How To Save Money on Your Church Insurance Premium – Part 1/5

The recent economic downturn has resulted in church budgets becoming tighter than ever.  Like everyone else, the church is looking for ways to cut the budget and insurance in Florida can be a budget buster.  Negotiating with the insurer may help lower the cost some but there is only so much that companies are willing and able to do.  However, there are some things that your church can do to lower your premiums without sacrificing critical coverage.  In this series, I will cover the top five steps we take when trying to lower church insurance costs for our clients.

#1.  Increase Your Property Deductible

This week, one of our clients moved from a $500 property deductible to a $5,000 deductible and reduced their annual premium by almost $1,100 (about a 14% decrease overall).  They have about $1.5 million in property insured with an annual total premium is about $8,000 per year.  Now, granted, they have taken on a little more exposure but the trade-off made sense to them.  If they can go four years without a property claim, the move has paid off.

Many churches are reluctant to make this move despite the savings.   The fear is that they could have multiple losses over the next five years and that the change could end up costing them more money than they are saving.  Yes, that could happen.  But look at your church’s claims history.  How many property claims has your church filed in the last 10 years?  How about the last 20 years?

The fact is, most of our church clients don’t file claims.  Either they don’t have them or they have them but don’t report them.  When they do report one, it is usually a big one and the $5,000 that will come out of their pocket is not as significant relative to the  check the insurance company delivers.

The percentage of savings your church will see will depend primarily on the answers to two questions:

• Do you have a separate wind and hail deductible?  If you do, the deductible credit will only impact the property premiums related to the non-wind and hail property perils such as fire and lighting.  We call these “all other perils” (or AOP).  Our church client has a wind and hail deductible so the impact was limited to some degree.  (You can raise your wind and hail deductible, too, but you probably won’t see a large enough premium decrease to justify the additional assumption of  risk your church will be taking.)

• How much of your total church insurance premium is property premium?  Your general liability premium won’t be decreased and neither will crime and inland marine premiums.  The credit will only be applied to the property premium.  So, if you have a larger liability premium than the typical church, the percentage you save won’t be as high as the average church will see.  The church in my example does not operate a day care or school.  If they did then their liability premium would have been a higher percentage of the total premium.  They would have still saved the $1,100 this year, but the percentage saved overall would have only been about 7%.

In general, the larger your property premium, the larger the real dollar savings you will see.  There are other deductible options so talk to your agent and your leaders and see if a change makes good stewardship sense for your church.

Wind and Hail Deductible vs. Hurricane Deductible

One of the most frequently misunderstood policy provisions of the church insurance policy is the wind and hail deductible (henceforth, refered to as the “wind deductible”).  Failing to educate your church on the wind deductible could leave you unprepared for the huge out-of-pocket costs that come with it.

There are four big things you need to know to help you prepare for wind losses to your property:

1. A “wind deductible” is not the same thing as a “hurricane deductible”.  A wind deductible applies to all covered losses resulting from wind and hail while a hurricane deductible applies only to hurricane (or, in some cases, “named storm”) related losses.  In other words, a loss resulting from a tornado that hits Jacksonville in May is subject to the same wind deductible as the one used in November when a hurricane rolls through.  In contrast, a “hurricane deductible” won’t be used for the May tornado; the insurer will apply the standard flat deductible instead.  However, the hurricane deductible will be applied on the November hurricane.  Very few companies use a hurricane deductible for commercial property so you probably have a “wind and hail deductible” on your church buildings.  Church owned residential buildings are the frequent exception.
2. Both the wind and hail deductibles are equal to a percentage of the limit of insurance, not the amount of the claim.  This is very important and almost always a surprise to the church.  Suppose you have a 5% wind and hail deductible and a building insured for $1,000,000.  If you have a wind related loss of $300,000 the deductible is not $15,000 (5% of the amount of loss) it will be $50,000 (5% of the $1,000,000 building limit).  Big difference.
3. Unlike the flat property deductible which applies per occurrence, the wind deductible (and the hurricane deductible) usually apply per limit.  For example, if you have three buildings and the contents of those three buildings insured on your policy, you have six limits.  A wind or hail loss involving all the buildings and all the contents of those buildings will result in the application of six different deductibles.
4. Just like the flat deductible, the wind and hail deductibles and hurricane deductibles apply per loss.  So, if three storms hit your property on three different occasions, you will probably see the application of the wind deductible all three times.  (Of course, the insurer has to prove that three storms hit your buildings, something that was hard to do back in 2004.  And yes, the state could step in and refuse to let insurers apply three different deductibles, just like they did in 2004.  But, barring that, the policy language is clear on this application.)

Your church needs to be prepared for a wind loss as it could mean the outlay of serious money to make repairs.  Talk with your leaders, understand the real dollars at stake and come up with a plan for dealing with the wind and hail property loss before it happens.

Cheap Church Insurance?

“Is this the cheapest church insurance premium you could find us?”

I really struggle with this question.  The answer is almost always the same.

“No, it’s not.”

Sales people hate saying “no”.  However, the insurance agent knows that if the answer is “yes,” he’s either lying or letting the client down on coverage.  OK, there is that rare occasion when things all line up perfectly.  The sun is shining, the flowers are blooming and a tiny little blue bird will alight on my shoulder.  I will look down and find myself staring at a beautiful quote that has both great coverage and the cheapest price.  But, on most days, the insurance quote we give a church can be beaten by a stripped-down, basic insurance policy.

Of course, basic coverage is all that a lot of churches think they need/can afford.  This mindset is especially true of some start-up churches (the church that doesn’t own property, yet).  In the beginning, many of them only want insurance to satisfy the requirements of the landlord (typically a school or shopping center owner) and they are looking for the cheapest avenue.  If taking care of the landlord is your only concern, then yes, there are some cheap church general liability policies that can be purchased for $400-$600 per year that will meet your limited goal.  However, if you are more interested in protecting your church than your landlord, then these polices will usually prove inadequate.

In Florida, the “cheapest” church liability policies are usually written in what we call the excess and surplus market (called “the E&S market” from here on out).  Agents go to the E&S market with an exposure that can not be placed with a “standard” company.  These E&S companies are usually large, financially secure companies that don’t want to spend a lot of time messing around with $500 premium accounts.  However, they will write your account but it is going to be on their terms, not yours.  They will sell you an inexpensive insurance policy if you are willing to accept their conditions and restrictions.

The biggest restriction most of these companies use is the off-premises exclusion.  This means that there is no coverage for any injury that occurs away from the premises described on the declarations e.g. at the rented school, the church location, etc.  The policy offers premises liability coverage only.  So, your landlord is covered because the school or office suite is listed as the covered location but once you step foot off of those premises, coverage stops.  (Some companies may use a premises limitation endorsement but will say it is not a “strict premises limitation endorsement”.  This means that your church could have coverage for some off premises activities but not others.  This is true, of course, of all liability policies but the parameters are usually narrower with non-specialized insurers.)

For example, there may be no coverage for medical cost for a member injured during a church sponsored volleyball game at the city park and no coverage for the church if its sends its youth to a beach camp.  If your church sends a group to help rebuild homes following a disaster and someone is injured, the typical excess company’s liability policy is not going to respond.  If you decide to rent the local fairgrounds to have a “fun” day, you are probably going to have to buy a special event policy in order to satisfy that city’s/county’s requirements.  This will cost another $200-$1,000 or more depending on the “fun” level of the event (face painting is cheaper than paint balling).
Excess companies will also typically remove the following:

• Sexual Acts Coverage (this is an absolute exclusion, meaning that damages won’t be paid and neither will legal fees if allegations are brought);
• Directors and officers coverage (no coverage if your leaders get sued for making a bad decision e.g. doing something that caused the church to lose it’s tax exempt status);
• Hired and Non-Owned Auto (for instance, there will be no coverage for the church if your pastor injures or kills someone with their personal auto on the way to visit a sick parishioner);
• Personal and Advertising Injury (no coverage for your church if your pastor or other representative libels or slanders someone).

(Note, some of these items can be added onto the excess company’s product for an additional premium.)

Our agency will go with the excess markets only after we have determined that we can’t meet the needs of the client in the standard markets (which is how the excess/surplus market is supposed to be used).  Most of our clients need a policy that will offer a combination of good coverage and a fair price.  But they also need a policy that is flexible.  At some point, they will do something in their outreach to introduce a person to Christ that the typical E&S company won’t feel comfortable with (like a monster truck rally or a bounce house).  That doesn’t mean that the standard company is always going to cover everything but one that specializes in church insurance will walk a lot farther down the road with you than the typical E&S company.

For most of our clients, the additional protection and flexibility are worth a little extra premium.

Thank you from Celebration Baptist Church

After fifteen years of leasing space, we are excited about finally moving into our own building. We appreciate your time and integrity in helping us prepare for the change. Thank you so much for putting together an insurance program that met our needs and fit within our budget.

~  Joyce Peterson, Celebration Baptist Church – Yulee, FL

Thank You From New Beginning Soul Saving Ministry

On behalf of all our members, I take this opportunity to express our sincere thanks for all the sincere effort you put forth in helping us get the needed insurance. We look forward to a long, wonderful and blessed relationship. Thank you, thank you.

~  Evangelist Amanda Spaulding, New Beginning Soul Saving Ministry

Thank You From Morningstar Family Church

We are glad to know that you are our advocate.  Thank you for a job well done!  As Jesus would say, “Well done good and faithful servants.”

~  Pastor Tom Croft, Morningstar Family Church, Middleburg