“Never Again: Beyond Insurance (Vol. 3)” Presented by: The National Catholic Risk Retention Group, by Power Trade Media

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 .

VOL.

Presented by: The National Catholic Risk Retention Group, Inc.

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 3

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Table of Contents PASSING THE ‘HOT POTATO’

CONTRACTUAL RISK TRANSFER — HOW TO PROTECT YOUR CHURCH WHEN ENLISTING OUTSIDE SERVICES First, we acknowledge that since this series of articles moves us “beyond insurance,” this mandates some level of Risk Retention — a self-assumed level of loss absorption that we must continually work to control if we are to derive maximal benefits from the Risk Retention process. We achieve that control via: occasional Risk Avoidance; loss prevention and mitigation through Risk Control; loss mitigation through Claims Management; and, for examination here: loss prevention and mitigation through Contractual Risk Transfer.

MOVING BEYOND INSURANCE — HOP ON BOARD!

Our series on moving “beyond insurance” has identified and examined all the critical elements and related processes to enable an insured entity to “move beyond” insurance. However, we have not yet discussed and described the options available to your entity to retain risk. These options exist as methods of alternative risk financing and themselves are alternative risk mechanisms. By Michael J. Bemi

By Michael J. Bemi

MOVING BEYOND INSURANCE — REALLY? A 6-STEP PROCESS TO MAKING IT A REALITY AT YOUR CHURCH

Our series on moving “beyond insurance” has, so far, identified and examined all the critical elements and related processes to enable an insured entity to “move beyond” insurance.

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But, realistically, can we ever really move beyond insurance? 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 .

By Michael J. Bemi

RISK FOR ANY RELIGIOUS ORGANIZATION — OVERSEEING YOUTH

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The largest risk for any church organization is overseeing youth. The main goal is to create a safe environment as the basis for any child’s encounter with God to be safe and open to receive Him; this is the responsibility of caring adults. This article outlines the issues and solutions surrounding the three greatest areas of risk to children — location, culture and human predilection — and ultimately identifies how every single person has a valuable role to play.

Presented by: The National Catholic Risk Retention Group, Inc.

Download the Never Again: Volume 2 eBook

By Crispin Ketelhut Montelione 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 .

MOVING BEYOND INSURANCE — AND STAYING THERE! (STAY “RISK AWARE” OR BEWARE!)

NEVER AGAIN Presented by: The National Catholic Risk Retention Group, Inc.

Our series on moving “beyond insurance” has identified and examined all the critical elements and related processes to enable an insured entity to “move beyond” insurance. Reality dictates, however, that even if you substantially selfinsure your risk (i.e., employ “alternative risk financing”), and no matter what form of self-insurance you pursue (individual self-insured account; participation in a self-insured pool; captive insurance company; risk retention group; cell captive; etc. — “alternative risk mechanisms”), you’re still employing / buying insurance … just from yourself! 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 3 • CHURCH EXECUTIVE

NEVER AGAIN: BEYOND INSURANCE

PASSING THE ‘HOT POTATO’ CONTRACTUAL RISK TRANSFER — HOW TO PROTECT YOUR CHURCH WHEN ENLISTING OUTSIDE SERVICES By Michael J. Bemi

Most recently in our series on moving “beyond insurance,” we examined Claims Management. Now, we undertake the next step in our journey: Contractual Risk Transfer. First, we acknowledge that since this series of articles moves us “beyond insurance,” this mandates some level of Risk Retention — a self-assumed level of loss absorption that we must continually work to control if we are to derive maximal benefits from the Risk Retention process. We achieve that control via: occasional Risk Avoidance; loss prevention and mitigation through Risk Control; loss mitigation through Claims Management; and, for examination here … Loss prevention and mitigation through Contractual Risk Transfer Contractual Risk Transfer is used whenever our Church entity undertakes to employ some needed service provided by an outside entity (examples: cafeteria management, student transportation, grounds keeping and so on), or decides to build or lease some property to expand ministries. The process begins by assessing which party to the undertaking is best positioned to prevent or mitigate loss, because that party has exclusive or primary control of the related process / undertaking, and also because it possesses experience, expertise and special equipment necessary to most safely provide the service or undertaking. Typically, using our examples, it will be the food service company, the bus transportation company, the landscaping company and the contractor that should assume primary responsibility via the contract of service — not the Church entity. The process continues via use of a ‘hold harmless’ or indemnification clause in the contract. Broad Form Indemnification clause: This clause requires the indemnitor (transferee of the risk) to assume all liability associated with the subject matter of the agreement regardless of which party was actually at fault, including, potentially, assumption of the indemnitee’s (transferor of the risk) sole negligence. 4

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Intermediate Form Indemnification clause: This clause requires the indemnitor (transferee of the risk) to assume all liability associated with the subject matter of the agreement except for injury or damage caused by the indemnitee’s sole negligence. Note that this could result in a situation where the indemnitor is obligated for 100 percent of damages from a loss for which it actually was only 15 percent at fault, while the indemnitee was 85 percent at fault. Limited Form Indemnification clause: Sometimes referred to as a ‘mutual and reciprocal’ or ‘comparative fault’ clause, this clause obligates the indemnitor only to the extent of its own fault. A Church entity should never allow itself to become the indemnitor / transferee where a Broad Form or Intermediate Form Indemnification clause is being required of it, by the contracting counter party. We next need to recognize that every Hold Harmless / Indemnification agreement provided to a Church entity by a contracting party is only as good and reliable as is the ability of the contracting party to fulfill any protective obligation to the Church entity, which it has assumed under the contract. This is why you should employ a ‘belt and suspenders’ strategy by requiring that your Church entity be named as an Additional Insured (AI). However, the process doesn’t stop simply with the assurance that your entity will be named as an Additional Insured. Your attorney, risk manager and broker will all require contractual language stipulating the type, quality of (example: minimum Best’s rating of A8) and limits of insurance coverage, plus a valid certificate of insurance verifying currently in-force coverage that meets the aforementioned requirements. If the service or undertaking will continue beyond the term of the current coverage, the agreement should require renewal coverage “equivalent to” — or “at least as broad as” — the expiring coverage, as well as provision of a new certificate of insurance. Finally, you should know that many states now have “anti-indemnity” statutes and / or related case precedents which could affect not only your desired contractual transference result, but also the efficacy of your Additional Insured status. Consequently, always use an attorney experienced in these contractual matters, who is also familiar with relevant state statutes and case law. 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

MOVING BEYOND INSURANCE — REALLY? A 6-STEP PROCESS TO MAKING IT A REALITY AT YOUR CHURCH By Michael J. Bemi

Our series on moving “beyond insurance” has, so far, identified and examined all the critical elements and related processes to enable an insured entity to “move beyond” insurance. But, realistically, can we ever really move beyond insurance?

In other words, and by way of review: #1: You first need to Identify, Analyze and Evaluate the ministries, non-ministerial operations, assets (human, physical and financial) and environment that expose your church to loss. Note that if your ministry is very large and has been well-established for many years, involving a certified actuary can be very helpful in assessing the probable frequency and severity of your future claims. #2: You need to determine the relative cost to benefit relationship of all your ministries or proposed ministries, with the goal of perhaps deciding to prevent losses and claims via Risk Avoidance. Remember that a foundational principle of risk management is to “never risk a lot for a little.” #3: Using the information produced by steps 1 and 2 (including actuarial advice for very large entities), you can determine a reasonable level of initial Risk Retention that will reduce your insurance premiums, improve your cash flow, and allow you to choose how you employ your premium savings. Note here that it is highly recommended that you use a substantial portion of those savings to establish a “loss fund” to cover payments for predictable loss experience, without damaging your regular cash flow. Over time, your retention level can increase, but only if you employ the remaining several steps. #4: All your sincere efforts and good intentions in steps 1 through 3 will be for naught, if you do not seriously undertake and continuously employ Risk Control. This will prevent losses from occurring and mitigate the severity of losses you cannot prevent. #5: Similarly, we must recognize that in this imperfect world in which we live and minister to others, it is impossible to prevent every loss and related claim. We then must turn our attention to and concern ourselves with excellent Claims Management. To accomplish this, we must successfully “walk the tightrope” that exists between compassionately, fairly, pastorally and expeditiously tending to victims we have created, while avoiding the temptation to “roll over and play dead” in relation to unreasonable demands by victims and their legal representatives, when the extent of your church’s negligence or the extent of the victim’s damages, or both, are questionable and debatable.

After all, even the largest insurance companies still buy insurance for their own operations, in a process known as reinsurance. Given the potential for catastrophic events or unpredictable “black swan” occurrences, the ultimate costs of self-insuring could become enormous. Even if a faith-based entity were able to amass the resources to finance these costs, would that represent good stewardship, or would the church’s mission be better served by investing these resources and finances into its ministries? The good news is that there is a “middle road” that can be followed to achieve excellence of both ministerial and risk management objectives, without paying too much for necessary insurance. That “middle road” requires implementation of, and consistent adherence to, the “roadmap” elements and processes identified in this series of articles.

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#6: Next, we use Contractual Risk Transfer. This ensures that the entity most able and best equipped to control operations and activities performed on your behalf is also the entity that is contractually responsible for losses / claims that arise in the performance of their work. It also confirms that they make your faith-based entity an Additional Insured under their coverage. The coverage must be validated to ensure consistency with your standards of quality and extent, with evidence of insurance carrier excellence. Finally, while performing all six steps, you are in a position to determine — with professional assistance, if you deem — the amount of excess insurance to purchase for catastrophic and highly unpredictable loss events. 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 3 • CHURCH EXECUTIVE

NEVER AGAIN: BEYOND INSURANCE

RISK FOR ANY RELIGIOUS ORGANIZATION — OVERSEEING YOUTH By Crispin Ketelhut Montelione

The Internet is an off-site “location” that can be very conducive to ministry. Various types of access to the Internet that can be beneficial or harmful include: tablets, smart phones, “smartphone” watches, social media apps and gaming devices. The very nature of interaction over the Internet is that communication is outside of the sight and hearing of others. What children and adults access and post can be harmful to youth, and could affect their reputations, safety, and can even increase their risk of harm. As adults, we must ensure that our online behavior is above reproach; it must be as transparent as our behavior in person, with oversight and monitoring of all youth Internet activities, and installation of blocking and filtering software. Instead of using personal accounts, we must also ensure that employees / volunteers use church accounts to communicate with the youth during appropriate daytime hours, copying parents on all correspondence. Culture Culture affects safe environments in two main ways: 1) The collective organizational culture of an entity — where tradition within the entity becomes culturally acceptable and establishes the norm regardless of actual behavior. 2) An individual’s cultural identity — which determines that a particular behavior is appropriate or not. This can be impacted by personal values, family and ethnic traditions, country of origin, etc.

ome risks to children are more obvious than others. There’s increased risk within church environments, because of an assumption of trust and safety. We can drastically reduce risk to children in virtually any church environment as long as we’re vigilant and have specific “Access control” and “Monitoring programs” procedures. Location Off-site ministry locations pose special problems, because the ministry is conducted outside of the typical monitoring of others. Examples include personal homes, vehicles, parks, public locations, sport facilities, etc. It’s important to understand that Code of Conduct / Policy requirements still carry over to any location where ministry is conducted, including the Internet.

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The combination of these two types of culture gives individuals more or less access to children. This can negatively affect the safety of youth, even when the individual has good intentions, and the culture could condition a child to more easily accept questionable behavior by someone who has bad intentions. Multifaceted training provides a solution and makes it entirely possible to correct the cultural impact on safe environments. Safeenvironment training must have proactive and reactive elements, and engage the participant to learn tangible steps in prevention and response to problematic situations. Educating the location means learning and modeling appropriate behavior that is public, appropriate and non-sexual, and identifying potential warning signs of inappropriate relationships. Developing a culture for safe environments and modeling that behavior from the top down via leadership support helps individuals learn to compensate for their individual culture and the collective organizational culture. And, it reminds them to always remain conscious of known risks and their personal role in mitigating those risks. Human predilection Many elements are intrinsic to human nature that create human predilection to weaken or interfere with systems designed to protect youth, such as: feeling overwhelmed or burnt out, laziness, not wanting to suspect inappropriate behavior from people we love, denial, disbelief, and detrimental mentalities of “not my child” and it “couldn’t happen here.” We’ve learned so much, but consistently tend to make the same mistakes through human error. Consequently, individuals who know the right thing to do ignore it, and good people don’t act on an issue they could or should have followed through on. Appropriate, comprehensive and consistent safe-environment training — along with updated policies, vigilance and specific procedures — can eliminate the threats to children presented by the location, culture, and human predilection. Crispin Ketelhut Montelione is the Associate Director of the VIRTUS® Programs, a safe-environment program suite via NCS Risk Services, LLC. http://virtus.org.

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NEVER AGAIN: BEYOND INSURANCE

Moving beyond insurance — and staying there! Stay “risk aware” or beware! By Michael J. Bemi

Our series on moving “beyond insurance” has identified and examined all the critical elements and related processes to enable an insured entity to “move beyond” insurance. Reality dictates, however, that even if you substantially self-insure your risk (i.e., employ “alternative risk financing”), and no matter what form of self-insurance you pursue (individual self-insured account; participation in a self-insured pool; captive insurance company; risk retention group; cell captive; etc. — “alternative risk mechanisms”), you’re still employing / buying insurance … just from yourself!

Here are just some matters that church bodies should be aware of and monitor: Employment practices, and discrimination in general: As a function of our Constitution’s First Amendment “anti-establishment” and “free exercise” clauses ultimately leading to the “ministerial exception” / “ecclesiastical exception” doctrine, plus the federal Religious Freedom Restoration Act (RFRA) and its counterparts in many of the states — plus, the Religious Land Use and Institutionalized Persons Act (RLUIPA) — church bodies have a great deal of latitude to make hiring / firing and facilities use decisions that would otherwise be considered illegal discrimination if undertaken by non-religious entities. However, this is an area constantly being legally challenged. It would be foolish to assume that religious entities are always “bulletproof” and can do whatever they please in these arenas of employment practices and facilities use. (Confer with your legal counsel for more information.) Use of drones: Drones can be very valuable for safely inspecting church steeples and roofs and / or premises safety conditions. However, I know of at least one fatality that occurred at a religious premise involving a malfunctioning drone. Make sure your operators are trained; that they comply with any state and federal drone use guidelines; and that your drones are properly and regularly maintained. Transgender issues: Your doctrine may not — or may — provide some accommodation for and acceptance of transgender people. Notwithstanding your doctrinal position, they might arrive at your place of worship for guidance and consolation. Are you prepared to address such circumstances in a fashion that doesn’t invite a lawsuit? For example, would you have restroom facilities or a related protocol that a transgender individual could make use of?

This realization compels you to always remember an axiom of alternative risk financing; namely, the value of self-insurance completely disappears if you allow your total cost of risk to exceed the premiums you would pay simply to purchase comparable commercial insurance in the standard marketplace. [Note that your total cost of risk, or TCOR, is equal to the losses you retain, plus the selfinsurance administrative expenses you incur (for risk control; claims management; special regulatory, tax and / or accounting services), plus the cost of premiums you pay for excess coverage.] Probably the biggest threat to your TCOR outstripping commercially available premiums is the failure to constantly and vigilantly remain “risk aware.”

So, what does “risk aware” mean? “Risk aware” is the process of consistently assessing changes in your operational environment, to prevent (to the extent humanly possible) being “blind-sided” by a risk(s) you didn’t contemplate and which are now costing you a great deal in newly retained losses.

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Church police forces: At least one faith community in the South has received local government approval to establish and maintain its own police force. One needn’t search too long to find multiple current examples nationwide of alleged police professional malfeasance. If you’re considering this option, do you think you have the appropriate knowledge, experience, training and resources to do so without creating additional serious liability situations for your church body? Cyber ministries / strategies: One could easily argue that, in this day and age, your congregation is “missing the boat” if it doesn’t at least consider using the Internet and social media to expand and enrich its ministries. Nevertheless, we all recognize the associated and inherent dangers of unplanned, unsupervised and uncontrolled use of the Internet and social media. I’m sure you now get the idea: to move beyond insurance, you must stay risk aware! 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 3 • CHURCH EXECUTIVE

NEVER AGAIN: BEYOND INSURANCE

Moving beyond insurance — hop on board! By Michael J. Bemi

isk retention and alternative risk financing tend to “flow” along a relative continuum. That continuum usually begins with an organization individually selfinsuring some portion of the losses generated by its insurable exposures/operations/ activities. When closely related entities — such as a presbytery, district, diocese, synod, etc. — recognize the commonality of their exposures/operations/activities, they might form a self-insured pool. As the alternative financing experience and expertise of a related group increases over time, it might be attracted to a more sophisticated method of risk financing. Typically, this would involve moving toward establishment of its own insurance company. Note that for taxable entities, this transition to insurance company status can provide two tax advantages: 1) Acceleration of the deductibility of established loss reserves; and 2) Provision of greater certainty regarding the deductibility of premium payments. Even this process of establishing an actual insurance company can itself follow a continuum, somewhat akin to children crawling before they walk and walking before they run. Smaller entities might choose to elect IRC (Internal Revenue Code) 831(b) status, which provides that an insurer may be taxed only on its investment income — and not its underwriting income/profits — if its net written premium (or, if greater, direct written premium) does not exceed $2.2 million and certain ownership and diversity of control requirements are met. Note that electing this option should be done with great prudence and caution, as abuse of this tax provision (via its

use for estate planning purposes and gift tax avoidance) has led to significant scrutiny by the IRS to ensure that the entity created does not constitute a “transaction of interest.” Alternatively, “baby steps” can be taken via establishment of a “cell” captive within a “sponsor” insurance organization. Larger and more experienced groups of entities might form a group “captive.” Simply put, a “captive” insurer is an insurance company subsidiary of a non-insurance entity; for our purposes, the non-insurance entity is a church group. If the needs of the group revolve around liability insurance issues, they might choose to form a Risk Retention Group (a liability only captive enabled under Federal authorizing legislation). In all these instances — and with all these mechanisms — the professional assistance of actuaries, attorneys, consultants and specialty brokers should be sought, to maximize the probability of successful risk financing that will “stand the test of time.” Here are two caveats that can never be ignored or discounted if you choose to “go down this path.” First, you shouldn’t even initiate this process without being able to identify several welldefined needs that suggest you should retain your own risk. What are some of these needs? They include: •Y ou can’t obtain insurance in the commercial market to protect a ministry or ministries that you believe are essential to your religious mission. •T he insurance you can obtain is inadequate based upon an analysis of its coverage terms and provisions. In other words, it excludes coverage for activities/operations/ministries that are critical to the practice and profession of your faith. •T he insurance you can obtain is adequate in regard to what it protects, but the available limit of coverage is not adequate when compared to the potential for damaging losses you might experience. •T he insurance you can obtain is generally adequate to your needs, but is egregiously overpriced based upon your excellent long-term loss history. •A ny combination of the above creates a well-defined need. Finally, keep reminding yourself that successfully operating an insurance company “over the long haul” is, in fact, an extremely difficult task. Michael J. Bemi (retired) is former 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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