vice president, Affinity Nonprofits. “The questions are flying from nonprofits: ‘How much does it run?’ ‘What sort of coverage do I need?”

With an estimated cost of $150-$250 per record to provide notification and monitoring, the impact of a breach can be devastating. But for smaller nonprofits, a cyber liability policy can be expensive. “When they are only paying $800-$1,000 in director & officer premiums, swallowing another $1,500-$2,000 for a cyber policy can be tough,” Tharpe says.

Affinity Nonprofit’s D&O product provides a cyber enhancement which includes up to $100,000 for notification and monitoring costs, as well as assistance from a public relations firm. Tharpe notes that if nonprofits want a cyber policy with “all the bells and whistles,” a separate cyber policy is required. “But for the smaller guys who can’t afford a cyber policy, what we’re doing is pretty compelling,” he says.

Breach of contract claims is on the rise. The upturn in the economy has led to more construction, with nonprofits doing renovations and breaking ground on new buildings. Nursing homes and assisted living facilities in particular are expanding their footprint, preparing for the influx of baby boomer residents.

And these multimillion-dollar projects can cause of claims. “We’ve had claims where an insured thinks the construction is shoddy and stops paying the contractor,” Tharpe says. “And then they get into a suit for breach of contract because the contractor is saying ‘No, it’s fine.’ And then the subcontractors sue an insured because they aren’t paid either.”

While coverage does not pay amounts due in such a contract, it reimburses the defense costs for covered breach of contract claims. And if an insured has to bring in construction experts to give depositions, “it can be a hefty claim amount,” Tharpe adds.

Evolving labor regulations mean more wage and hour claims. Recent regulatory activity continues to make wage and hour claims a hot button topic. “The number of claims keeps rising,” Tharpe says. “Brokers are asking for wage and hour coverage and Fair Labor Standards Act coverage.”

Tharpe describes Affinity NonProfit’s capability of going up to $500,000 for a defense cost sublimit as “industry leading.”

With more than 1.5 million nonprofits in the U.S., the market opportunity is significant. But Tharpe cautions agents to fully understand a nonprofit’s activities before they try to evaluate the risk. “Agents and brokers need to dig a little deeper in terms of a class of business,” he says. “Some nonprofits may seem innocuous, but their activities could cause large payouts if there is a problem.”

This article is provided for general informational purposes only and is not intended to provide individualized business, risk management or legal advice. You should discuss your individual circumstances thoroughly with your legal and other advisors before taking any action with regard to the subject matter of this article. Only the relevant insurance policy provides actual terms, coverages, amounts, conditions, and exclusions for an insured.

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Sunday, August 2, 2020
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