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Agency approves change to insurance program

 
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5:00 P.M. EST Nov. 22, 2010 | FRANKLIN, Tenn. (UMNS)

Irene Howard, CFO, United Methodist Property and Casualty Trust Company.   Photo courtesy of Janice Hamelburg, GCFA.
Irene Howard, CFO, United Methodist Property and Casualty Trust Company. A 2009 file photo courtesy of Janice Hamelburg, GCFA.
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In an effort to lower costs, the denomination’s top financial agency will become the single owner of an insurance program currently operated by a number of church entities.

During its Nov. 17-19 meeting, the United Methodist General Council on Finance and Administration approved a plan to allow the United Methodist Property and Casualty Trust Company to buy out the 12 annual (regional) conferences and two general agencies that now own the company.

The churchwide insurance program helps cover the costs of a variety of crises, including natural disasters, workers' compensation and the legal liability resulting from staff or clergy sexual misconduct.

Irene Howard, chief executive officer of the Evanston, Ill.,-based insurance company, said the move will lower operating costs, reduce premiums and enable United Methodist Property and Casualty Trust to issue policies in its own name.

These reductions would follow a 2011 renewal that delivered $2.4 million in aggregate premium savings to company members. The program will be shifting to a legal structure that the insurance industry calls a “single-parent captive” form. At present, the company must rely on commercial-carrier policies that require the payment of related fees and taxes not imposed on a single-parent captive.

“The underlying goal is to make coverage affordable,” Howard said, “so more churches can have adequate insurance.”

The company’s board of directors initially approved the plan in October. The council will be the sole owner by October 2011.

Implementing the shift means the company will buy out current owners at an estimated $1.29 million; regulators require an additional $600,000 as the initial single-parent capitalization.

Two General Council on Finance and Administration committees examined the proposal. The property services committee unanimously recommended the shift, and the financial services committee recommended –– by a 4-3 vote margin –– to provide the $600,000.

Question raised

The Rev. Steven C. Hundley, a district superintendent in the Virginia Conference, asked if it is true that the council provided $7 million to Property and Casualty Trust and it is now worth only $3.5 million.

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Howard told United Methodist News Service that the council launched the company in 2005 to replace the United Methodist Insurance Program. Over the first three years of operation, the council did provide $7 million for start-up costs through an insurance fund, the residue of user and service fees accumulated over the 34 years of the previous program. The council’s interest in the company has been reflected in its financial statements since 2005.

The denomination’s Mississippi Conference was one of the first conferences to sign up for the insurance program. Nine months later, Property and Casualty Trust received 368 claims related to Hurricane Katrina, for a total cost of $21 million. Because the company shares risks and a percentage of premiums with other companies, its net cost was limited to approximately $1.5 million.

Property and Casualty Trust did lose money in the first three years of operation, but over the next two years the company increased net income by just over $2 million. Total cash assets are projected to be $7.6 million by the end of the year.

Increased participation

In an earlier presentation, Rod Webster, general manager of the Episcopal Church captive insurance company, told the council that when the Episcopal Church moved to a single-parent captive in 1999, the percentage of participating churches increased from 58 percent to 85 percent. Webster, and the non-profit organizations he leads, became the service partner and broker for Property and Casualty Trust last January.

Howard said that the program currently insures 6.5 percent of United Methodist churches. She projects that figure will increase to 62.5 percent following this change. “Our financial modeling projects that over the next 20 years, GCFA’s equity in the single-parent captive will grow to $150 million, less any dividend the council returns to local churches and annual conferences,” she explained.

 The risk of claim payments will still be shared with commercial insurance companies, and Property and Casualty Trust will only be responsible for a portion of each claim.

Motion passed

The full GCFA passed the motion to provide $600,000 by a significant margin, and Howard said the company will be incorporated in Vermont in October 2011, since that state already houses a large number of nonprofit insurance companies.

“The essential issue is risk management,” said Don Brown, financial services committee chairperson. “There are churches that could face enormous property and liability claims, and some of them don’t have adequate insurance or any insurance at all.”

Previous surveys found more than 70 percent of United Methodist churches have no sexual misconduct liability and 90 percent of those that do have only $500,000 or less in limits. More than 40 percent have no workers’ compensation insurance, and more than 60 percent do not have director’s and officer’s liability insurance.

General Conference, the denomination’s top legislative body, first required GCFA to make available a “church-wide (property and liability) insurance program” in 1976, and the council created the United Methodist Insurance Program. Since 2005, the vehicle used to fulfill the General Conference mandate has been Property and Casualty Trust.

* Peck is a retired clergy member of the New York Annual Conference and a freelance writer in Nashville, Tenn.

News media contact: Linda Bloom, New York, (646) 369-3759 or newsdesk@umcom.org.

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