We all have causes close to our hearts. Some of us donate money for research into a disease affecting a family member. Others spend their weekends supporting fundraising activities for their kids’ primary school or sporting club. Then there are those who volunteer their time at charity events or put their hand up to help others in times of extreme need. No matter what it is, chances are there’s a not-for-profit organisation with a mission to serve that cause.
The size of Australia’s not-for-profit sector is significant. There are currently more than 52,000 organisations registered with the Australian Charities and Not-for-profit Commission (ACNC). In 2016 these organisations generated a total of $142.8 billion, engaged 1.3 million paid employees and worked with 2.9 million volunteers. And that’s to say nothing of the many more small charities and community groups that don’t register with ACNC.
“The not-for-profit sector is certainly diverse,” Graeme Berwick, Executive Director at Community Underwriting, says.
“From large religious orgnisations with substantial property portfolios down to small community groups raising funds at a weekend Bunnings sausage sizzle, it’s a sector that makes significant social, economic and cultural contributions to our community.”
And it’s a sector that continues to grow, according to Berwick.
“New charities are constantly appearing as particular needs arise or to replace other organisations that have lost funding or support. We’ll definitely continue to see steady growth in the number of not-for-profit organisations, but it will mostly be at the smaller end,” he says.
Meeting the challenges
As with all other areas brokers operate in, the not-for-profit segment comes with its own challenges, and brokers need to invest time in understanding the range of activities their clients engage in.
“Understanding exactly what an organisation does and being able to tailor a solution for all their activities, while still processing the risk efficiently, can be a challenge,” Berwick says.
“A common example is a church. This can be a simple risk, with a small congregation meeting only once a week, or it could be an extremely complex combination of risks because the church regularly takes children on camps with water sports and other higher-risk activities.
“It comes down to taking the time to develop a detailed understanding of the not-for-profit organisation you’re dealing with and its activities. You need to nail down all the nuances to ensure you’re providing an effective solution.”
Martin Van Rhoon, Director at Acacia Insurance, agrees.
“It’s like any segment you operate in. You need to understand the segment, the potential exposures your client faces and then be able to put solutions in place to meet those challenges. It takes time and focus, but it’s not rocket science,” he says.
“One of the biggest challenges not-for-profit organisations face is navigating risk, but brokers are in an ideal position to provide them with advice in this area.”
Van Rhoon points to a survey carried out by PPB Advisory in 2010 to illustrate his point.
“The survey found that many not-for-profit organisations are not effectively managing their risk, despite the high duty of care owed to their stakeholders. Only 51 per cent of not-for-profits were found to have a risk management plan in place and less than 35 per cent had a risk register of any sort.
“While it can be a challenge to convince some not-for-profits about why a risk management exercise is important, it also represents a real opportunity for brokers. They can guide and advise their clients when it comes to identifying risks, prioritising them and putting solutions in place to manage and treat those risks.”
While not-for-profits come with their own nuances, Nicole Mellick, Director of Business Development and Retention at GSA Insurance Brokers, believes it’s really no different than dealing with any other segment.
“Brokers need to act like they would in any other segment,” she says. “Yes, there will be specifics, but an all-in approach to understanding the business, its risk tolerance and strategies to manage risk will result in the right cover being designed and put in place.
“Unfortunately, it’s often an under-appreciated segment and there can be a stigma that many not-for-profits only work on a pro bono basis.
“However, as with any client, the exchange for value should be fairly approached by both parties. This may mean an appropriate fee for service, but the value the not-for profit organisation provides to the community should also be taken into account.”
Mellick believes there’s also an opportunity for brokers to identify not-for-profit organisations with values aligned to their own or that work in areas of personal significance.
“Any broker with a thoughtful strategy to add value to clients in this space will undoubtedly be able to capitalise in the not-for-profit segment.”
Understanding emerging risks
The operational risks faced by not-for-profit organisations have grown substantially in recent years. This has, in part, been fuelled by an increase in government red tape and also a greater public awareness of legal rights.
“Not-for-profits are now subject to far more regulatory scrutiny and operational risk than ever before,” Acacia Insurance’s Van Rhoon says.
“It’s something organisations are grappling with for a couple of reasons. First, they don’t feel they have the capacity to deal with all the red tape, and second, they don’t think they have the funds to build a strong rigour around operational risk.
“It’s definitely an emerging risk in this segment and one that brokers need to keep an eye on.”
Van Rhoom also points to cyber crime as a growing risk for the segment.
“Cyber crime is a growing concern for all businesses and the general community, but keep in mind that not-for-profits generally hold an enormous amount of sensitive information belonging to third parties – not least of which relates to the people who donate to them,” he says.
“There are lots of not-for-profit organisations carrying extremely sensitive personal information. Imagine the consequences if that information was hacked. The potential loss of trust and reputational risk for an organisation are immense.”
Community Underwriting’s Berwick says another looming risk for some not-for-profits is the National Disability Insurance Scheme (NDIS).
“The NDIS is one of the biggest challenges for our disability services clients. Client directed care has really turned the business of many not-for-profits on their head,” he says.
“And let’s not forget the Federal Government’s Royal Commission into Institutional Responses to Child Sexual Abuse. Each State and Territory Government is taking a slightly different approach, but the potential to remove the need to defend an organisation through non-delegable duty of care could see insurers cease to be able to provide certain types of cover to organisations working with vulnerable people.”
For Acacia Insurance’s Van Rhoon, it all comes down to knowing your clients.
“If you have general clients, you ask the same questions,” he explains. “It comes back to the relationship that a broker builds with their clients and the extent to which they seek to understand who the not-for-profit is, what they do and how they conduct themselves. If you build that knowledge and have a depth of understanding, you’ll be in the best position to talk to them about the cover they need.”