When the leadership at Kent Island United Methodist Church in Chester, Maryland, acquired a trailer stocked with supplies to aid disaster relief, they saw another opportunity to minister to the masses.
What they didn’t see was another liability to add to the church’s insurance policy.
“We picked up a trailer for mission work—with tools and supplies to help with emergencies like tornadoes or floods—but it was about a year before I figured out that I hadn’t told the insurance company about the vehicle,” says church administrator Ken Brown. “Things can slip through the cracks.”
Forgotten vehicles, new employees, or even a new storage shed—these are all issues that demand vigilant evaluation, lest a mishap occur and a church realize it’s solely responsible for the expenses of replacement, liability, injuries, or worse.
“There is going to be a time when someone sues. It may not be someone out to shaft the church, but there may be a time when the church is really liable because someone falls in a pothole or a railing comes loose,” Brown adds.
A Good Time to Shop
Touching base with the church’s insurance agent a couple of times a year, or when something new happens, is important for staying on top of the church’s insurance needs, says Hugh White, vice president of sales and marketing for Fort Wayne, Indiana-based Brotherhood Mutual Insurance Company.
A struggling economy is another reason to review coverage.
“Almost all churches are struggling to make their budgets as offerings are down,” White says. “If premiums go up more than two to three percent (without adding a new building or ministry), they might want to get a competitive quote.”
How often church leaders review their insurance coverage varies by congregation; some rarely review it, while others do it every three years, says Patrick M. Moreland, vice president of marketing for Merrill, Wisconsin-based Church Mutual Insurance Company. He recommends reviewing coverage at least every three years.
While shopping, keep in mind that five church insurance providers combined serve more than half of the country’s churches: Brotherhood Mutual Insurance Company, Church Mutual, GuideOne Insurance, Philadelphia Insurance Companies, and Zurich American Insurance.
This is a great time for churches to shop around, says Brian Murray, commercial underwriting manager at GuideOne of West Des Moines, Iowa.
“The insurance industry is in a soft market, so many companies have lowered their premiums and may be offering more coverage than they have in the past,” Murray says. “Plus, as new exposures arise, companies develop new coverages to address them.”
Marisa Thornton, marketing manager for Philadelphia Insurance Companies in Philadelphia, agrees that carriers are willing to offer coverages at competitive prices, but notes that “more important than rate is coverage and long-term pricing stability.”
“Just like you ought to get a medical checkup regularly, you should get an annual insurance checkup to make sure that your insurance program is free of any looming dangers,” says Gloria Fisher, assistant vice president and account executive at EG Bowman Co., a New York-based insurance brokerage.
Fisher recommends routine appraisals every few years, especially if renovations or new construction have been added. She recommends insuring for 100 percent of the appraised value of the property but notes that if it puts a strain on the church’s budget, lowering to 90 percent is an option.
Another cost savings option is to increase the deductible, she says. That’s what Matthews United Methodist Church in Matthews, North Carolina, did to save on premium costs once its trustees determined the church could afford it, says Pamela Gillespie, the church’s administrator and treasurer.
“The savings are tremendous,” she says. “When it comes to insurance, we don’t go with least expensive. We go with the best quality for the money. We don’t look at insurance as one of the ways to save money.”
At Kent Island UMC, insurance rates increased significantly, prompting church leaders to look for a new carrier. They found coverage at prices that saved money, but had to shop around again when the youth minister wanted to start a skate park, Brown says.
“We checked with our carrier and they said they absolutely wouldn’t cover that, so we found another carrier that would cover it as well as everything else that we needed—and for a lower rate,” he says.
Gillespie says Matthews UMC conducts an annual review, re-examining coverage and keeping risk management policies updated. The church bids out coverage about every three to four years.
“We feel that insurance companies that focus on religious organizations have the best experience for our needs,” Gillespie says. “They must have an excellent A rating because we rely on their expertise. Customer service is also important. We want to meet with a local agent who comes in, reviews our policies, looks at our campus, and give us a bid in person.”
Different churches have different exposures, ranging from on-site schools to feeding the homeless, Fisher says.
Some broad, general insurance policies may not cover all services, such as on-site childcare or the use of the church building by other organizations for programs. Those require special coverage that many churches don’t take. Even hiring contractors requires making certain they have their own liability insurance, Fisher says.
Murray says each church should establish its ministry needs and the basic coverage priorities. What is most important? Is it:
- A local agent available to answer questions;
- Risk management/loss control services;
- Or quick claims settlement?
“I ask them ‘How is your relationship with your broker?’,” says Mark Russ, executive director of ministry services at Arthur J. Gallagher & Co. Risk Management Services, one of the country’s largest insurance brokers. “How well does the broker understand your ministry’s operations, procedures, and protocols yesterday, today and future planning? Reaching the seeker always puts the church in ‘exposure action mode.’ To best protect the church, it is critical that brokers and agents are proactive and creative in their approach of risk management.”
Russ advises church leaders to review what the broker submits to the carrier. Make certain it accurately represents the congregation and its exposure, he says. The most successful broker is more like a consultant than a vendor, Russ adds.
“We want to work hand in hand with the church to provide the greatest amount of protection to do the ministries of the church and not restrict them because we have an off-the-shelf product,” Russ says.
“We want to know about your payroll, your volunteers, and your attendees,” says Peter A. Persuitti, the managing director of the religious and nonprofit practice at Gallagher, which is based in Itasca, Illinois. According to Persuitti, brokers do a better job of evaluating what coverage churches need if they understand your mission and how you plan to carry it out.
Once church leaders identify exposures that potentially threaten their organization’s assets, they need to manage these exposures by:
- Risk avoidance and reduction. For instance, not allowing certain outside groups to use the premises, or creating an extensive emergency evacuation plan, which lowers risk by informing all occupants on how to make a safe, swift exit from the premises.
- Risk retention, which is self-funding certain types and amounts of risk, such as the selection of a $5,000 property deductible rather than the standard $500 deductible.
- Risk transfer, which shifts risk away from the organization and onto others. For example, a church can require an independent school that uses its facilities to provide its own liability coverage and a hold harmless agreement to protect the church from incurring liability from the school. Insurance itself is also a form of risk transfer.
Murray explains how these risk strategies protect the church: If a church owns a 15-passenger van, it needs to purchase insurance to meet state requirements. The church also could purchase a higher deductible for physical damage and retain some of the exposure to the risk. Finally, it could implement risk management techniques through the proper selection and training of drivers to operate the van, he adds.
A handful of carriers have package policies (property and liability) that cater to the specific needs of churches, although some churches may not need all of the bells and whistles these policies contain, Murray says. At the same time, the church needs to understand the financial challenges it may face by selecting higher deductibles, going without certain coverage, or opting for less service.
Kent Island UMC keeps a full range of insurance on its two parsonages, its 10 acres of property, and its church building, Brown says.
“We have bonded our money counters and financial people and have workers’ comp and two vehicles that are insured, so we have a lot of different policies with this one company, and we’re paying fewer dollars now than we were six years ago,” he says.
To ensure your church is adequately insured, Thornton with Philadelphia Insurance recommends selecting an agent and carrier that are at the forefront of product innovation. Laws change, forms evolve, and new areas of liability develop over time, she says.
“Cyber liability is a new industry buzz word and an example of a new exposure,” Thornton says. “In general, the carriers that specialize in the church niche are well aware of the many different exposures and church-sponsored events that take place day in and day out.”
The price of insurance shouldn’t be the main factor in determining what products or limits an organization needs, Russ says. For instance, one congregation he advised was bringing in $600,000 weekly, but its insurance limits on sexual misconduct were only $250,000.
“You have to increase that limit; otherwise the church will be brought to its knees” by a potential misconduct claim, Russ says.
One big challenge for many churches: not enough coverage for property. If a building was built 20 years ago, it may be insured at that cost, although the replacement cost today is significantly higher than what it cost to build it, says Joseph C. Weaver, senior account manager for Zurich American Insurance Company in Schaumburg, Illinois.
That is one big mistake churches tend to make, White from Brotherhood Mutual adds. “They tend to let their buildings and personal property limits lag behind the values without increasing them adequately to grow with inflation; particularly contents like a grand piano or new tables and chairs or expensive sound equipment. If they fail to report the new equipment and personal property that enhances their ministry, they could find themselves underinsured should there be a fire or tornado.”
Comparing the current policy to the church property may turn up vehicles or buildings not listed, or listed at inappropriate values, he says.
What Should I Know?
“Most church people never learn enough to really understand (insurance). The best thing is to find an agent they trust, who will serve like a volunteer as an insurance and risk management specialist,” White says.
Churches should consider a commercial package policy that will provide coverage for property, liability, crime, equipment breakdown, and business automobile, Fisher says. The church also will need workers’ compensation coverage for its employees. A commercial package policy doesn’t have to contain all of the coverages mentioned, but depends on the insured’s operation and its exposure. The cost of a package (fire and liability, in particular) is usually more cost effective for the insured than if written separately, Fisher adds.
Ask questions about what is and isn’t covered, Moreland says. For instance, many policies don’t cover damages to a building’s carpeting, walls, files, and furniture when heavy rains cause a sewer backup.
Some churches have cut paid employees, opting to rely more on volunteers. There are a number of insurance concerns, ranging from injuries to volunteers as they serve to the potential abuse of a child by a volunteer, Weaver says.
He adds that some churches may want to offer workers’ comp for volunteers engaged in activities on behalf of the church. An accident, workers’ comp, or general liability suit could be devastating for a church without coverage, he says. Background checks on employees and volunteers who work with the children can be a key element in coverage.
“You have exposure on your auto policy, too, for volunteers driving,” Weaver says. “Make sure volunteers have personal insurance with appropriate limits and that they are safe drivers. Background checks for people driving on church business is crucial.”
Develop a Checklist
“Most churches don’t have a checklist. Small churches struggle because their only professional staff may be the pastor. At seminary, we don’t get trained in these issues. Often, there is nobody to check up on these things,” Brown says. “We created our own checklist so we don’t miss anything”.
Many churches don’t have a complete list of all of their ministries, and leaders may not realize every activity their churches engage in, Weaver says. “It is hard to communicate that to your insurance broker or company if you don’t have that detailed information available. In dynamic churches, things are happening almost spontaneously. Some are building skate parks, water parks, and camps,” he says. “They no longer sleep in a tent, put a marshmallow on a stick and sing songs. Now, they have high-rope courses, wall climbing, archery—you name it—to make it engaging, and all of those things scare underwriters.”
When it comes to evaluating the amount of insurance Matthews UMC has, Gillespie says the trustees and staff rely largely on their agent’s expertise and their own checklist.
“We’re actually in the process of updating that checklist now,” she says.
The time to think about specialized coverage is not when you realize that your church doesn’t have a policy that provides for the defense of a clergy member accused of misconduct, Gallagher’s Persuitti says.
“Agents need to point that out because this is very complicated,” he adds. “When it comes to misconduct—the church’s agent must consider not only the coverage form but the determination and availability of the limit. Does the policy cover defense inside or outside of the limit? We deal with these kinds of dynamic issues every day and a typical church does not. The world is changing.”
Employment practices liability insurance should be considered for allegations of discrimination, wrongful termination, and sexual harassment. Lawsuits, even if unjust, are expensive, Moreland says.
There are a few areas where churches tend to run into trouble more, White says.
White recommends that churches focus on having basic liability coverage, but then consider the many unique ministries that likely require customized and optional insurance protection.
“If you start a new ministry that requires enhancement of coverage and fail to report it to your insurance agency, you may not find out until a lawsuit occurs that you’re not covered,” White says.
- At Matthews UMC, one special insurance consideration is its Rainbow Express ministry, which is a summer camp for special needs children, Gillespie says.
“We want to make sure we’re providing the proper risk management and proper background checks for volunteers,” she says.
- In the area of sexual misconduct and harassment, Murray says church leaders need to know who on staff is insured for sexual misconduct coverage, and they need to know if the coverage provides any counseling services for the victim. Leaders also should ask what, if any, requirements are necessary to obtain higher limits of coverage.
- Regarding child abuse, the church needs to be aware of the mandatory reporting laws in their state and community and educate their workers in what to look for, Murray adds. (Church Law & Tax Report, a bimonthly newsletter published by Christianity Today, ChurchLawAndTax.com‘s parent, provides a 50-state review of mandatory reporting laws on ChurchLawAndTaxStore.com.)
- While some policies may automatically include coverage for violence and shootings, they may be an endorsement or a written amendment/addendum attached to a policy that can modify, extend, or alter the policy provisions on other policies, Murray says.
“Many churches have formed safety and security committees to deal with such issues, and while forming a committee is a great first step, education is probably the second-best step in protecting the church from a violent incident,” he says.
“In some cases, churches will have armed security or off-duty police. That is a relatively new exposure and it requires coverage enhancement. We want to make sure we’re covering them for that,” White adds.
With special events and conferences, Murray says there are a number of questions to ask:
- Will the event occur on the church’s premises, or at an off-site location?
- Does the party using the church’s property require the church to provide proof of insurance coverage?
- Should the church name the other party as an additional insured?
- If youth are involved:
- Have workers been properly screened?
- Have workers been involved with the church for a minimum of six months?
- Are adequate child-to-adult ratios in place for proper supervision?
Other special coverages that Thornton recommends include Internet and network security, cyber liability, and fiduciary liability, among others.
- Internet and network security coverages and cyber liability can come in a stand-alone form. It addresses issues such as libel or written publication of disparaging material. It also can cover issues such as the improper use of literary or artistic titles, formats, or performances.
- Fiduciary liability may cover, for example, actual or alleged violations of Health Insurance Portability and Accountability Act (HIPAA).
Moreland from Church Mutual also notes the following:
- Some policies cover the pastor’s personal property within a church but it may be low, so the pastor should have homeowners or renters insurance to cover his or her personal property and to provide personal and family liability protection.
- Loss of income protection is important if the church depends on rental property or tuition fees. A similar coverage is available for loss of rental value.
- Some policies limit coverage for broken glass. If the value of church windows exceeds the policy’s limitations, full glass coverage is recommended.
- Flood and earthquake are usually not covered by basic policies, but can be. Flood is available through the federal government and many agents can place the insurance. Earthquake is generally available from insurance companies. Church Mutual offers it as a form within the policy, not a separate policy.
- Computers, telephones, sound systems, copiers and other equipment are subject to damage from mechanical breakdown and electrical arcing. If the service contract won’t cover the damage, then insurance may be available at surprisingly affordable costs.
- General liability policies do not protect your directors, officers, and trustees against lawsuits alleging errors and omissions. Consider a separate policy.
- Liability and medical expense coverage should apply at the church and away from it.
- “Medical expense” insurance covers the costs of less serious injuries that occur at the church or on a church-sponsored activity. Be sure it covers members, guests, and volunteer workers, and that it includes sports-related injuries.
- Most states require churches to carry workers’ compensation insurance. Even where it is not required, the benefits set by the state must still be paid to full- and part-time employees. Health insurance policies usually exclude work-related accidents and illnesses, so workers’ compensation insurance may be the safest option. Keep in mind that the state’s workers’ compensation bureau probably considers the pastor to be an employee even though the IRS may not.
“It can be a daunting task identifying and understanding the various risks your organization faces and buying the appropriate coverages,” Moreland says.
But Fisher adds that “churches are exposed to new risks all the time, so you don’t want to be caught short.”