Risk Management and Insurance

Managing risk means taking a proactive approach to reducing the likelihood or severity of some unknown that could prevent a nonprofit from fulfilling its mission.

• When an executive director checks references or confirms the educational background of a potential new staff member, that executive director is managing the risk of hiring the wrong person;
• When a board decides to set aside money in a reserve account or adopts a fund development plan, it is managing the risk that someday there may not be enough cash on hand to satisfy a need for resources;
• When a nonprofit purchases a back-up system for its computers and adopts a policy to protect its database with a password, risk is being managed;
• When a client mentions that there is an icy patch on the sidewalk and the nonprofit immediately deploys someone to remove the ice, risk is being managed; and
• When a volunteer program coordinator trains a volunteer, or when board members attend an orientation, risk is being managed.

Risk management opportunities run through everything staff, board and program volunteers do on a day-to-day basis. In a risk-savvy nonprofit, everyone is a risk manager.

• Board members may be especially interested in this checklist.

To learn more about recognizing risks and how your organization can manage them, the National Council encourages you to visit the website of the Nonprofit Risk Management Center, or NRMC, where you will find numerous articles on risk management topics (some of which are highlighted below) as well as free online training modules and other tools that you can share with your board, staff and volunteers. In particular, we call your attention to the Hallmarks of a Risk Aware Nonprofit and encourage you to sign up for the free newsletter offered by NRMC to stay abreast of other resources.

• Safe-Wise Consulting, an experienced for-profit consulting firm that works exclusively with nonprofits, also offers a free newsletter and online Resource Library that offers great articles, safety handbooks, training manuals and sample policies.

The Board’s Role in Risk Management

Risk management is everyone’s job at a nonprofit – but that’s especially true of the board of directors.

• Review this checklist for board members from the NRMC.
• Read this article that describes why Good Governance Is Sound Risk Management.
• Learn more about the board’s responsibility to serve as risk managers for the nonprofit from this affordable publication available in a downloadable file from the NRMC, Pillars of Accountability.
• Are board members potentially liable in legal actions? Protected by insurance? Read answers to Frequently Asked Questions about board member liability from the NRMC.

Insurance for Nonprofits

Insurance is just one tool that nonprofits and others (businesses and individuals) use to manage risk. While insurance cannot prevent something bad from happening, it can transfer the financial impact of a bad result to an insurance carrier, in many cases limiting a nonprofit’s risk to the cost of insurance. The insurance industry offers special policies tailored for the needs of nonprofits. It is very important to select an insurance professional who is experienced in the nonprofit market, and take the time to make sure s/he understands your nonprofit’s mission, specific programs and activities, and clients, customers, employees, and volunteers.

• Board members and staff can learn the basics about insurance from the NRMC’s comprehensive text on insurance for nonprofits, Coverage, Claims and Consequences, 2^nd Edition
• Read Protecting Your Nonprofit and the Board, (based on a chapter of the book mentioned above) that explains why insurance is only one method of protecting nonprofits from risk.
• Read answers to Frequently Asked Questions about insurance for nonprofits prepared by the NRMC.

Confused by Insurance-speak? Review a Glossary of Risk Management and Insurance terms prepared by the NRMC.

More Resources

Helpful articles on risk management topics available from the NRMC include:

• Learn about Combating the Increasing Risk of Online Fraud and Identity Theft
• Crisis Management, the Media, and Your Nonprofit, How to respond to the media in a crisis.
• The Care and Feeding of a Healthy Organization, How to maintain a steady income and develop sound investment strategies.
• Creating an Effective Employee Handbook for Your Nonprofit, A guide on what to include and what not to include in an employee handbook.
• Employment Grievance Procedures and Internal Dispute Resolution, Effective and legal employment practices to consider when resolving disputes.
• Help Wanted! Screening Challenges for 21^st Century Nonprofits, Tips on how to ensure that your screening process helps you hire the most suitable candidates.
• Keeping Your Organization Viable for the Future, by Dr. Peggy M. Jackson: An article on business continuity planning.
• Love those Deductibles!, by George L. Head: Deciphering tricky clauses in liability and property insurance policies.
• Staff Training, Calculating the importance of a trained staff to avoid incident.
• Sustaining Nonprofits During Economic Downturns, by George L. Head: How nonprofits are vulnerable during times of economic decline.

Whistleblower Protections in the Nonprofit Sector, by Jason M. Zuckerman: The importance of handling unethical or unlawful conduct internally.