In today’s ever-changing world, nonprofit and social services organizations play an invaluable role in addressing social, humanitarian, environmental, and other issues with the goal of improving the well-being of individuals and communities. Like any organization, nonprofits face challenges that may impede their ability to continue serving their communities effectively. Specialized nonprofit insurance can go a long way toward providing financial protections in the face of more common challenges, but the past few years have seen the rise of specific trends that are increasingly testing the resources of many nonprofit organizations and social services efforts.
The global pandemic and resulting economic volatility put pressure on every business, and the nonprofit sector was no exception. Nonprofits and social services entities provide a wide range of essential services, many that are insufficiently addressed – or overlooked entirely – in the for-profit sector. Spurred by the uncertainty of the pandemic, nonprofit entities experienced dramatic increases in demand for their services at a time when the organizations themselves were struggling to keep their doors open. Navigating this new normal – and the challenges that emerged as a result – has been a primary focus for nonprofit and social services leadership as well as the insurance professionals who help to protect their interests.
Shortage of Employees and Volunteers
The first impression of nonprofits shared by many people is one of small groups doing outreach within their local communities. So it may come as a surprise to learn that nonprofits are the third largest private employer in the U.S., with over 12 million employees.
Because nonprofits may tackle complex and often specific issues, they require a workforce with specialized training and expertise. When it comes to fundraising, marketing, research, advocacy, and other areas, experienced employees enable nonprofits to develop effective strategies and perform necessary functions. What’s more, a skilled and talented workforce is crucial for the growth and sustainability of nonprofits.
The pandemic took a significant toll on the nonprofit workforce. A December 2021 report from the National Council of Nonprofits indicated that over 75% of nonprofits reported job vacancies of 10% or more, with a significant number reporting a vacancy rate at or above 20%. An update published in July 2022 reported little improvement in the nonprofit workforce despite government action to alleviate labor shortages.
Financial Instability and Donor Participation
Nonprofits are highly dependent on grants, donations, and sponsorships. However, these funding streams are unpredictable. Relatively small economic fluctuations can negatively impact these funding sources. The pandemic, and the economic volatility that has followed, has created a significant challenge for the nonprofit sector. A just-released report on the state of philanthropy in 2022 reports that charitable giving by individuals dropped by over 13% as compared to 2021, and total giving fell by nearly 11%.
Researchers note that, when adjusted for inflation, donations by individuals fell to a level not seen since 2016. Donor participation fell sharply in 2022 – a 10% dip – including decreases in the fourth quarter, which typically attracts the highest number of donations. The data also indicates an alarming trend in both new donor acquisition and existing donor retention. New donors decreased by 18% compared to the previous year, donors acquired in 2021 reduced their contributions by over 25%, and long-term donors declined by nearly 4%. Considered together, these indicators paint the picture of an unsustainable trend facing nonprofits.
Thanks to advancements in technology like online payment platforms, donating to a cause is easier than ever before. Individuals can contribute to a nonprofit’s mission with the mere click of a button — whether that’s $5, $50, $500, or even $1,000. Corporate matching programs and other workplace and community efforts provide additional incentive for individual donations.
Cybersecurity and Privacy Issues
As technology becomes increasingly integral to nonprofit operations, the risk of cyberattacks and data breaches is on the rise. Nonprofits collect, store, and handle confidential data, such as donor information, which makes them a target for cyber attackers. Nonprofit and social services entities that rely on government contracts to provide essential services may face increased cybersecurity risks if their mandate involves handling highly sensitive personal information such as medical records, tax records, or other documents.
How bad can it get? In 2022, Forbes reported that hackers have created a thriving industry selling access into secure networks by way of “backdoors” to cybercriminals that specialize in ransomware, a highly destructive form of malware and the nemesis of corporate IT security professionals around the world. These criminals have made headlines in recent years for targeting nonprofit organizations, academic institutions, and healthcare providers.
Unfortunately, nonprofit organizations and social services entities may be especially vulnerable to cybercrime. With the current financial instability, inflation, and higher demand for services, nonprofits may not have the financial resources to prioritize IT security to meet the potential risks.
Lack of Contingency Planning
Nothing in history could have adequately prepared businesses for the events that unfolded when the pandemic took hold in 2020. However those organizations that had taken steps to create a detailed contingency plan at least had a strategy in place to use as a foundation for continued operations. This is another area in which nonprofits may lag behind due to funding concerns and lack of resources.
There are free resources available to organizations that can assist in the planning effort. These educational materials, guidelines, and tips can help get an organization’s leadership to begin planning for catastrophic weather events, property damage, liability exposures, employee and volunteer safety training, financial planning, and more. Working with legal counsel and the organization’s insurance agent is also important. Insurance providers that specialize in providing nonprofit insurance, such as MiniCo, may have risk management resources available to clients at no cost.
Here is a list of websites that offer free risk management and planning resources for nonprofits, social services organizations, and other businesses:
- National Council of Nonprofits
- Nonprofit Risk Management Center
- Ready.gov
- MiniCo’s Nonprofit and Social Services Program
Insurance is one of the most important resources for protecting nonprofit and social services organizations during volatile economic climates and other challenges. MiniCo’s exclusive Nonprofit and Social Services program offers customized solutions that address the unique exposures in the nonprofit sector. With nearly 50 years of specialization – first as NIF Group and now as MiniCo, our experienced underwriters excel in placing risks in over 300 target classes including startups, new ventures, special events, D&O, and more. Contact our team to get a quote.
