Evanston, Ill.—Two Big Brothers Big Sisters agencies in suburban Chicago will no longer offer the agency’s signature program: the one-to-one program in which “Bigs” and “Littles” pair up and go on outings together.
It’s not that they don’t think the program is valuable. But the agencies faced skyrocketing liability insurance premiums for less coverage – if they could have gotten coverage at all.
While theirs is an especially severe situation, the dilemma is familiar to youth-serving agencies nationwide: Boys & Girls Clubs, YMCAs, youth camps and countless unaffiliated agencies report eye-popping insurance increases that are compelling them to cut program costs, change programs or reduce coverage.
The BBBS action here in Illinois “is a very small segment of a bigger problem,” says Mack Koonce, chief operating officer of Big Brothers Big Sisters of America. “The combination of the Sept. 11 attacks and the recession have created huge turmoil in the insurance industry.
“We’ve seen two years of huge premium increases, over 30 percent both years, and we’ve seen many fewer insurance companies in this business,” Koonce says. “It’s a very tough environment that’s affected all of us.”
Although insurance rates have spiked for all types of customers, agency leaders and insurance speicalists say the youth field has been hit especially hard because of fears of sexual abuse stoked by the Catholic Church scandal.
“You would likely have seen increases, anyway,” says Robert Hartwig, chief economist with the Insurance Information Institute, a New York-based trade group. “But absent the priestly scandals and other scandals, you wouldn’t have seen the same kind of catharsis you’re seeing right now.”
That catharsis has caused double-digit percentage premium increases – often triple-digit for programs that have faced liability claims – along with higher deductibles, lower maximum limits and more difficulty getting coverage, particularly to indemnify against sexual abuse. Some agencies choose less favorable terms to get lower premiums; others, particularly those with a history of significant claims, are taking whatever they can get.
“Organizations that serve youth who have had a good track record have seen increases that range anywhere between 20 and 30 percent in the last 12 months,” says Ed Schirick, a Rock Hill, N.Y., insurance broker and consultant who specializes in summer camps and child care centers. “Organizations with problems have seen their insurance premiums more than double. In fact, some have had difficulty finding insurance at all.”
That’s partly because so few insurance companies serve the youth service market, he says. “If there are 25 or 50 out there looking to do business with youth organizations, that’d be a lot,” Schirick says.
Some examples of the impact:
• Boys & Girls Clubs have seen premium increases of 30 percent to 60 percent over the past three years, says Les Nichols, vice president of architecture and risk management for the Boys & Girls Club of America.
• YMCAs have seen “umbrella” coverage above $1 million rise 200 percent in the past three years, says John Medler, CEO of YMCA Services Corp., which runs an in-house insurance program.
• Premiums for camps are up 20 percent to 40 percent annually, and umbrella policies “are pretty much not there anymore,” says Tom Rosenberge, director of Blue Star Camps in Hendersonville, N.C., and an American Camping Association board member.
• Big Brothers Big Sisters of Lake County, based in north-suburban Gurnee, Ill., relaunched under a new format in which “Bigs” and “Littles” will meet only in groups, says Executive Director Jim Kales. The Fox Valley chapter, based in northwest suburban Elgin, Ill., hopes to do the same, says Executive Director Deb Howe.
The Lake County chapter is choosing spread-out facilities for group get-togethers in an effort to retain the intimacy of the old program while allowing for closer supervision, Kales says. “The challenge before us is to capture as much of the power of the former model while also staying true to the new model of being a supervised program,” he says.
The chapter’s liability premium of $8,000 would have ballooned to $105,000 in the one quote the agency received for the previous program, Kales says. Other companies refused to even state a price. With the changed program, the premium will be “only” $17,000, he says.
At Fox Valley, Howe figures the premium will triple, maximum limits will drop from $1 million to less than $500,000, and deductibles “definitely” will be higher.
But so far, says Koonce at national BBBS, “less than 10” agencies out of 470 have had to restructure programs as a result of the insurance difficulties.
Wall Street’s Troubles
Some of the reasons behind the rate increases are not specific to the youth field. The stock market’s three-year slide has affected rates, because insurance companies had depended on investment returns from policyholders’ premiums to enable them to pay claims and still make profits.
“The clubs are getting rate increases that, prior to a few years ago, would have been absorbed by investment [profits] from insurance companies,” Nichols says. “With the market being sideways for three or four years, they’ve got to get their money somewhere.”
The stock market losses, combined with tens of billions of dollars in claims linked to the 9/11 terrorist attacks, created a “perfect insurance storm,” says Ian Garner, national director of camp and youth programs for Markel Insurance Co. in Glen Allen, Va. “To survive,” he says, companies had to “increase their insurance premiums significantly.”
Litigation has also played a role, Schirick says. “When an underwriter looks at a youth-serving organization, they look at potential future liabilities that are unclear and undefined,” he says.
Adds Hartwig, “Even if charges wind up being dropped, or the organization or the individual is exonerated, the insurance in these cases covers legal costs.”
While claims against youth agencies can range from van accidents to falls during rope-climbing expeditions, sexual abuse claims are foremost on most people’s minds. “The church thing has made it much worse,” says Medler of the YMCA. “Insurance carriers are scared to death of the potential cost of that because they don’t understand it and don’t know how to price it. They’d rather not deal with it.”
That’s partly due to the economic climate, Garner says. Insurance companies “had to take a very hard and quick look at the type of insurance they were writing,” he says. “Anything questionable, many insurance companies eliminated it.”
John Gutierrez, a San Antonio-based representative for church insurer Catholic Mutual, agrees the sex abuse scandals have boosted premiums. “It’s like anything else: when the claims came up, that came up,” he says.
Reducing Risk, and Costs
While youth agencies certainly can accept less coverage, higher deductibles or more exclusions on their policies, risk managers can take steps to avoid claims and to reassure their underwriters.
To guard against sexual abuse claims, agency leaders and others say, a thorough screening process for employees and volunteers is essential. “If you want to get liability coverage these days, that’s going to be basically a requirement,” Hartwig says. “That’s going to be a permanent feature in this market.”
Conducting background checks on prospective workers is getting easier, thanks to technology and federal action. (See “Have You Ever Been Convicted …?” September 2003.)
Also important is reducing opportunities for abuse by modifying how programs are carried out. For many agencies, this starts with making sure children are never alone with one adult leader while out of sight of all other adults. “You’ve got to have specific restroom policies,” Medler says. “You’ve got to have specific shower room policies. You’ve got to have specific policies related to situations with sleeping. Then you’ve got to monitor it all.”
Agencies then need to make sure their underwriter knows what steps they’re taking, Rosenberge says. “In the years when we didn’t have the hard market, you didn’t really have to educate your insurer as much,” he says.
By doing so, Schirick says, “Sometimes, you can overcome those perceptions and eliminate hot spots that might be driving increases in costs.”
Agencies certainly should not add programs without talking to their underwriters first, Garner says. “You would not want to advertise a new activity,” he says, “and then find out that your insurance company is not interested in underwriting that activity.”
Melanie Herman, Executive Director
Nonprofit Risk Management Center
1001 Connecticut Ave. NW
Washington, D.C. 20036
Mack Koonce, Chief Operating Officer
Big Brothers Big Sisters of America
230 North 13th St.
Philadelphia, PA 19107
Insurance broker and consultant
P.O. Box 832
Rock Hill, NY 12775