5 things NGOs should know about insurance

Last year’s Ebola outbreak and the targeting of aid workers by militant groups such as Islamic State in Syria and Boko Haram in Nigeria sent ripples through the insurance market for nongovernmental organizations. As risks increased, certain forms of coverage became more expensive, while others — evacuation from some Ebola-affected countries, for example — became near-impossible to honor from a practical perspective. The problems were more acute for smaller NGOs, although one large charity also told Devex that it had become “virtually uninsurable.” Fortunately, most NGOs continue to be able to tap insurance comfortably. And because of softness in the overall insurance market, premiums for organizations whose workers are not considered at high risk of terrorist attack or Ebola infection are currently relatively low. Important lessons have been learned though, especially for smaller NGOs and charities that lack the buying power to negotiate the best terms from insurers — and sometimes the financial skill set to navigate the market. Here are five lessons gleaned from our conversations. 1. Ask an expert. Stick to insurers and brokers with specific experience in working with NGOs and the often higher-risk markets they operate in, advised Sergio Sanchez, senior director of marketing at Clements Worldwide, which specializes in covering expatriates from multinational organizations and has been operating in high-risk countries since 1947. “You hear a lot in the press about underwriters or insurers not even wanting to touch certain markets, but those are people [who] don’t know anything about high-risk countries and are not specialized in providing coverage to clients in markets outside of the first world countries,” he said. If an NGO comes to a specialist insurer with a specific need, “there’s always a way to do it.” 2. Read the small print. Smaller NGOs often make the mistake of opting for standard corporate insurance products, said Simon Ball, practice leader for global benefits at broker Aon Hewitt. They then find that their policy has exclusions that make it unsuitable for their activities — for example, barring coverage for travel to any country that the U.K. Foreign and Commonwealth Office has recommended against visiting. It may sound obvious to some, but these mistakes could be averted by paying closer attention to the small print. “A big problem is that [some NGOs] tend to look at what the vanilla face of the product says it delivers, without looking at the terms and conditions that sit behind it,” he said. “I’ve seen some inappropriate policies being purchased by the marketplace, because they’re buying on headline rather than on detail.” 3. Be transparent. Some NGOs approach insurers and brokers with trepidation, wary of volunteering information that is not directly requested for fear that it will push up their premiums. In fact, the opposite is true, Sanchez said. The less information insurers have, the higher the premium they will typically charge. “If a client decides to operate in a market where there may be some epidemic concerns, such as in the case of Ebola countries, the level and depth of information provided to underwriters is crucial,” he said. “The more we work with clients, the better off the client is.” If specialists like Clements have enough information about a client’s risks and requirements, they can also help them fine-tune their operations and contingency plans in a way that will reduce their insurance costs. Such companies can make suggestions — for example in terms of where to locate their headquarters or route their personnel — that can bring premiums down significantly, Sanchez said. NGOs should stay in regular contact with their insurer and their broker to ensure their needs are met and that all three parties get the fairest deal, agreed Bertil Postema, international insurance adviser at Médecins Sans Frontières, adding that the insurance companies the organization works with are typically “very responsive.” 4. Seek strength in numbers. One challenge that some larger NGOs face when sourcing insurance is that their operations are disjointed, Ball said. If, for example, an organization raises money in a number of localities, how that money is spent is also often managed locally, and there isn’t enough coordination between these branches in how they procure insurance. As well as preventing them from enjoying the lower insurance costs associated with scale, another result is that “you can have people on assignment in the same place, all with different coverage,” Ball noted. Aon Hewitt is currently working on an “umbrella” insurance product that smaller units of a big NGO — or even individual small NGOs — will be able to join to take advantage of their joint purchasing power and to access standardized coverage that has been developed with the requirements of NGOs in mind. The product, which it expects to launch this spring, will allow organizations a greater breadth of coverage, for example by combining health and disability in one policy, Ball said. It will also encompass terminology that Aon Hewitt has developed to help overcome a mismatch between the relatively low salary that professionals like doctors often receive from NGOs — and are therefore insured for — with the much higher pay that they could actually command in the private sector. 5. Consider self-insurance. Another option for NGOs that find that insurance remains difficult to access — or more expensive than they would like — is self-insurance. Under this model, an NGO undertakes a set of complex equations to calculate the probability of a certain event occurring, how big a loss this would likely entail and how much money it would need to cover that possible future loss. It sets up a fund into which it pays that money, rather like an insurance premium. The fund then pays out, as an insurer would, if the event occurs and a “claim” is made. MSF is one organization that late last year considered self-insurance, Devex has learned, after it determined that this could work out cheaper than using an insurer. Eventually, however, its insurer kept the business by tabling a better offer. “We did a recalculation of our premiums and our average claims and we presented them to the insurers” along with a comparison of how much self-insurance might cost, Postema said. “They were able to lower the premiums.” Big organizations like MSF do of course have more clout when negotiating with insurers than smaller NGOs. Self-insurance can also involve expenses that are difficult to justify on a smaller scale. In addition, it requires a level of financial expertise that many organizations don’t have, Ball noted. “You have to build a trust, you have to have trustees, you have to have trustee meetings, you have to produce a lot of materials that employees need to read in terms of what that trust is there to do and deliver,” he noted. “It’s not impossible, but it does have running costs associated with it.” What other insurance procurement tips do NGOs need to know? Have your say by leaving a comment below. Read more international development news online, and subscribe to The Development Newswire to receive the latest from the world’s leading donors and decision-makers — emailed to you FREE every business day.