United Way Tackles Insurance Problems

More than a fifth of United Way’s 350 community service agencies in the Los Angeles area had their liability insurance either canceled or unrenewed last year, according to the fund-raising association. Several groups, unable to afford coverage, were forced to close their doors.

According to a survey, conducted by Tillingham Consultants for United Way, sharply higher insurance premiums for the remaining agencies siphoned off dollars needed to carry out programs ranging from housing the homeless to caring for children of low-income parents.

Over the last four years, premiums for directors and officers insurance increased far more rapidly than did the agencies’ budgets. In 1983, for example, budgets increased 12.3% while insurance costs grew 50.1%, and in 1984, budgets grew 20.2% but premiums rose 79.7%. In 1985, a 23.2% budget increase was dwarfed by a 113.4% increase in premiums. While there was some improvement last year, premium costs still outstripped budget growth--a 10.8% increase in revenue, compared to a 50.5% increase in premiums.

Budget growth similarly failed to keep pace with the cost of general liability insurance and workers’ compensation coverage, the survey found.

To deal with the problem, United Way has decided to help its members form an insurance purchasing organization to be administered by a “master broker.” Bids for the job went out last week, said Gilbert Gould, risk manager for Southern California Edison and co-chairman of a United Way task force that looked into the insurance problem.

The master broker will design the coverage that the participating agencies need, working through the many local insurance agents who have traditionally represented the nonprofit groups.

“We’re not cutting out the role of the local agents,” Gould emphasized. “What we’re trying to do is to band a lot of these small agencies together to generate a sufficient premium to attract a major carrier at a national level.

“With the (insurance) market softening, we ought to be able to find carriers willing to underwrite the risk,” he said.

The service agencies represent good insurance risks, Gould said. But, because of their local nature, little comprehensive data exists to demonstrate that to insurance carriers. By forming a united front for insurance, he said, United Way will be able to collect that data and, over time, attract more insurance carriers to the field--and, with the competition, lower premiums.