Australia has about 60,000 registered not-for-profit organisations, according to the Australian Charities and Not-for-Profits Commission (ACNC).
There’s a huge diversity of types and areas covered including education, social welfare, health, religion, culture, human rights, animal welfare, and the environment. Not-for-profits (NFPs) range in size from volunteer-run groups with no revenue or funding to the Returned and Services Leagues (RSLs) with 800+ separately registered charities.
Do all not-for-profits need insurance?
Do NFPs need insurance?
Often NFPs will secure government or other funding to operate services. That funding body may require you to have minimum insurance coverage.
For example, your organisation may hold fundraising events or even just set up an information stall on your local council’s land. Before you can do so, you’ll need to send them a copy of your certificate of currency for public liability insurance. This cover can protect you and the council if a member of the public suffers property damage or injury if your pop-up tent self-destructs in gusty wind, for instance.
NFP management risks
Consider that every organisation faces risks, such as physical, environmental, financial, criminal, employee, and regulatory. Typically, not-for-profits can also face issues with festivals/events, fire, food and drink, machines, and vehicles.
The Institute of Community Directors Australia has this detailed list of risk areas for NFPs.
Another risk to highlight is cyber security. One in five Australian charities and NPFs fear such an attack would devastate their organisation, according to the Australian Nonprofits State of the Sector 2023 report. It showed that in the previous 12 months, 8% of NFPs surveyed had experienced a cybersecurity incident. One breach included about 70 organisations and 50,000 donors were affected when a hacked telemarketer (Pareto Phone) held on to data for too long.
Spotlight on association or management liability
While you may be able to operate your NFP without insurance, if something goes wrong, even if your organisation is not at fault, the repercussions can be significant. NFPs who try to self-insure could expose their management and board of directors to substantial financial hardship risks.
For instance, investing in insurance coverage as part of your risk management approach could impact your:
- Ability to run public fundraising events
- Ongoing relationships with sponsors, supporters, and clients
- Workplace health and safety of your staff and volunteers
- Duty of care to volunteers, members of the public, attendees, contractors, etc. to ensure they aren’t injured on your premises, at your workplace or events or don’t suffer property damage
- Compliance with financial reporting, tax, auditing regulations
- Capacity to defend and fund legal or other claims of wrongdoing, even if you’re in the right.
Other ways to protect your business
Your organisation can take these steps to avoid your directors or officers’ breaching their duties:
- Know the laws that apply to your NFP
- Encourage a workplace culture of compliance, including transparency so people are apt to report breaches
- Assess and interrogate information you’re offered, even if it’s from another director, to help you make decisions for the NFP
- Audit the board’s skills and where you identify gaps, invest in expert advice or upskilling
- Develop strong risk-management processes, such as creating a hazard and risk register for current and would-be risks and how you’ll minimise them, and
- Set up robust compliance policies and processes.
As an NFP, chances are you indemnify your directors against liabilities that happen in good faith while they’re performing their duties. But you’ll need assets to cover that loss.
If you don’t have that cushioning, director and officer insurance could be a good fit. This cover protects directors and officers from personal liabilities, such as claims arising from decisions they’ve made while doing their roles within their authority area. Policies differ, but typically won’t cover conduct such as dishonest breach of duties.
We can guide you on customised insurance to fit your NFP’s precise needs, whether it includes directors’ and officers’ cover.
Let us help bolster risk management to help protect your organisation from the many risks.