How a Perfect Storm Sent Church Insurance Rates Skyrocketing

At DOXA, we understand the unique challenges faced by religious institutions, especially in times of crisis. The current state of the church insurance market is a prime example of how external factors can converge to create significant difficulties for organizations that play a crucial role in our communities. Let’s explore the factors driving these changes and what churches can do to navigate this turbulent landscape.

The Reverend John Parks’ Story: A Microcosm of a Larger Crisis

Reverend John Parks of Ashford Community Church in Houston found himself in an unexpected predicament during his first sabbatical in 40 years. His church’s insurance company, Church Mutual, dropped their coverage despite the church never having filed a claim. After a challenging search, Parks managed to secure new coverage for a staggering $80,000 per year, a significant increase from the $23,000 they had been paying.

This story is far from unique. Across the country, churches are grappling with the harsh realities of an insurance market under siege by natural disasters and rising costs. From Gulf Coast hurricanes to California wildfires and Midwest flooding, these calamities have strained the insurance industry’s capacity, leading to higher premiums and dropped coverages.

A Perfect Storm of Challenges

Several factors have combined to create a perfect storm in the church insurance market:

1. Natural Disasters: The increasing frequency and severity of natural disasters have led to a surge in claims. Events such as hurricanes, wildfires, and severe convective storms have caused billions in damage, depleting the reserves of insurance companies that specialize in covering churches.
2. Rising Construction Costs: The COVID-19 pandemic triggered supply chain shortages, driving up the cost of construction materials. This increase in rebuilding costs translates directly into higher insurance claims, prompting insurers to raise premiums to maintain their financial stability.
3. Specialized Risk Profiles: Churches present a unique set of risks due to their public nature, diverse activities, and often large, historic buildings. The lack of regulation in the sector adds another layer of complexity, making underwriting a challenging task.

Impact on Churches Nationwide

Hundreds of United Methodist churches in the Rio Texas Annual Conference lost their property insurance in late 2023, with many still struggling to find replacement coverage. The Iowa Annual Conference experienced similar issues, affecting both small rural congregations and larger churches alike. The UMC’s Book of Discipline mandates insurance coverage for the full replacement cost of buildings, but for many churches, this has become an untenable burden.

Kevin Reed, president of the Rio Texas Conference board of trustees, highlighted the dire situation: “We have not found a good solution. It continues to be a significant problem for our churches.” The challenge is particularly acute for struggling churches with declining memberships and giving, for whom rising insurance costs may be the final straw.

The Financial Burden and Its Ramifications

For many churches, the financial burden of increased insurance premiums is forcing difficult choices. Bethany Covenant Church in Berlin, Connecticut, saw their insurance costs skyrocket from $12,500 to $73,000 after a policy cancellation. This forced the church to dip into reserves and adjust their budget midyear, a scenario echoed by many congregations across the country.

Brad Hedberg, executive vice president of The Rockwood Co., noted the pressure on church insurers from reinsurers looking to reduce their exposure to high-risk claims. This has led to stricter underwriting and higher premiums, making it difficult for churches to maintain their insurance coverage.

Navigating the Storm: Strategies for Churches

In this challenging environment, churches need to adopt proactive measures to manage their insurance risks and costs:

1. Risk Management: Churches should implement comprehensive risk management policies, including abuse prevention programs, stringent maintenance schedules, and safety protocols. These measures can help reduce the likelihood of claims and make the church more attractive to insurers.
2. Strategic Claim Filing: It’s crucial for churches to be strategic about filing claims. Small claims can lead to higher premiums or nonrenewal of policies. Instead, churches should reserve their insurance for significant losses and handle minor issues out of pocket.
3. Leveraging Brokers: Working with experienced insurance brokers can help churches navigate the complex insurance market. Brokers can assist in finding the best coverage options and negotiating terms that align with the church’s needs and budget.
4. Community and Resource Sharing: Churches can explore partnerships and resource-sharing arrangements with other congregations to spread out costs and risks. Collaborative efforts can also enhance negotiating power when seeking insurance coverage.

Looking Ahead

The church insurance market is in flux, with significant challenges that require innovative solutions. While the road ahead may be tough, churches can take steps to mitigate their risks and secure the coverage they need to continue their vital work.

At DOXA, we stand ready to support churches through these turbulent times. By providing a refreshingly different level of trust, empowerment, and agility, we help our partners navigate the complexities of the insurance market and emerge stronger on the other side. Together, we can ensure that churches remain resilient pillars of our communities, continuing their mission without compromise.