As a charity, your organisation enjoys numerous financial advantages not afforded to others. But it is incumbent upon non-profit organisations to protect those they support as much, if not more, than those organisations operating with a profit motive.
Even though public liability insurance for charities can be complicated by factors such as fundraisers, lobbying and medical assistance, it still pays to be pragmatic about covering certain items.
In this article, we’ll do a quick walkthrough of some key elements of purchasing a PL policy as a charity.
Public Liability Insurance in a Nutshell
For the sake of clarity, it’s worth briefly defining what public liability insurance means for you as a charity and where it may apply in your activities.
PL insurance provides coverage for claims made by members of the public (and other third parties) in connection with your organisational activities, such as bodily injury, property damage and the legal costs of defending such claims, even if you are innocent.
A straightforward example of a claim might be an injury sustained at one of your fundraising events. And if you operate a charity that deals with especially vulnerable groups – or high-profile, high-earning celebrities make appearances as part of your fundraising activities – those claims could be substantial.
Do Charities Need Public Liability Insurance?
In a word, No.
All charities are exempt from purchasing PL insurance. It’s not a compulsory form of insurance. In light of that fact, many insurers bundle PL policies with other (typically) compulsory forms of insurance, such as employers’ liability insurance. But as a charity, your organisation may be exempt from those as well. So ultimately, many charities end up buying more insurance than they really need.
Moreover, insurance exists to protect your balance sheet from short-term volatility. Despite that, many charities have existed for decades (even centuries). So it stands to reason that you should align your insurance policy with your actual financial horizons rather than knee-jerk impulses to cover short-term fluctuations in claims.
That’s not to say that charity public liability insurance is a bad investment. Rather, you should go into the insurance-buying process with a clear understanding of what your charity actually needs – and doesn’t need – if you want to negotiate on the same wavelength as insurers.
A Brief Introduction to Premium Negotiation for Charities
Insurance buying can be a daunting process which is why so many organisations essentially avoid it by purchasing the same coverage every year with minimal investment in risk presentation. But that practice often costs much more than it needs to and gives insurers exactly what they want (higher premiums).
The first thing you need to realize is that insurers are expert, highly sophisticated and highly technical risk-takers. The entire business of insurance depends on accurately predicting risk. Therefore, you’ll need to communicate the following risk metrics effectively to fit the insurer’s business model:
1. The Likely Frequency of Your Claims
Explain, in your best estimation, how often your organisation will make claims on the policy. This requires methodical examination of your policy wording to suss out the different types of scenarios that would lead to claims, how likely they are to happen in the normal course of your business and which ones would exceed your policy excess (and therefore trigger a payment from the insurance policy).
2. The Likely Severity of Your Claims
When claims do occur, insurers want to know how large those claims will be. In practice, this means you’ll have to outline how you intend to control the severity of your claims with a disaster recovery plan. The better your plan is, the more reassured insurers will be and the lower your premiums will be.
3. The Amount Of Risk You Are Willing to Shoulder
This is where organisations often make a crucial mistake. And it’s the mistake of insuring what doesn’t need to be insured.
Consider this common client scenario:
A charity purchases PL insurance with a £100,000 excess, assuming that this excess means significantly lower premiums than say a £50,000 excess. However, its net assets are >£100m. To an insurer, this looks like an organisation that’s only willing to risk 0.1% of its assets for a large claim. In other words, a bad risk. Furthermore, if you were indeed a good risk, you could show that such claims are rare; in other words, in this case, your combination of net assets and requested excess (compared to your low historic claims experience) does not support your assertion of being a “good” risk for the future.
If your charity is really a good risk, communicate that to insurers by being willing to absorb those claims that you can easily afford.
Insurance Premiums Are Hardly Charitable
Purchasing PL insurance for a charity can be a minefield of epic proportions. But that shouldn’t mean you shy away from making the best case you can for your organisation, even if that means recommending no insurance at all for some risks.
There are ways to reduce your premiums and protect your balance sheet effectively. Our website shows you our unique process to achieve that, ensuring that you are sending the right message to insurance providers.
John is an actuary and owner and Director of HJC Actuarial, which he founded in 2003 and which has advised over 100 clients since it’s’ inception. He has worked in the insurance industry for 30 years, qualifying as an actuary in 1995 and becoming a Partner in a major global consulting firm in 2000. Since 2003 he has provided independent advice to his clients on optimal insurance program design, presentation of risks, and premium negotiation with insurers, insurer solvency assessments, policy wordings, insurer selection, and insurance broker selection.