New normal realities: (part 2)
Our Roundtable Panel
• (Co-moderator) Peter Persuitti, Managing Director, Global Religious Practice, Arthur J. Gallagher Risk Management Services
• Dana Crowl, Senior Area Vice President — Program Manager, Arthur J. Gallagher Risk Management Services
• Stephen Drachler, PR and Crisis Communications Professional, Drachler and Associates
• Rod Flanders, Director — Agency Division, Church Mutual
• Pat Moreland, Vice President — Marketing, Church Mutual
• Eric Spacek, JD, ARM, Risk Management & Loss Control Senior Manager, GuideOne Insurance
• Cheryl Tamasitis, AVP, Commercial Lines Underwriting, Philadelphia Insurance Companies
• Karl Williams, Business Development Specialist, GuideOne Insurance
• Shawn Yingling, President, Glatfelter Religious Practice
On July 13 in Charlotte, NC, Church Executive and Arthur J. Gallagher & Co. and its Religious Practice leader, Peter Persuitti, hosted an in-depth roundtable discussion on the “new normal” priorities and challenges facing church leaders.
It took place at the National Association of Church Business Administration (NACBA) annual conference. Several high-level executives representing the most recognizable names in church risk management and insurance were on hand to share their insights.
The highlights and takeaways are being published as a two-part series — part 2 in this issue of Church Executive, and part 1 in our previous issue: Aug/Sept 2013. In part 1, the panelists outlined the pre- and post-recession climates in their areas of expertise. In part 2, they drill down on strategies for overcoming new normal obstacles.
In part 1, security, transportation and cyber risk were cited as emerging areas of concern. Are churches ramping up on certain kinds of insurance coverage in response?
Dana Crowl: Making sure the right coverage is in place regarding pastoral counseling and molestation is critical. Churches have to be careful and make sure they’re adequately covered in that realm.
Peter Persuitti: It’s tough to know what it means to be adequately covered. Sometimes, limits are targets. There are jurisdictional differences.
Shawn Yingling: We’re seeing an increased interest in umbrella and excess liability coverages carried by our church clients. With the security, transportation and other issues mentioned, many church decision-makers are ramping up limits to adequately address the exposures their operations present. This is being done to minimize the possible financial uncertainty that might arise from a claim against the church that extends beyond primary insurance limits carried.
Pat Moreland: Employment practices liability (EPL) coverage is also becoming very common.
Peter Persuitti: You raise a good point, Pat. That’s clearly an emerging area of focus for churches, given the loss development and trending. How does everyone else feel about that?
Eric Spacek: In the church world, where there are certain legal protections in the sense of civil rights laws — the ministerial exception, for example — EPL is definitely an up-and-coming challenge. Even if there’s ultimately no liability, there are defense costs to consider. So, we need to have more discussions with churches about the need for EPL coverage. Many of them have very small staffs. Or, even if they do have a lot of employees, they think an employment-related claim will never be leveled at them.
Peter Persuitti: So, are churches paying closer attention to the value of job descriptions, then?
Eric Spacek: We’re really encouraging them to have those practices in place, from application, to job description, to employee handbook. It’s amazing how many churches still don’t have one of those.
Peter Persuitti: And what changes are you all seeing on the property coverage side, in this regard?
Cheryl Tamasitis: Churches are placing more of an emphasis on making sure their limits are high enough. After Hurricane Sandy, they’re asking, Do we have flood insurance? Do we need it? What is — and isn’t — flood insurance? That’s because Sandy struck areas that weren’t considered flood areas.
Peter Persuitti: Does anybody want to talk about worker’s compensation? Volunteers — are they covered? There seems to be increased costs on your balance sheets. Are you in any way kind of pulling back, or trying to restrict coverage?
Pat Moreland: We’re certainly not restricting coverage. We can’t do that; it’s the states that set workers’ compensation coverages. And, we are actively pursuing worker’s compensation insurance.
Peter Persuitti: What about missions trip coverage?
Dana Crowl: Because I work a lot on the international >> side, what I see is that if there’s some international exposure, a lot of the worker’s compensation standalone carriers will back away from it and not write it. That’s been a challenge because a lot of the groups I work with have heavy international exposure. Even if the international exposure is being covered in another way, there’s still a sense of, We don’t want any part of that. So, it has been a challenge to find missions trip coverage for many of the groups I work with. And if we do find it, it’s very limited.
To ensure adequate, relevant coverage, how often (or under what circumstances) do you recommend church leaders revisit their insurance policies?
Shawn Yingling: At a minimum, reviewing your church insurance program on an annual basis makes sense. If a church is under construction, taking on additional operations, or is just uncertain if their insurance program adequately addresses their exposures, more frequent reviews certainly might be in order. If it’s a mega-church, a religious organization with multi-state operations, a church involved in a merger with another congregation or some other form of major change, more frequent review of insurance coverage is justified.
Eric Spacek: I agree: At least annually, churches should review their policies with their agents. They should also do so if certain circumstances come up during the year — the purchase of a building, a renovation and so on.
Peter Persuitti: Aside from updating the information on their policies, what’s the point of revisiting those policies? Is it just to align their exposures with their coverage?
Eric Spacek: Yes, absolutely. To make sure we’re meeting all the customer’s needs.
Peter Persuitti: Do you get a lot of ad hoc requests for enhancements, then?
Eric Spacek: I wouldn’t say “a lot,” but it’s definitely part of the conversation churches have with their agents.
Stephen Drachler: From an administrative perspective, I think reviewing your coverage is something that has to be built-in. Large churches in particular should have that on their checklist. Churches need to check and see where they’re at, and if anything has changed.
Rod Flanders: Every organization should at least do an annual review. They should have a risk management plan in place, whether the church is large or small.
I also think it’s important to get advice — probably from an agent or a consultant that can look at the church’s risk management plan and review its exposures. Annually, they should be looking at their exposures and seeing where they have gaps.
Pat Moreland: An annual review is fine. But, I wouldn’t recommend that a church go out and get quotes on its insurance every year; I’d suggest doing that every three years.
We often see churches acquire (or get rid of) a building or an auto, and nobody thinks to call the insurance company. That should be done at the time of transaction. Failing that, at minimum, a church should be looking at its schedule of vehicles every year and saying, “Oh, we don’t own that one anymore!”
Karl Williams: Insurance is a relationship business. If, for example, a church decides to start a daycare or put on an addition, it’s important that the insurance agent knows about it. That way, the church knows it has those exposures taken care of. It’s critical that a church regards its insurance agent as someone it depends on.
Peter Persuitti: So, are you saying an agent needs to act as a trusted advisor and be an advocate for revisiting the church’s policy?
Karl Williams: Yes. It’s important from a company standpoint, and also from a client standpoint.
Dana Crowl: We communicate at the time of renewal, and thereafter, that any changes made need to be communicated to us. I feel like most of the churches I work with do a really nice job of this.
Cheryl Tamasitis: We recommend an annual review of insurance policies for continuity of coverage. This is typically adequate to cover something that has developed in the church. Or, perhaps we’re not giving the church some area of coverage it really needs, but we can now.
Beyond insurance coverage, what proactive steps are church leaders taking (or should they be taking) to address pressing risk management concerns?
Eric Spacek: We talk about establishing risk management as a ministry in the church, populated by people with relevant backgrounds, and then systematically approaching the risks. Using a basic scoring model, we categorize priorities in terms of six categories of risk churches face, from emergencies all the way down to transportation.
We advise: “Look at the risk’s likelihood, its magnitude, how much warning you get, and its impact on ministry.” Then, risk management teams can focus their efforts accordingly.
Stephen Drachler: The court of law and the court of public opinion are linked. So, training and preparing people to deal with the media should be an integral part of any risk management policy.
I help churches develop a communications plan that sets policies for who speaks for the church, and how he or she will deal with the media. I call it “building fences.” While there are some things you just don’t talk about publicly — personnel items — I have a pin that reads, “Never say ‘No comment.’” When you do that, the public perceives you’re guilty or hiding something, even though we know that’s not always the case.
Building these communications procedures equips a church to tell the good stories, too. It builds relationships with various audiences and establishes credibility. So, when it has a wonderful story to tell about changing people’s lives, the processes are in place to communicate that.
Rod Flanders: In terms of your risk management plan, I think it’s important that every church, of every size, has a responsible party — someone in the organization who understands it’s his or her responsibility to help manage the ministry’s exposures. It’s always a good idea to seek competent advice from an agent, broker or consultant in developing the plan — someone knowledgeable and competent, with the right credentials.
I also think it’s important to periodically enlist a second set of eyes. A church needs a trusted advisor who makes sure every liability is covered, whether it’s the rare, but horrible event or a more common, everyday exposure.
Pat Moreland: One risk management issue that hasn’t been raised is insurance-to-value discrepancies. It’s very common to find religious facilities that are underinsured, and it’s very difficult for some church leaders to understand how. They often refer to market value, and this mind-set has become more problematic since the economy tanked five or so years ago. Church leaders see values plummeting, and yet insurance companies want to raise their amount of insurance. But, the two factors
are unrelated. It’s important that churches establish the correct replacement value for their facilities and insure them accordingly.
How has your underwriting and pricing/rating of church risks and exposures changed over the past five years?
Cheryl Tamasitis: We try to keep pricing consistent. Reinsurance costs have gone up in certain pockets, but we try to keep it consistent because we want long-term customers.
It doesn’t make sense for churches to shop for insurance, based on price, every year. These same churches are the ones cutting their buildings’ value in half because they see it as a cost savings. It’s important to partner with the right agents and brokers, who understand the business so a church can keep that level pricing intact.
We’ve been insuring churches for about eight years; so, because we’re the “new kid,” we’ve done pricing/rating reviews. While some might think our price is impossibly low, we’ve been boringly consistent [with pricing] over the past eight years. There has definitely been some elevation, though. You learn more as the losses come in.
Peter Persuitti: Are there other elements of underwriting you all want to share? It’s a big issue. Are there pressures to increase rates?
Karl Williams: From GuideOne’s standpoint, we need to be competitive. This is our market; this is where we’re at.
We also feel that the church should be priced adequately for the exposures they represent. That’s what we pursue — the risks that are there. We don’t say, “OK, you’ve got this risk, and the dollar amount for that is X”; we examine risk exposures on the whole. We’ve found that to be a way for us to be competitive and to have our product priced correctly.
Pat Moreland: Readers should understand that we’re in a very volatile industry. We’re subject to the weather, and what we do is heavily property-driven. In 2011, there probably weren’t many companies sitting at this table that finished in the black. In 2012, most of them probably did. We’ll see how 2013 shakes out. So, we don’t price for one year. I don’t think any company can do that, or their rates would be all over the place.
Rod Flanders: Everybody in this room understands the volatility, but it’s not obvious to the people reading this article. Church leaders look at short-term, minor variations in what we’re all charging to bring our products to the table. But, I don’t think the average church executive gets that, in this business, pricing isn’t that precise.
For example, if you’re cranking out cars in Detroit and you’re making little pieces that go in them, you might be able to figure out your costs down to a fraction of a penny, for an extended period of time. In our business, it’s not nearly that precise. That’s often why we can all come to the table, look at the same set of exposures, and we won’t know our costs for some time into the future.
Pat Moreland: That’s a great point. We’re pricing based on what we think might happen, not on what a
church has built.
Shawn Yingling: On the Underwriting side, a change we’ve seen is the use of additional years of loss experience when reviewing new church submissions to get a feel for the frequency and severity of both property and liability claims that the religious organization has experienced and, more importantly, how the disposition of those claims ended up. This gives the underwriter a wider view of how the church or religious organization performed from a loss standpoint and the ability to recommend certain practices, coverages or retention to manage that risk.
Additionally, we’ve seen that there’s less lead time in underwriting to review a new church account submission, combined with the expectation of a superfast turnaround from the submitting agent. This can be managed; however, it’s widely dependent on the depth and quality of the information provided by the agent.
On the pricing side, companies continue to use modeling of property in coastal areas to bridge the gap between technical claims data and underwriter assumptions regarding potential property losses of a particular church and the suggested premium to be offered.
Peter Persuitti: Any thoughts on how a church can build a culture of risk management?
Eric Spacek: There has to be that driving force, point person or team behind it.
Cheryl Tamasitis: Absolutely. You need someone who’ll consistently be there. But, people also need to view their churches more like second homes. They should be more cognizant of something like a spot of torn carpet, thinking, “It’s my obligation to make sure that’s fixed.”
Shawn Yingling: I agree. There needs to be a buy-in from the top leaders and management of the church that practicing well thought-out risk management and safety procedures within their congregation will benefit them directly — not only in the form of stable premiums being charged by the insurers taking the risk, but, in addition, reducing indirect losses associated with a claim such as loss of productivity and repositioning of resources.
Peter Persuitti: It’s interesting that no one mentioned the word “stewardship,” but that’s really what it’s all
about — making what we’ve been given even better for the next generation.
Eric Spacek: Even beyond that, when we talk about risk management as a ministry, it’s shepherding. It’s about expressing love for one another in the congregation.
An employee benefits/HR perspective
Sitting in on the roundtable discussion was Philip C. Bushnell, area executive vice president and managing director of the religious practice at a division of Arthur J. Gallagher & Co., Gallagher Benefit Services.
For his part, Bushnell contends that many of the questions posed are equally applicable to the employee benefits and human resources aspects of his company’s offerings.
Which aspects of employee benefits and human resources have seen increased interest and adoption by church leaders in recent years?
Phillip C. Bushnell: Because of the legislative actions I referenced in part 1 — the Affordable Care Act, or ACA, as well as the its preventive benefits provisions (such as the HHS contraceptive mandates), plus the recent Supreme Court decision on DOMA — employee benefit programs for church plans with more than 50 full-time equivalent employees need to be able to better manage the information relative to their workforces.
Although recently delayed until 2015, the ACA requires that employers with more than 50 full-time equivalent employees (working 30 hours per week) make health insurance available or pay a penalty. As such, many employers need to revisit their eligibility.
Another element of the ACA to pay attention to is the reporting requirements. Churches will need to beef up their HRIS and payroll systems to provide the Federal Government with data on all employees (full- and part-time), including hours worked, salary, benefits offered, and rates for the benefits offered — including employer and employee contribution levels. With regard to DOMA, how to accommodate same-sex spouses under employee benefit and pension plans will need to be addressed.
How often (and/or under what circumstances) do you recommend that church leaders revisit their employee benefits and human resources policies?
Phillip C. Bushnell: Because of the continual change in regulatory requirements, we recommend that church leaders engage in ongoing health care reform planning, modeling and financial analysis on a quarterly basis. With regard to plan design, use and pricing, an annual review is recommended.
What proactive steps are church leaders taking (or should they take) to address their most pressing employee benefits and human resources concerns?
Phillip C. Bushnell: The need to audit HRIS, payroll and benefit administration systems to confirm their ability to manage the new tasks required by the Affordable Care Act. They need to use financial modeling tools to assist in identifying the financial impact of reform (cost to offer coverage to additional people, cost of fines and penalties, cost of additional fees for HCR). They must also audit HR and benefit plan compliance with Federal and State regulations, as non-compliance will prove to be very expensive.
How has the underwriting and pricing/rating of employee benefits changed over the past five years?
Phillip C. Bushnell: Health insurance companies have had to adjust underwriting practices and pricing to allow for additional costs for: the elimination of lifetime limits; the elimination of preexisting conditions; the coverage of dependent children up to age 26; the addition of preventive benefits at 100 percent, including contraceptives and coverage for clinical trials; and the addition of various fees required to pay for health care reform. These adjustments to underwriting practices have resulted in an increase in premiums over and above what they might have been otherwise.