Why Nonprofits Are Facing Insurance Collapse: Rising Premiums, Legal Risk & Reform Needed

The nonprofit sector in the United States is facing a deepening insurance crisis, highlighted in a recent article and corroborated by multiple industry reports. Carriers are pulling back from providing coverage because certain segments present significant legal and financial risks that are no longer tenable under current market conditions. Key factors include soaring claim severity (led by “nuclear verdicts”), escalating reinsurance costs, expanding legal liability—especially for abuse, employment practices, and professional liability—and systemic drivers like climate change, inflation, and strained risk pools.

Premium inflation is already unsustainable: average liability insurance rates for many nonprofits have increased by 163% since 2019, with some seeing more dramatic spikes. These hikes are often disconnected from claim frequency and tied more closely to external judicial and market pressures. Nonprofits that serve vulnerable populations are particularly exposed to liability risk, and funding bodies are demanding higher coverage limits—sometimes beyond what the market can reliably support.

Insurance market contractions worsen capacity: many specialist carriers have nonrenewed policies, reduced limits, or exited high-risk geographies. Nonprofits Insurance Alliance (NIA), a major nonprofit insurer, is trying to maintain capacity but struggles with limited reinsurance options and growing capital demands. Alternative models—such as captives, risk retention groups (RRGs), pooled purchasing, and shared risk funds—offer relief but are constrained by scale, capital, regulatory complexity, and still reflect broader systemic risk exposure.

Strategic implications are severe. Nonprofits may need to curtail operations, reduce workforce, scale back services, or disband entirely if insurance becomes unaffordable or unavailable. For funders, government agencies, and insurance regulators, the risks include service gaps, increased public dependency, and reputational damage. To mitigate, remedies could include legal reforms to limit liability exposure, public or philanthropic capital deployment to shore up nonprofit insurers’ surplus, expanded pooling mechanisms, and proactive risk management (such as safety protocols, claims history transparency, and judicial reform).

Critical open questions remain: What legal reforms would balance accountability with sustainability? How can reinsurance markets stabilize or be supplemented by public/private mechanisms to ensure nonprofits aren’t disproportionately penalized? What incentives can be deployed to encourage underwriting sensitivity to mission-driven risk profiles rather than broad risk aversion?