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Insurance and Risk Management
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Paddlers battle the riverUnlike business organizations, nonprofit organizations can not increase rates or prices to cover soaring insurance costs. The Edmonton Chamber of Voluntary Organizations funded, and then released in 2004, a study on insurance and nonprofit organizations. The study was prepared by Wendy Doughty and Jim Kingle of Emerging Directions Consulting.

The following is the EVCO Executive Summary of the study:

Liability & Risk Management
Edmonton Chamber of Voluntary Organizations (ECVO)
Insurance Liability Study

EXECUTIVE SUMMARY

During 2003, the Voluntary Sector Forum (VSF), a leadership body comprised of 22 members from across the Canadian voluntary sector, identified liability/risk management as one of three national issues on which it wished to focus attention and resources. The reason for the VSF's focus on liability/risk management as a national issue is that "the viability of the voluntary sector is challenged by skyrocketing insurance premiums, an increasing inability to obtain coverage, and a climate of fear of serving in an increasing litigious and risk averse climate." (Voluntary Sector Forum, 2003).

As part of this response, the Voluntary Sector Forum organized regional sessions across Canada between December 2003 and March 2004 to discuss liability and risk management. The purpose of these sessions was to bring together a range of voluntary sector organizations in the community to discuss the impact of the current insurance environment on their operations. The resulting report from these regional sessions will form the basis for targeted consultations with insurers, governments, and the voluntary sector as to what can be done to improve the insurance environment in which voluntary sector organizations operate.

The first of these regional sessions was held in Edmonton on Wednesday, December 3, 2003 with twenty-six voluntary organizations in attendance. Following this session, the Edmonton Chamber of Voluntary Organizations (ECVO) was provided funding by the Muttart Foundation and the Edmonton Community Foundation to further research the impact of the current insurance environment on voluntary organizations in the Edmonton area.

A limited review of the literature on liability and risk management in the voluntary sector was undertaken. Resources were identified through the Resource Centre for Voluntary Organizations at Grant MacEwan College and a literature search conducted by Edmonton Public Library staff. Key findings from these resources were:

  • The current challenges facing voluntary sector organizations are not an isolated event but part of a cycle experienced by the insurance industry over time.
  • The current hard insurance market has adversely affected voluntary organizations nationally and internationally.
  • The voluntary sector is not alone in facing high insurance premiums.
  • Examples identified in other jurisdictions suggest that there are approaches that can alleviate the impact of a hard insurance market. These include non-profit liability insurance pools, self-insurance and government funded insurance.

The Edmonton Chamber of Voluntary Organizations (ECVO) undertook this research to obtain responses from a varied selection of Edmonton voluntary sector organizations to the following key questions:

  • Does your organization have access to the types of insurance it requires to operate effectively?
  • Is the cost of this insurance becoming prohibitive for your organization?
  • What impact is the issue of insurance having on your organization's operations, governance and service delivery?

This research study used two data collection methods - surveys and interviews. A survey developed for the Voluntary Sector Forum national study was reviewed and modified. This survey was sent by e-mail or fax to 102 senior level management or administrative staff in selected Edmonton organizations. Responses were received from 47 of these organizations (a 46% response rate). Personal or telephone interviews were conducted to gather data to construct seven vignettes describing insurance challenges facing individual organizations.

A mixed method approach was used for data analysis. Qualitative data was placed in categories where possible. Comments from respondents were presented as recorded on surveys. Comments from interviewees were presented verbatim.

Findings

Some highlights of the research study findings were:

  • Variables related to organizational size (number of staff, number of volunteers, organization's budget) were not found to be significant variables in determining insurance liability circumstances of individual organizations.
  • All respondent organizations carried Comprehensive/General Liability insurance with 89% of these organizations carrying Directors and Officers insurance.
  • The majority of respondent organizations (85%) purchased insurance through a local broker or agent.
  • The most commonly provided rational for increases in insurance premiums over the past three years was the September 11, 2001 terrorist attacks on the United States.

Conclusions

  1. Edmonton and area voluntary organizations that responded to the insurance survey overall reported having access to most types of insurance they require to operate effectively.
  2. The cost of insurance is increasingly becoming prohibitive for Edmonton voluntary organizations that responded to the insurance liability survey. Forty-four respondent organizations (94%) reported an increase in insurance premiums over the past three years. Only eight survey respondents (17%) indicated they had experienced increases in insurance claims during the past three years.
  3. A majority of the Edmonton voluntary organizations that responded to the survey indicated that neither increased insurance premiums nor any reduction in availability of insurance had affected the ability of their organization to offer programs, resources, and/or services. Twenty-eight respondent voluntary organizations (60%) reported that their programs, resources, and/or services had not been affected by increased insurance premiums. It is important to note however, many of these respondent organizations explained they had less to spend on programs, resulting in the need to reallocate resources within their organizations and/or secure additional resources. Thirty-nine respondent voluntary organizations (83%) did not believe that reduced availability of insurance had affected the ability of their organizations to offer programs, resources, and/or services during the past three years.

Areas for Further Research

The following subjects are suggested as possible areas for further research:

  1. A comprehensive review of the lessons and experiences of American nonprofit insurance entities such as the Nonprofits' Insurance Alliance of California, Nonprofits' United and the Alliance of Non-Profits for Insurance - Risk Retention Group with consideration of how these approaches might be adapted to the Canadian context.
  2. The future requirements for voluntary sector organizations to hold Professional Liability and Crime and Sexual Abuse insurance including factors such as accessibility and the financial impact of paying for such insurance.
  3. Further research about the potential benefits and costs savings that voluntary sector organizations could achieve through implementing risk management strategies and protocols.

To read the entire study, please visit the Edmonton Chamber of Voluntary Organizations' (ECVO) website.

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