The rising costs of goods and essential services across the board is having a concerning impact on Adventist church communities and their ability to conduct mission and ministry, and unfortunately, insurance costs continue to rise.

Likewise, Risk Management Service is affected by these cost increases. Every year the RMS team is faced with the challenge of negotiating the Church’s complex insurance program with the help of our broker partner. Together, we petition on the Church’s behalf for the best rates, and the most favourable terms and conditions we can obtain, collectively spending thousands of hours poring over policy documents to ensure the ministries of the Church are properly protected.

We are deeply concerned by the financial pressure being experienced by our churches, schools, offices, manufacturing and healthcare institutions, and the impact that the cost of insurance is having overall.

When we witnessed the start of the hard market in 2017 we could never have anticipated that it would be such a long and protracted period of difficult conditions and unfavourable pricing.

The RMS team is constantly challenging, questioning and testing the policies we manage to ensure we are providing the best value for the Church in today’s hard market conditions.

For example, we conducted actuarial investigations into different pricing models resulting in RMS taking on a larger deductible (excess) to reduce the impact of the price increase in 2019/20.[i]  By 2021, however, insurers and reinsurers had withdrawn much of their capacity in the market, tightening terms and conditions and reducing their appetite for certain risks.

When negotiations on terms and conditions seemed impossible, RMS felt it was time to conduct a broker review to find a broker that would help re-energise market interest in the Adventist Church’s insurance portfolio. After a thorough tender process, our new broker partner commenced with us last year.

Factors influencing the cost of insurance rates are complex. Typically the insurance cycle peaks and troughs, like many other industries. However, what our Adventist church organisation is experiencing with insurance rates right now is exacerbated by four key factors:

1. The impact of increasingly severe catastrophic weather events,
2. An adjusted billing period to align with cover period,
3. Corrected reinstatement values through professional valuation, and
4. High-value buildings + changed member giving habits.

Allow us to take a deep dive into each of these influences.

Catastrophic Weather Events

Our region has experienced year-on-year catastrophic weather events that have resulted in significant damage to property.

The Insurance Council of Australia reports, “2022 was a record year for insured losses, driven by flooding in Northern New South Wales and South-East Queensland in February-March, in the Hawkesbury-Nepean in July, across three states in October, and in the Central West of New South Wales in November. Combined, these flooding events alone have so far cost insurers $7.17 billion from more than 300,000 claims.”[ii]

It is important to remember that RMS does not self-insure Adventist property in Australia and New Zealand. We work with external brokers to source a comprehensive insurance policy for church-owned property. So inevitably, claims inflation – the frequency and quantum of loss events – will cause insurance rates to rise.

Additionally, your Adventist site’s rates include a contribution to the ‘under-deductible loss pool’. This loss pool is a benevolent system for some lines of cover where the deductible (excess) is very large – far greater than one Adventist site could fund. This pool is extremely important as it responds when a site experiences a loss and instead of paying an impossible excess the site pays a much more manageable and affordable excess. This protects ministry and mission and is something all Adventist sites contribute to, and will benefit from, in the event of a loss.

So when there is a run on claims, both insurers’ reserves and the under-deductible loss pool need replenishment to ensure future claims can be met.

Adjusted billing period.

For the 2022/23 renewal period, RMS made the decision to adjust the billing period so that it would align with the period of cover.[iii]

Previously, we billed 1 July to 30 June, however the underlying insurance policy period has always been April to March. To align the billing to the policy period RMS invoiced for only 9 months of cover for 2022/23 (June 22 – March 23).

However, we did not take into account that this change would result in a false sense of an inflated rate for the following year, making the 2023/24 12-month cost of cover look unreasonably disproportionate compared to the previous 9-month period. We apologise for this oversight and how it has contributed to this year’s sense of ‘bill shock’.

Corrected reinstatement values.

Under-insurance is a major concern for our Church.

Historically, Adventist churches have never ‘knowingly’ under-insured their property despite major under-insurance across the Church’s property portfolio. External insurers have, for decades, acted in good faith with our organisation and responded in full to loss events despite some under-insurance. Gratefully, they have never threatened our organisation with the big stick of the ‘co-insurance’ clause (aka average clause) which reduces a claim payout in the same proportion of the level of under-insurance.

However, an insurer’s right to activate the co-insurance clause is always there and we want to avoid the risk of financial exposure that under-insurance, and the co-insurance clause, could bring on our church’s ministry and mission. Additionally, as insureds, we have an obligation of ‘utmost good faith’ in our conduct with insurance providers including a duty to disclose any change to property that could affect insurance coverage.

So in 2020, RMS embarked on a large-scale property valuation program for all Adventist Church-owned sites.

This program has revealed a multitude of properties that are considerably under-insured for replacement at today’s rates. The cost to build in 2023 is substantially greater than in 2003. Reinstatement values are made under current and not pre-existing building codes, and together with building costs inflation and additional costs such as removal of debris and professional fees (eg. architect, legal, etc) they all impact the cost of reinstatement.

The property valuation program is also unearthing site improvements, extensions and new buildings that have never been reported to RMS for insurance. A concerning number of church-owned buildings and structures have gone un-insured for many years. We’re grateful that this is being uncovered during valuation rather than a loss event.

The natural result of corrected reinstatement value (aka cover value) is an adjustment in the overall premium contribution. For sites that were under-insured, their overall contribution will increase, for sites that were over-insured, the overall contribution would reduce.

High value buildings + changed giving habits.

We’ve come this far without mentioning the impact COVID-19 had on the economy and the shutdown of churches. The ability of the church to pivot ministry to the digital world at a time overly described as ‘unprecedented’ was innovative and admirable. However, with the rise of eGiving and online worship, we can only guess the outcomes this has had on attendance and giving habits of church communities, especially those with high value property assets.

Similarly, members and attendees are not immune from the impacts of the current cost of living and naturally there may be a decline in giving during this time, or they may choose to redirect their giving to projects and causes they see have greater missional value. Consequently, church budgets may be hurt by this and it could make essential operating expenses even more challenging to meet going forward.

What can be done?

The challenges are shared. There are steps we as RMS, can and have taken to ease the pressure as much as we can – that work will continue. And there are actions that your church and local conference can take too, to lessen the impact of rising costs of insurance and we strongly encourage you to read our article, Tips to Save Money on Insurance.

Pricing challenges, though stressful, also bring the opportunity to tighten and improve your Adventist site’s risk control efforts and reduce its risk exposure. Whether or not you believe in climate change or end time events, significant catastrophic weather events, inflation and external factors will continue to pose a threat to mission, so now is a great time to prepare. RMS has access to resources and expertise to help you build a more resilient Adventist community.

Finally, we will continue to communicate with you and all our insureds the state of the insurance market through our website, e-newsletters, social media, Adventist Record, and our annual renewal letters.

You can reach out to us anytime by calling 02 9847 3375 or via [email protected]

Thank you for your faithfulness and the good work you do in your community. We hope and pray that we can work with you through this challenging time and see your church community thrive.

[i] For Adventist Church-owned property in Australia.

[ii] Insurance Council of Australia. (n.d.). Inquiry on insurers’ 2022 flood response welcomed. [online] Available at: https://insurancecouncil.com.au/resource/inquiry-on-insurers-2022-flood-response-welcomed/ [Accessed 29 Aug. 2023].

[iii] For Adventist Church-owned property in Australia and New Zealand