We know that reducing expenses is high on the list of priorities for charities wherever possible, especially with rising costs and pressure on income. It can be tempting to maximise savings by choosing the cheapest cover available. Although it’s always sensible to look to reduce costs, there are certain issues organisations need to be particularly mindful of when considering where to focus their efforts in this area.
Insurance is necessary to help to protect charities against unexpected impacts to their operation, so cutting corners here can be dangerous.
With this in mind, here are five common misconceptions among charities about insurance.
1. Thinking you don’t need expert help
The Association of British Insurers, which represents insurance companies, says consulting experts is the most important piece of advice it would give charities. Brokers can save time and money.
An ABI spokesperson said: “An insurance broker can help assess the risks you face that could cause you financial loss, such as burglary, fire and flood, as well as any compulsory insurances, such as motor insurance if any workers use their vehicles in connection with the charity, that you may need.”
Better cover needn’t be more expensive, and an insurance broker may well be able to find a specific package of covers which match your needs, rather than something more generic which may be more expensive and may not have the specialist covers your organisation requires.
2. Leaving everything to your broker
Once you’ve found a broker, don’t leave them to it without direction. Ensure they are working hard for you by being extremely clear about your needs. Every charity has specific insurance requirements that can be built into their policies, based on a close relationship between organisation and broker.
Some larger charities have a dedicated internal insurance expert who works with the charity’s broker to ensure it has the appropriate level of cover, meeting both its statutory requirements and its broader risk appetite. These charities routinely review their policies and regularly ‘go out to market’ to tender their insurance requirements with the help of their brokers, to ensure they’re getting value for money.
Rohan McMillan, head of risk and assurance at the British Heart Foundation, says: “Having a good working relationship with your broker is vital, not only in negotiating the best rates but also in having someone who understands your business and can advise on your evolving requirements on a day-to-day basis, much like a business partner. Similarly, the relationship you establish with your insurance provider is important, particularly in terms of claims handling, as this can become an administrative burden and a costly process to manage if not delivered effectively.”
3. Assuming you understand what’s covered
Insurance can help protect charities against everyday risks, but there are many different types of cover, and the terms can vary. Some policies protect against specific threats, such as business interruption or an error and omission by your board of trustees. Cover can protect against unforeseen incidents and help to get your organisation back up and running again quickly. It also provides credibility by demonstrating to stakeholders and potential employees that you are trustworthy.
Yet charities aren’t always aware all of the covers they might require or the terms which might apply to these covers, and this can lead to unpleasant surprises when they need to call on them. While the insurance industry is working to make product documentation clearer and easier to understand, the use of an insurance broker can really help reduce the risks and ensure the right protection is in place, should the worst happen.
4. Underestimating the value of cyber insurance
Although some insurance products now offer a level of cyber cover as standard, it is important that charities do not assume that this is the end of the story. Often such cover can have relatively small inner limits, which can be insufficient to cover the impact of an average cyber incident or the cost of asking a cyber security consultant to assist.
In addition, all too often, the cover does not include cybercrime itself, which many organisations often assume would be standard when selecting such cover.
A specialist cyber policy, either as part of an existing insurance product or standalone, will offer broader cover and assistance. This can include areas such as costs and expert support to investigate and resolve a data breach, costs to clean a system and restore data after a ransomware attack, as well as cyber-attack management, should illegal access to systems occur.
It’s tempting for charities – especially smaller ones – to underestimate the risk cyber poses and overestimate the extent of their protection, so it is important to understand the cover in place and ask your broker if you are unsure.
5. Not reviewing policies
Assuming that once cover is in place you no longer need to think about it is a common mistake. Policies need to be reviewed. Just as charities constantly evolve, so too must their policies adapt to their ever-changing needs. Keep in regular contact with your broker whenever something changes. Having a good broker and an insurer who understands this is extremely important.