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8TH ANNUAL NONPROFIT INSTITUTE

Leslie T. WhiteCPCU, CIC, ARM, CRM

Croydon Consulting, LLC

Risk Analysis for the NonprofitMay 18, 2010

LEARNING OBJECTIVES

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INNOVATION REQUIRES RISK TAKING. TAKING RISKS REQUIRES INFORMED, FACT-BASED DECISION MAKING.

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RISK MANAGEMENT

A discipline for dealing with the possibility that some future event may cause unexpected results

Dealing with uncertainty . . .

DEALING WITH UNCERTAINTY . . .

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RISK MANAGEMENT PROCESS

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Identify risks

Evaluate & prioritize risks

Select risk management techniques

Implement techniques

Monitor & improve the program

RISK APPETITE

5 – High – accepts opportunities with inherent high risk

4 – Moderate – willing to accept risks 3 – Modest – Willing to accept some

risks in certain circumstances 2 – Low – Not willing to accept risks in

most circumstances 1 – Zero – Not willing to accept risks

under any circumstances

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RISK IDENTIFICATION

Identifying potential events that if it occurs will affect organization

Event is an incident or occurrence stemming from internal or external sources

Outcome can be positive, negative or both

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RISK IDENTIFICATION PROCESS

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“What could go wrong?”

• People• Property• Income• Goodwill

Nonprofit Assets Dimensions of Risk

• Operational• Legal• Political• Financial & market

RISK IDENTIFICATION TECHNIQUES Survey or questionnaire Financial statements Records & files Flowchart Personal inspection Experts – Internal & external Loss experience Other nonprofits

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RISK EVALUATION

Frequency Likelihood of event occurring

(frequency)

SeverityPotential financial & operational

impact

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PROUTY APPROACH

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FrequencyAlmost

Nil

Slight

Moderate

Definite

Slight Significant

Severe

Severity

RISK MANAGEMENT PROCESS

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3. Select and implement risk management techniques

“What will we do?”

RISK CONTROL TECHNIQUES

Avoidance Loss Prevention - reduce likelihood Loss Reduction - reduce size of loss Segregation

Separation Duplication

Contractual transfer Legal & financial

RISK FINANCING TECHNIQUES

Retention

Transfer

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TRANSFER/SHARING

• Contractual transfer

• Indemnification Agreement

• Hold Harmless

• Financial transfer

• Insurance

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CONTRACT REVIEW PROCESS

Someone not involved in the negotiations

An attorney An insurance professional

Before the contract is signed, it should be reviewed by:

INSURANCE REVIEW – WHY?

Transfers liability Indemnification provisions Hold harmless agreement Liability limitation & exculpatory provisions Waiver of subrogation

Insurance requirements

These provisions can be in any part of the contract.

INDEMNIFICATION

Indemnitee - Receives payment or protection from another

Indemnitor - Agrees to pay another

INDEMNIFICATION AGREEMENTS

Limited Intermediate Broad

Many states limit or prohibit Many insurance policies won’t

cover

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INDEMNIFICATION WARNINGS

An indemnification or hold harmless agreement is only as good as the ability of the other party to pay

If you are indemnitee, at fault and the other party cannot pay, you are still responsible for your negligent actions

“Secure” all indemnification provisions with insurance

CONTRACTUAL LIABILITY INSURANCE

Only available under general liability policy An exception to an exclusion Must be an “insured contract” Only applies to “bodily injury” & “property

damage”, NOT all losses Loss occurs after agreement reached Attorney fees & litigation expenses

considered damages unless indemnitee agrees to several conditions.

“INSURED CONTRACT”

Lease of premises Sidetrack agreement Any easement or license agreement Ordinance obligation to indemnify a

municipality, except in connection with work of a municipality

An elevator maintenance agreement And . . .

“INSURED CONTRACT”

When you assume the tort liability of another to pay for “bodily injury” or “property damage” to a third person or organization.

Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.

LIABILITY TRANSFER GOALS

Accept no more risk than can reasonably insure or finance

Transfer the balance of risk to another party

Use to insulate organization’s insurance & risk retention program

Does not replace insurance

GUIDELINES

Avoid assuming liability for sole negligence, willful acts, or punitive damages and fines

Avoid liability for “any and all loss” Limit property damage to “tangible”

property Ensure liability meets definition of

“occurrence”

INSURANCE REQUIREMENTS ISSUES

Use antiquated insurance coverage terms Comprehensive general liability Public liability All-risks Extended coverage Water damage liability Personal injury Contractual liability (to insure the agreement) Independent contractors coverage Policy limits – per accident, per person

INSURANCE REQUIREMENTS ISSUES

Requires coverages not really needed Insurer must notify indemnitee if any

“material changes”, cancellation or non-renewal (no insurer will do this)

Insurers must be acceptable to indemnitee

Request to be added as a named insured or additional named insured

Waiver of subrogation

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COMMERCIAL GENERAL LIABILITY

Coverages• Bodily Injury & Property Damage

• Personal & Advertising Injury

• Medical Payments

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SPECIAL EVENTS INSURANCE

•Commercial General Liability

•Hired & Nonowned Auto LiabilityEVENT CANCELLATION• Lost revenues• Lost expenses

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BUSINESS AUTO LIABILITY

Liability• Bodily Injury & Property Damage

• Owned Vehicles

• Nonowned & Hired Autos

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DIRECTORS & OFFICERS LIABILITY“Wrongful Acts” • Directors, Officers, Trustees

• Employees, volunteers

Personal Injury & Publishers Liability

Employment Practices Liability

•Wrongful Termination

• Sexual Harassment

• Discrimination

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WORKERS COMPENSATION

Statutory Benefits Medical v. Indemnity Independent Contractor v.

Employee Employer’s Liability

“Arising out of and in the course of employment”

Employee suits

May or may not cover volunteers

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OTHER LIABILITY POLICIES

Umbrella/Excess Liability Professional Liability Employee Benefits Liability International Liability Pollution Liability Publishers or Media Liability Fiduciary Liability Electronic Liability

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VOLUNTEER ACCIDENT POLICY

Accidental bodily injury (Not illness or liability) Accidental Death, Dismemberment & Loss of

Sight Medical Expenses

Low limits Excess over personal health insurance

(usually) Check exclusions – sports participant/team

member, aircraft, etc.

RISK MANAGEMENT PROCESS

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4. Monitor and update the program

• Compare actual to expected results

• Any new programs, activities or risks?

• Changes in mission or strategy?

CROYDON CONSULTING, LLC

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Leslie T. White, CPCU, CIC, ARM, CRM

P. O. Box 1414

Severna Park, MD 21146-8414

410-544-0913 Fax 410-544-9913

Email: Lwhite@croydonconsult.com

www.croydonconsult.com

Twitter: @Ltwhite