Nonprofit D&o Insurance Cost: Average Rates & What Drives Them

Directors and officers insurance, usually called D&O, protects the people who govern an organization. Board members of a nonprofit are volunteers in most cases, yet they can be named in a lawsuit over how the organization was run. A donor who believes funds were misused, an employee who alleges wrongful termination, a member who disputes an election or a regulator asking questions can all lead to a claim, and legal defense costs add up even when the claim has no merit.

That is why many nonprofits buy D&O and why funders, banks and insurers sometimes ask for it. D&O is separate from general liability, which covers injuries and property damage, and it is separate from the other management liability lines. A licensed insurance agent or broker can explain how the pieces fit for your organization.

Published nonprofit D&O pricing is thin. Insureon is the main source, and it reports an average for nonprofits alongside a higher average for small businesses overall.

Both figures come from the same marketplace, so they are not independent confirmation. The nonprofit average of $67/mo is lower than the $133/mo that Insureon reports across all small businesses, which may reflect that many nonprofits are small and volunteer run, with fewer of the investor and shareholder claims that shape D&O pricing at companies. Most of the customers behind the nonprofit figure have fewer than five employees, so a larger charity with a sizable budget, government grants or many employees should expect to be priced differently.

D&O pricing follows the kind of decisions a board makes and who can sue over them. Insureon publishes averages for several business types, which shows how much the same coverage varies.

Retailers sit at the low end, with boards that mostly manage inventory and staffing, while technology businesses and distributors pay far more. A nonprofit usually looks more like the low end than the high end, but a nonprofit that raises large grants, runs a hospital or school, employs many people or holds investments may sit closer to the middle. Treat these as context for how D&O is rated, not as nonprofit prices.

D&O is rarely the only policy on a nonprofit's list, so it helps to see the rest. MoneyGeek models general liability, commercial property and commercial auto for nonprofit and association businesses, and Insureon reports a nonprofit commercial auto median.

Three of those rows are MoneyGeek models and one is an Insureon customer median, so the two commercial auto numbers come from different methods. Both show that a vehicle is usually the costly item for organizations that deliver meals, run shuttles or move supplies. Property is the smallest line, which fits organizations that rent space.

• Budget and revenue. Larger budgets and more complex funding raise exposure.
• Employees and volunteers. More people means more chances of an employment claim, and many D&O policies exclude or limit those unless employment practices coverage is added.
• Services provided. Serving children, vulnerable adults or patients raises risk compared with a social club.
• Governance habits. Written conflict of interest policies, regular board minutes and annual financial review can help in underwriting.
• Claims and prior lawsuits. Past claims against the organization or its board affect pricing.
• Limits and retention. Higher limits cost more, and a higher retention lowers the premium.

Find out whether the policy covers the organization itself or only individual board members, since some policies only cover the individuals. Ask whether the policy includes defense costs inside or outside the limit, whether it covers employment claims or needs an add on, and whether it is written on a claims made basis. If you leave one insurer for another, ask how prior acts coverage works. Boards should also read the exclusions for fraud, bodily injury and contractual liability. An agent who works with nonprofits can walk a board through these terms in a short meeting.