H E L P I N G L E A D E R S B E C O M E B E T T E R S T E WA R D S .
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Presented by: The National Catholic Risk Retention Group, Inc.
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CHURCH EXECUTIVE • N E V E R A G A I N : B E Y O N D I N S U R A N C E • V O L U M E 2
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Get the WHOLE Story! H E L P I N G L E A D E R S B E C O M E B E T T E R S T E WA R D S .
Table of Contents THE MOST EXPENSIVE FORM OF LABOR — VOLUNTEER LABOR
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At “first blush,” an offer of volunteered labor can appear to be an opportunity to accomplish needed maintenance, upkeep or improvements in the most cost-effective manner — usually (though not always) entailing only reimbursement for supplies and maybe equipment. What could represent better stewardship than to enhance church physical resources with a minimal outlay of the congregation’s relatively scarce financial resources? In such circumstances, the temptation to pursue this course of action is great — but the actual outcome is often negative and occasionally tragic. By Michael J. Bemi
NEVER AGAIN Presented by: The National Catholic Risk Retention Group, Inc.
WANT TO MOVE “BEYOND INSURANCE”? BEGIN AT THE BEGINNING!
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You probably noticed that this new series of articles has been retitled to Never Again: Beyond Insurance. But, how does a church organization get “beyond insurance” — and should it even try? By Michael J. Bemi
DON’T TOUCH — OR YOU MIGHT GET BURNED!
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In our last article, we together began our journey to move “beyond insurance.” We then examined the first step in that process: risk identification, analysis and evaluation.
Download the Never Again: Volume 1 eBook
Now, we undertake the next step in our journey: risk avoidance. By Michael J. Bemi
DON’T RISK A LOT FOR A LITTLE!
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Together in our journey to move “beyond insurance,” we have thus far examined the first two steps in that process: risk identification, analysis and evaluation, as well as risk avoidance. Now, we undertake the next step in our journey: risk retention. By Michael J. Bemi
RISK CONTROL: A KEY ELEMENT FOR SUCCESSFUL MINISTRY
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Risk Retention is not simply about eliminating the phenomenon of “trading premium dollars” with your insurers; it is primarily about controlling your entity’s risk management fortunes and results. So, how do we go about ensuring that the value and benefits of Risk Retention are obtained via Risk Control? By Michael J. Bemi
MANAGING MISFORTUNE IN A MINISTERIAL FASHION
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We previously identified that Risk Retention — as opposed to simply buying insurance — can provide a number of very substantial and significant benefits that ultimately can enhance the provision of our ministries. However, it is axiomatic that these values of Risk Retention are diminished (and potentially destroyed) if an entity does not control and mitigate its losses. By Michael J. Bemi
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N E V E R A G A I N : B E Y O N D I N S U R A N C E • V O L U M E 2 • CHURCH EXECUTIVE
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NEVER AGAIN: BEYOND INSURANCE
The most expensive form of labor – volunteer labor
By Michael J. Bemi Not infrequently, pastors and their parish / congregational administrators, board and / or committee members are inclined to avail themselves of “donated” labor in the form of volunteers who purport to have the appropriate experience, expertise and equipment required to perform some necessary project work on or within parish buildings. At “first blush,” such an offer of volunteered labor can appear to be an opportunity to accomplish needed maintenance, upkeep or improvements in the most cost-effective manner – usually (though not always) entailing only reimbursement for supplies and maybe equipment. What could represent better stewardship than to enhance church physical resources with a minimal outlay of the congregation’s relatively scarce financial resources? In such circumstances, the temptation to pursue this course of action is great – but the actual outcome is often negative and occasionally tragic. It really can (and does) happen Some actual examples will demonstrate that “taking advantage of” volunteer labor often represents the worst – rather than the best – stewardship. Consider: The church roof was leaking. Following visual inspection with binoculars, a member of the congregation with years of experience as a roofer suggested that the likely “culprit” was a portion of raised flashing, most probably damaged in a recent severe hail storm. The pastor and board were grateful for this gentleman’s offer of free labor to effect what he had described to them as a simple repair. Sadly, in his visual inspection, he failed to note a few loose roof tiles. Upon traversing the roof to repair the flashing, these tiles separated and dropped the man to the ground. He landed on his feet, crushing his heels, ankles and lower leg bones. His medical coverage was insufficient to cover the many thousands of dollars of necessary emergency care, surgeries and rehabilitation, and he was forced to sue the parish for damages to cover these unreimbursed medical expenses. Additionally, his ankles had to be surgically fused, which prohibited him from ever again working as a roofer – his family’s sole source of income. Consider: A long-standing congregation member who was an HVAC (heating, ventilation and air conditioning) expert agreed to replace two 4
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air-conditioning units on the parish school’s roof. Just as in the prior example, the pastor and board were grateful and relieved that they would only have to pay for the air-conditioning units and not for any work. The expert brought his less-experienced assistant along on a weekend to accomplish this task. Note that the assistant was not going to receive any compensation; he was simply going to be able to “take advantage” of a new work experience, outside of the stress of a normal workday. The assistant improperly secured some critical rigging, causing one of the units to fall from a scaffold onto the head of the expert below. After weeks in a coma and months of treatment and rehabilitation, it was clear that this poor man would never again be the same. Litigation against the parish continues to this day. Look beyond the surface appeal Often, donated labor produces a less than truly satisfactory result, while also exposing the congregation to extensive costs never contemplated. Even worse, the pastor, board and congregation must live with the guilt of being associated with irreversible tragedies of pain and suffering like those recounted here. Before engaging volunteers in any activity that entails significant physical labor, the use of potentially dangerous tools and / or the existence of perilous working conditions (examples: activity above ground or floor level; involving lifting of heavy weighted objects; involving heavy machinery; using hazardous compounds or substances; working with electricity), the congregation is very well served to “shop around” for the best-priced proposal from a professional firm that has a great reputation, skilled staff, proper equipment, appropriate licenses / permits, professional certifications, high-quality insurance and a contract with terms that protect the congregation. This is the best stewardship. Michael J. Bemi is president & CEO of The National Catholic Risk Retention Group, Inc. (Lisle, IL) — a recognized leader in risk management. To learn more about available coverage — and to get valuable tools, facts and statistics — visit www.tncrrg.org
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NEVER AGAIN: BEYOND INSURANCE
Want to move “beyond insurance”? Begin at the beginning! By Michael J. Bemi
You probably noticed that this new series of articles has been retitled to Never Again: Beyond Insurance. But, how does a church organization get “beyond insurance” — and should it even try? Let us first agree that insurance is critical for any organization that provides services to any community. However, it is actually designed as a “safety net” or “safety cushion” to protect us, our families and the organizations we work for (or are active with) from unforeseen, potentially devastating events that require financial outlays unaffordable for most individuals, families or organizations. So, we all want — and need — that safety net. Even so, as people of faith, we are called to be the best stewards of all the resources we have been blessed with. These include: • The people we serve • Those who assist with our ministries • Our physical assets (buildings, furniture, fixtures, equipment, vehicles and so on) • Our financial assets (land, financial instruments, bequests, charitable trusts, weekly contributions, etc.) Now consider: Are we really being the best stewards we can be by simply purchasing insurance to protect us when something “goes wrong” involving our resources? As believers, are we not called to protect and nurture life; to not damage property of others; to not disrupt legitimate activities or undertakings of others? If so, we need to move beyond just good insurance. Where to start There exists a theoretical and related practical risk management framework to help us move “beyond insurance.” It follows a step-bystep process. So, let’s begin at the beginning. The process begins with Risk Identification, Analysis and Evaluation. I know — it sounds a bit foreboding, and perhaps also costly and very time-consuming. But it need not be any of those things. The principle is simple: You need to work to develop a level of safety awareness and consciousness that is consistently employed by: (1) identifying and cataloging the resources / assets you have been blessed with; (2) considering how those resources are used; and (3) considering how the use of those resources in ministry could lead to, or be affected by, some loss scenario. churchexecutive.com
Some examples will demonstrate that this is not rocket science. For instance, I’m guessing you have a church and perhaps a school and a parish center. Is there a process and a person (better yet, a group of people) responsible for regularly checking things such as: • Torn or loose carpeting? • Loose handrails on stairways? • Lighting that’s not functioning? • Door locks that aren’t working or are easily “jimmied”? • Chipped or crumbling entry sidewalks or stairs? • Potholes in the parking lot? • L ack of ABC fire extinguishers or extinguishers not currently tagged for operability? • Non-functioning fire / burglar alarms? • Exit signs that are not functioning or exits not posted? • Electrical outlets that are overloaded? • Rooms or compartments containing valuable items that are left open, unlocked or unattended? • No procedure for controlling admission of visitors/guests? • No emergency contact plan and posted instructions? Do your facilities have evacuation plans that are posted and practiced? Do you have vehicles? Are they regularly and properly maintained? Do you restrict who may drive them? Are your approved drivers properly licensed and trained? Do you obtain annual motor vehicle reports on your drivers? Is there a protocol that defines allowable vehicle use? Regarding your ministries, do you consider not only how they will benefit people, but also the many ways in which people could be inadvertently — or purposefully — injured or damaged in the performance of these ministries, if you do not properly control and direct who performs them and how they are (and are not) to be performed? Two critical things to note: (1) You can get a lot of free help with these matters from your insurance broker or insurance carriers or third-party administrator; and (2) You need to make these matters a regular, standardized, scheduled process, with identified individuals responsible. So, now you know where to begin! Michael J. Bemi is president & CEO of The National Catholic Risk Retention Group, Inc. (Lisle, IL) — a recognized leader in risk management. To learn more about available coverage — and to get valuable tools, facts and statistics — visit www.tncrrg.org
N E V E R A G A I N : B E Y O N D I N S U R A N C E • V O L U M E 2 • CHURCH EXECUTIVE
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NEVER AGAIN: BEYOND INSURANCE
Don’t touch — or you might get burned! By Michael J. Bemi
In our last article, we together began our journey to move “beyond insurance.” We then examined the first step in that process: risk identification, analysis and evaluation. Now, we undertake the next step in our journey: risk avoidance. To properly consider this step in the process, we have to acknowledge a very important reality: namely, that — as people of faith and followers of the Lord, we believe that we are called (indeed, compelled) to do ministry. This ministerial phenomenon would be nothing other than wonderful in a perfect world where justice, fairness, righteousness, compassion and consideration for your fellow humans prevailed. We all know that this world is not that and will never be, until the Lord returns and sets it right. In this world, you need to understand that the performance of ministry creates risk for the Church. You next need to understand and recognize that risk entails various costs. These costs are multifarious, but certainly include: emotional anguish and distress; potential bodily injury (and perhaps even death); significant liability with its attendant substantial defense costs; destruction of personal property, vehicles or buildings; damage to the Church’s reputation; and disruption or destruction of certain Church operations and activities. Finally, now that we recognize that ministry entails risk, and that risk can be extremely costly in a negative sense, we must confront and accept the fact that we are called to be the best stewards of the resources we have been blessed with — and that means we must make choices to undertake (or not) specific ministries. Some examples will demonstrate the point. Scenario #1: Your charitable outreach division is contacted by the state. It would like to pay your church to convert one of your unused buildings for use as a halfway house for paroled convicts. The contract would include the costs of renovation, provisions for the men, and the salary expenses for three church representatives to manage the facility. So far, it sounds like a great ministerial opportunity to help rehabilitate some men and restore them to society. Then, you learn the rest. These are all “hard-timers” and very serious felons whose crimes include murder, rape and pedophilia. There will be an average of eight to 10 residents at any time. Your three employees will be just enough to staff revolving eight-hour shifts, one person at a time — supervising up to 10 men, alone. Your unused building is less than two blocks from a local 6
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public grade school. The state wants your church to assume all liability for anything that might “go wrong.” Remember those risk costs? Unless you can get the state to contractually share responsibility, to increase the contract value so that you can be assured of two church staff representatives on each shift, and to negotiate at least some limited right of placement refusal, this is a risk you should avoid. You’ve got it: risk avoidance! Scenario #2: Your church carnival — a local community summer favorite and opportunity for outreach, plus a successful revenue generator for your church — is coming up. The church council suggests something new: a “bounce house” for the enjoyment of your littlest congregants and guests. Aware of some recent issues with these, you contact the most highly regarded amusement operator in the city. Here’s their deal: they will complete all set-up — done with only the finest equipment and to the highest standards — but you must then appoint a “maintenance supervisor” who they will instruct on how to check the rigging over the four-day duration of your carnival. And, by the way, your church is completely responsible for the rigging throughout this time period. Here is yet another risk (the “bounce house,” not the carnival) you are likely best served to simply avoid. Being the best stewards we can be demands some tough decisions. One of these is to avoid pursuing a ministry simply because of the risks involved. Michael J. Bemi is president & CEO of The National Catholic Risk Retention Group, Inc. (Lisle, IL) — a recognized leader in risk management. To learn more about available coverage — and to get valuable tools, facts and statistics — visit www.tncrrg.org. churchexecutive.com
NEVER AGAIN: BEYOND INSURANCE
Don’t risk a lot for a little! By Michael J. Bemi
Together in our journey to move “beyond insurance,” we have thus far examined the first two steps in that process: risk identification, analysis and evaluation, as well as risk avoidance. Now, we undertake the next step in our journey: risk retention.
In this series, we most recently discussed reasons to avoid ministerial undertakings that present too great a risk — those which, if performed, have a significant potential to cause great damage to our church finances, operations, physical and human assets, and reputation. Pursuing such as these is not good stewardship. Nevertheless, as Christians, we are called to minister to the needs of a hurting world. As such, we are compelled to undertake certain ministries and to assume the risk entailed with those ministries. The questions then become: How much risk should we assume? and How do we assume it? First, note that risk can be assumed via a deductible or a self-insured retention (SIR). They reflect important differences. A deductible is an amount of any loss which is retained by the insured, but with the investigation and resolution of the loss remaining the responsibility of the insurer — at the insurer’s expense. The insured receives a premium credit, the size of which is related to the amount of the deductible. By contrast, when the insured chooses to use an SIR, the insured — at its own expense — becomes responsible for investigating and resolving claims. This assumption of the administrative costs of claims management constitutes one of the elements of the Total Cost of Risk (TCOR) under an SIR. The complete set of TCOR elements includes: the amount of loss retained by the insured, plus the administrative costs of churchexecutive.com
claims management and risk control (to prevent or mitigate losses within the SIR) provided by the insured, plus the cost of insurance coverage limits provided above the SIR. [Additionally, note that modern risk management would include losses that simply are not insurable, but we will ignore that concept for our purposes here.] How much should you retain? Let’s consider an example. Light of Faith Christian Church (a fictitious name) is a highly successful, three-year-old, independent congregation with a beloved young pastor who’s very well known for his preaching, and a congregation that is quite wealthy. The church premises are brand-new, modern, and incorporate all the latest protective safeguard elements. The staff is large, well-educated and highly trained. With all these circumstances in mind — and with the knowledge that the church’s total annual insured losses each year have averaged $26,000 — the church council decides to renew its fourth-year insurance program with a $50,000 deductible per claim / loss. The church’s insurer allowed the church a $100,000 premium reduction overall on the program, in recognition of the church’s $50,000 deductible assumption. How did this work out for Light of Faith Christian Church? The church’s losses in the first year of this program included: 1) Its “normal” $26,000 experience 2) A 200-year (i.e., expected to occur once in every 200 years) flood loss totaling $98,000 3) A kitchen fire that resulted in $62,000 of repairs 4) An assistant pastor’s auto accident with another vehicle — for which the church was liable — leading to a total bodily injury and physical damage loss of $95,000. Calculating for the church’s agreed $50,000 deductible, in that program year, it assumed a grand total of $176,000 of losses, plus the insurance premiums it paid for its coverage above the deductible. In return, it received a $100,000 premium discount. Clearly, this was not very good stewardship. How can you derive the benefits of retention (reduced premiums, improved claims management and risk control, enhanced cash flow, and greater program control) while avoiding Light of Faith’s experience? First, have your loss expectancy professionally calculated — preferably by an actuary. Next, negotiate an aggregate cap (or limit) on your deductible / SIR. Then, always remember to account for TCOR — and never risk a lot for a little! Michael J. Bemi is president & CEO of The National Catholic Risk Retention Group, Inc. (Lisle, IL) — a recognized leader in risk management. To learn more about available coverage — and to get valuable tools, facts and statistics — visit www.tncrrg.org. N E V E R A G A I N : B E Y O N D I N S U R A N C E • V O L U M E 2 • CHURCH EXECUTIVE
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NEVER AGAIN: BEYOND INSURANCE
RISK CONTROL: a key element for successful ministry By Michael J. Bemi
Most recently in our series on moving “beyond insurance,” we examined Risk Retention. Now, we undertake the next step in our journey: Risk Control. We previously identified that Risk Retention can provide a number of very substantial and significant benefits that ultimately can enhance the provision of our ministries. These include: reduced premiums, improved claims management and risk control, enhanced cash flow, and greater risk management program control. However, it is axiomatic that these values of Risk Retention are diminished — and potentially destroyed — if an entity does not control its losses. After all, Risk Retention is not simply about eliminating the phenomenon of “trading premium dollars” with your insurers; it is primarily about controlling your entity’s risk management fortunes and results. So, how do we go about ensuring that the value and benefits of Risk Retention are obtained via Risk Control? Start with Risk Identification, Analysis & Evaluation First, we begin where we actually began this series months ago; namely, with Risk Identification, Analysis and Evaluation. It follows logically that we can’t properly determine what level of retention to employ — and what we need to control — if we have no record and analysis of our entity’s loss experience. We also can’t decide what measures to employ to reduce those losses, if we have no understanding of how our ministries actually create risk for us, and further, in what ways that risk can damage us. So, you need to inventory the many and variant ways in which your entity is exposed to loss. (Examples: your leased and owned buildings and premises; your equipment, supplies, furniture and fixtures; your fleet vehicles; your employees and volunteers; your specific ministry related services; your legal environment; etc.) Then, analyze the manner and magnitude in which those exposures to loss have — or might — actually cost you money. Once you have accomplished the necessary Risk Identification, Analysis and Evaluation, you can turn your attention to Risk Control. And it is critical that you do so, because Risk Control provides the strategies, policies, procedures and mechanisms to help you prevent losses in the first place, or to mitigate the value of the losses you could not prevent (and in this imperfect world, we will never prevent all the nasty things that can happen). Only by pursuing Risk Control, can you maximize the benefits of Risk Retention. 8
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Risk Control can be both complex and expensive; but seldom so when considered in the context of a church’s operations and activities. Generally speaking, with very few exceptions (e.g., hospitals or skilled nursing facilities), the Church does not undertake operations and activities that produce the type of exposure to loss demanding significant outlays for effective and efficient Risk Control. Even in the few circumstances where implementation and employment of Risk Control measures might demand some significant outlay (perhaps retrofitting a fleet of 15-passenger vans or installation of a sprinkler system or a central station smoke / heat / flame / burglar alarm system), when compared to the costs (financial, time expenditure, reputational and emotional) of resolving large claims, Risk Control clearly demonstrates itself to be a genuine bargain. Further, it is inarguable — from both Christian and financial perspectives — that preventing any loss from occurring is vastly preferable to doing an excellent job of handling the claim(s) from a loss that you did not prevent. Risk Control protects and preserves the physical, financial and human resources that the Lord has blessed us with and in regard to which he expects us to exercise responsible administration. Risk Control also protects the people to whom we minister. Risk Control protects our reputations — and thus, our ability to effectively minister — by demonstrating to everyone in our communities that we are committed and dedicated to the protection, preservation and nurturing of people. Finally, Risk Control protects and preserves our ability to successfully derive all the benefits of Risk Retention. Clearly and unquestionably, Risk Control meets the test of good stewardship. Michael J. Bemi is president & CEO of The National Catholic Risk Retention Group, Inc. (Lisle, IL) — a recognized leader in risk management. To learn more about available coverage — and to get valuable tools, facts and statistics — visit www.tncrrg.org. churchexecutive.com
NEVER AGAIN: BEYOND INSURANCE
MANAGING MISFORTUNE IN A MINISTERIAL FASHION By Michael J. Bemi
Most recently in our series on moving “beyond insurance,” we examined Risk Control. Now, we undertake the next step in our journey: Claims Management.
We previously identified that Risk Retention — as opposed to simply buying insurance — can provide a number of very substantial and significant benefits that ultimately can enhance the provision of our ministries. However, it is axiomatic that these values of Risk Retention are diminished (and potentially destroyed) if an entity does not control and mitigate its losses. It is also axiomatic that in this imperfect world, you simply cannot prevent all losses and resultant claims. Our ministries will experience hurricanes, tornadoes, floods, fires and freezing pipes — and the interruption of ministerial income that follows; auto and bus accidents; claims of wrongful termination or discrimination; accidents on our premises that result in serious injury or even death; and so on. Responding to that negative impact of losses and resultant claims that our Risk Control could not prevent, is the province of Claims Management. Properly performed, Claims Management can further mitigate the damage associated with losses of any variety, thus enhancing stewardship, while simultaneously allowing us to behave in the pastoral fashion we are called to and should demand of ourselves. Claims Management can be performed entirely in-house by your own employed professionals, or outsourced to a third-party administrator (TPA) professional firm, or some combination of each. churchexecutive.com
Also, while Claims Management appears to be simply reactive in nature and operation, in fact, some aspects of it are proactive. For example, you can reduce the number and extent of negatives associated with adjustment of any Property, Auto Physical Damage or Business Interruption loss, by creating, maintaining and regularly updating detailed inventories (including evolving valuations where applicable) of: • Your leased and owned buildings and premises • Your equipment, supplies, furniture and fixtures • Your fleet vehicles • Your employees and volunteers • Your specific ministry-related services • Your sources and amounts of ministry income and any regular cyclicality or variation in income (for example, as a function of an annual appeal done every September). Liability claims inject a different and very special element to Claims Management — namely, the tension and occasional conflict between pastoral care and concern for victims that we have created and the pressure to maximally defend ourselves. We know that we should “do the right thing” and whatever we can to optimally restore and rehabilitate the people, property or business / service activities that we have damaged during the course of performing our ministries. Yet, our attorneys or excess insurers, or even our own “gut,” might be telling us that something is questionable regarding the nature or extent of alleged damages. The good news is that you can manage a claim in a pastoral fashion, but still not “roll over and play dead” for some plaintiff counsel screaming at you. You do this via excellent investigation. What does the police report, the Department of Child and Family Services report, the medical records, the witness statements, the photos of the site where the incident occurred, the independent medical examination, the opinions of outside experts, etc., tell you about the validity of the claim or the accuracy of the alleged damages? All these things need to be considered to assess the nature and extent of loss. Then, once you have this information in hand — and the knowledge it conveys — you can suggest mediation, arbitration or other alternative dispute resolution mechanisms to hopefully prevent the waste that accompanies trials. If you are confident a claim is invalid, you need to fight it if you want to be a good steward. Finally, your attorney(s) should abide by a Litigation Management and Defense Cost Guidelines protocol of your selection. And always remember that while we highly value the advice and counsel of our great defense attorneys, they work for you – not vice versa. The ultimate decisions are yours! Michael J. Bemi is president & CEO of The National Catholic Risk Retention Group, Inc. (Lisle, IL) — a recognized leader in risk management. To learn more about available coverage — and to get valuable tools, facts and statistics — visit www.tncrrg.org.
N E V E R A G A I N : B E Y O N D I N S U R A N C E • V O L U M E 2 • CHURCH EXECUTIVE
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