Navigating Nonprofit Insurance: Safeguarding Your Mission and VisionIt’s a difficult time for nonprofit organizations. With insurance challenges, economic pressures, and regulatory upheaval, many feel threatened. Some may be looking to cut costs wherever possible, including by reducing their nonprofit insurance. At the same time, risk management is more important than ever, so it’s important to consider your options carefully before proceeding.
Federal Funding Is Under Threat
On January 20, 2025, an executive order established the Department of Government Efficiency, commonly known as DOGE. As of April 1, DOGE says it has saved $140 billion (or $569.57 per taxpayer) by making cuts to numerous agencies and programs. Grants have also been on chopping block – so far, it has terminated at least 7,616 grants, including grants made through the Department of Education, USAID, and the Department of State.
Attempts to end federal funding have been met with strong opposition. On January 27, an executive order aimed to pause federal grants, loans, and other financial assistance. According to the National Conference of State Legislatures, this was rescinded on January 29. Then, on February 10, Judge John McConnell of the U.S. District Court for the District of Rhode Island issued an order to unfreeze funds.
While the political and legal battles rage , many nonprofit organizations are left in limbo. The Urban Institute says two out of three nonprofits receive at least one government grant or contract. Nonprofit Quarterly says the threat to federal funding has nonprofit executives trying to figure out how to deal with what could be a massive crisis. According to CalMatters, the executive director of the County Welfare Directors Association says local agencies are worried that cuts could impact job assistance, in-home supportive services, foster care, and adult protective services programs.
Economic Uncertainty Could Make Conditions Worse
The threats to funding come at a particularly bad time. According to a report from the U.S. Department of Housing and Urban Development, homelessness reached record levels in 2024. The Center on Budget and Policy Priorities says food insecurity increased from 12.8% in 2022 to 13.5% in 2023, marking the second consecutive year of rising rates and a reverse of the two-decade trend of falling rates.
The situation could become worse. Expana forecasts a global recession starting in the spring of 2025, while U.S. News says there’s a 27% chance of a U.S. recession sometime in the next 12 months, based on the New York Fed’s recession probability model.
When the economy suffers, nonprofits are hit with a double whammy of increased demand for services and decreased donations. Indeed, the 2024 Giving USA report found that donations from individuals decreased by 2.4% in 2023, when adjusted for inflation. The drop is attributed to uncertain economic conditions and high inflation. If the economy worsens amid drastic federal funding cuts, the situation could become much worse than usual.
Obtaining Insurance Coverage Is Becoming More Challenging
According to the Council of Insurance Agents & Brokers, the fourth quarter of 2024 marked the 29th consecutive quarter of rising commercial property and casualty insurance rates. However, many lines – including D&O, cyber, and EPLI – are now seeing rate decreases.
The challenges facing the nonprofit sector go beyond the general insurance market. For some nonprofits – particularly foster care agencies – securing insurance coverage has become extremely challenging. New legislation (including statute of limitations reform and California’s Foster Agency Accountability Act) has had a significant impact on the market. Costs have been rising, with some markets also experiencing shrinking coverage capacity.
Navigating Insurance Amid Financial Uncertainty
Many nonprofit leaders are in crisis mode. They’re busy examining their funding options and determining where they can cut costs to survive the years ahead. They may see insurance as a place for cuts, especially as premiums rise and coverage becomes harder to find. However, it’s important to keep in mind why insurance premiums are rising: losses have also been rising. Wildfires and other natural disasters have led to massive property damage, while litigation trends that include social inflation, nuclear verdicts, and legal reform have resulted in increased liability risks. Cutting insurance may save you a little money in the short term but leave you vulnerable to catastrophic costs in the future. For many nonprofits, it’s also important to stay compliant with state requirements for insurance coverage.
This is not to say that cuts are impossible – in some cases, nonprofits may be able to thoughtfully manage their coverage choices to save money. Strategies include taking on bigger deductibles or self-insured retentions.
During times of crisis and uncertainty, risk management is more important than ever. An experienced insurance partner can figure out what you can cut and what is essential coverage.
A broker who understands the current market for nonprofit insurance can guide you through your options when insurance difficult to find to avoid coverage gaps. See how Heffernan Insurance Brokers can help.
