A Conversation About Insurance with John Murphy | Leadership Luncheon

Yeah, that's such a great question. Thanks for giving me a chance to speak to it. Just as a quick introduction, John Murphy. I work with an organization called Risk Program Administrators. But before I came to Risk Program Administrators, I worked for GuideStone Financial Resources, and I was a managing director of all of their insurance sales for both the life and health program as well as the property and casualty program. So I worked with H-E-B and Cho and that team over there that you guys would know pretty well. I'm devoting my life now to helping faith-based organizations create alternative risk financing programs, which just means self-insurance type ideas like this. My dad was a Southern Baptist pastor, and I grew up on the mission field as a missionary's kid on the island of Kiribati through the International Mission Board. He was a pastor in Birmingham, Alabama. I was a student pastor twice. I go to an SBC church, not a BGCT church, and my BGCT friends tell me that that's okay, they'll forgive me. I go to Providence Church here in Frisco, Texas, where my wife and I attend, and we're active in it as well. I work with Ward directly. We just finished a feasibility study. Now we're trying to put together a program that is going to drive affordability and availability of insurance for BGCT-aligned churches. But I do it for other denominations too, for other organizations too. The Assemblies of God have looked at this across the country. I am having this exact issue. So what Jim just said is so true. And if you say, 'John, why are we facing this?' There are several reasons for it. The primary reason is because of what we call reinsurance. This is a concept: every insurance carrier only retains, only pays a certain amount of any claim, and then they all go to these marketplaces to buy insurance coverage above a certain limit. For example, Brotherhood Mutual, that many of you might have been with—that was the main carrier that I used at GuideStone for all my time there—they only retained the first million dollars, when I was there, of any property claim or any liability claim. So if you ever had a hail storm or a total loss fire or anything like that that went over a million dollars, they might have paid the claim, so the check might have looked like it came from Brotherhood Mutual, but they had someone else that they had contracted with that paid any portion over that $1 million. And that's true of every carrier that you would work with. That's true of Church Mutual and GuideOne and Brotherhood and State Farm and Travelers and anybody else that you might have seen. And the reinsurance marketplace has gotten very nervous about churches in America, about faith-based entities. And they would say it's because we have the largest buildings—so property is the big driver—with the largest roofs in every single city that we come to. And these roofs keep getting hit with hail storms as well as hurricanes. We keep having these problems. The freeze from 2020 or 2021 was the largest catastrophic damage that we had ever seen in the southern part of the United States at one time. These reinsurers also were reinsuring a large spread of risk, so they're reinsuring in California expecting not to have the same problem in California that they have in Texas that they have in North Carolina. But we never expected to have the years that we've had over the last five years, really since COVID. We've all of a sudden seen this inflationary problem as well as a catastrophic problem where hurricanes are hitting in different areas back to back. So we have the North Carolina hurricane that we still have to recover from that did a lot of damage. We've had Florida get hit multiple times over the last few years. We've had Louisiana and Texas get hit several times over the last few years, although no really big damage lately. Then we had these wildfires in California. And these same reinsurance carriers that all of the markets go to—and by markets I mean the Brotherhood Mutuals, the GuideOnes, the Church Mutuals—they're all saying, 'We don't know if we can handle the amount of exposure or limits that your churches are needing.' So they don't want to sell high limits of insurance anymore, especially in what they call catastrophic-prone areas. Even this week, did you guys see how much this wind damage did damage in Dallas? It wasn't even like a heavy storm, and all of a sudden we just had really heavy wind on Monday, and we had buildings that collapsed in on themselves because of what they call severe convective storm. So I'm going to start by saying the reinsurance marketplace is not looking favorably at churches and the faith-based market in the United States. In addition to that, they're all nervous about sexual abuse and molestation, this child abuse situation that's been talked about heavily because of the Catholic church over the last two or three decades, but it keeps bleeding over into every other evangelical denomination too, primarily because state and federal laws have been changing lately that have insurance carriers nervous about past claims that can come up. So where they used to believe there was a statute of limitations—and I don't want to speak in a way that doesn't make sense—but they used to say as long as somebody didn't bring it up for a few years, the insurance isn't going to have to pay for it for the past. They've removed that statute of limitations, so now someone can say, 'I was abused as a child in a ministry environment,' it could have been 30, 40, 50 years ago, and the insurance carrier could still be on the hook for that from the past. And insurance carriers are always trying to figure out how much their risk is. So we have an issue that's hitting the faith-based market because we've been going to carriers that are having to buy from these same reinsurance marketplaces. In addition to it, these carriers are rated by A.M. Best. You guys have probably all heard of A.M. Best before. This rating agency that gives them that A or A- rating, and A.M. Best has been saying that they didn't like the faith-based marketplace as much lately because they thought there were some exposures that were coming down their way that they weren't collecting enough dollars for. So Brotherhood Mutual was downgraded from an A to an A- when I knew them, and then into a B+ a couple years ago. And their financials weren't that bad if you actually looked at their financial statement. They didn't lose a ton of money every year, but A.M. Best said, 'We don't think they have a positive outlook. We don't think they've collected enough for what the claims are going to be in the future. We don't think they're positioned to be a good carrier for the future.' And we don't know what A.M. Best said, that we believe the faith-based marketplace is a good marketplace for a carrier to be focusing their attention anymore. They think they needed to diversify outside of churches and faith-based entities specifically. So we have the reinsurance marketplace that's hitting us hard, then we have this internal pressure that's happening to traditional carriers, the Church Mutuals, the GuideOnes, the Brotherhood Mutuals. And since the vast majority of our churches buy insurance in a traditional way, it's really hard to combat the traditional model they use to buy insurance through reinsurance and the traditional way that they are graded, which is by A.M. Best. That's what provides opportunities for programs like what I do to thrive. When you start saying, 'What about an alternative to that? What if I didn't have to do it the exact same way?' That's where these concepts of self-insurance start to really work. So what I'm trying to bring to the table with the BGCT is a concept that's been around for 40 or 50 years, but it's primarily been in the public entity space. So back in the 70s and 80s, public schools had this problem. Carriers no longer wanted to insure public schools, both from a property perspective because the schools were the largest buildings in each city, and from a liability and auto liability perspective. You guys all know about school buses and how they're supposed to stop at railroad crossings and completely open their door, some simple things we've all seen all our lives that happened because some school buses have been hit by trains in the past and there were huge lawsuits that came out of it. And we got to the point where no carrier wanted to do business with school systems anymore. So they started having to create their own insurance programs, which we called insurance pools and captives, alternative risk financing options, where they said, 'If we're not going to find a carrier that's willing to take our risk anymore, if we can't find the Church Mutuals, Brotherhood Mutual, State Farms, whoever it is, then we're going to have to create our own self-funded solution where we pull our own dollars and we take care of each other.' Some people would compare it to like a medishare type program, except these are fully legal, Department of Insurance regulated programs that we're looking to create. So I would say the problem is primarily in the reinsurance marketplace, driven by catastrophic exposure as well as sexual abuse and molestation, and it's followed by pressures being brought on by A.M. Best and these rating organizations that are trying to get carriers to make sure they've collected enough premiums for their future exposure. And that's kind of a complicated way to describe it, but that's exactly what these carriers face. They're not bad people, but their end goal is we have to drive to profitability for our programs. And all of our members, self-funded programs like we have at the BGCT, have different goals in mind.

Yeah, this is really exciting. So I was fascinated when I was brought in to meet with Ward Hayes and the team at the BGCT because they were so quick to say, 'We've got to offer a solution to our churches. If there's a way we can do this, we want to.' And they've been walking through the established process of creating a self-insurance program. So that's kind of the first thought: to say the BGCT is creating effectively a new insurance company, but it's a self-insurance program where churches can come together and they can pull their dollars to be able to pay out their claims. And after a certain amount, just like we do in the commercial insurance marketplace—and I know there's going to be a question in the room about this in a second—just like they do in the commercial insurance market, at a certain point we're going to be buying reinsurance on top of this program as well. Our angle is going to be that we believe that our members are going to be committed to the risk management practices with more control than a commercial carrier can have. Our churches are going to have to be part of this program, and they're going to commit to trying their best to reduce claims, and here's how we're going to do it. Trying their best to make sure that no child is ever abused in a ministry environment, and here's how we're going to do it. And we're pitching that—we're actually presenting that to reinsurers and saying, 'Do this just for our Texas Baptist churches.' The first step to create that is called a feasibility study. So many of you might have participated in this feasibility study. I heard us talking about it. The feasibility study is what we've been going through for the last six months. We've been doing all of the math and doing all of the behind-the-scenes research, the due diligence if you will, as to whether or not it is feasible or possible for us to create a new program. So that included us looking at the Texas Department of Insurance and saying, 'Would you legally let us do this?' They said, 'Yes, we will let you do this. You can create a Texas-based captive insurance company. It can be owned by the BGCT and it can be for the benefit of their churches.' Good. Then we started looking at what are the churches paying right now and what have their actual claims been, and is it possible for us to pull enough dollars and buy the reinsurance so that this can be an affordable solution that will meet the needs of the churches? And we just delivered those results to the executive committee of the BGCT, I want to say it was two weeks ago, it was the middle of February, and they unanimously approved for us to go forward now and create it because the results of that study came back that of the 2,047 ministries across the state that looked at this program, that sent us their last five years of losses, their current premiums, and their current exposures—and exposures are how many square feet are inside of their building, what their annual budgets are for giving, what their payrolls are for their staff so that we can look at that from a work comp perspective—it proved that there's significantly more dollars that were going into the premiums for these 247 than we needed to be able to pay the claims and to be able to cover the reinsurance cost. The premiums have been driven up to a point where this can make sense for us to create our own program. And if we can cut down on the expenses to run the program, then we can actually create a little bit of margin to start saving some money for churches. We needed to see the numbers to see if it was possible. Now we know that it is possible. So right now we've got approval from the executive committee of the BGCT, and we've gotten dollars allocated from the BGCT's general fund to be able to be the first surplus fund for this new program. So you've got to have dollars there to pay out claims. So the BGCT is putting the dollars there from day one to be able to pay out the claims. And so now we're working on creating the entire company. We've now applied to the state: 'Can we now—you said we're allowed to do this—now we want to go through the process of doing it.' There are several steps that we're taking together to create the new company. We're then approaching the reinsurance markets with our business plan: 'Here's how we want to do this. Here's where we want you to attach. We want to be able to pay the first $500,000 to a million of a property claim and a million of a liability claim, and after that we would like for you guys to take over the claims. By the way, looking at our last five years of these 247 churches so far, here's what we expect it to look like for our population. Here's how we think claims are going to continue to go. You have a good chance that we're going to be a good partner for you, and we've got enough dollars to be able to cover our losses as well.' We have to explain to both the state and to reinsurers how we're going to run this program together. So we're in the middle of creating the business plan with a goal of launching either a July 1 or August 1. So we're driving hard to try to make sure that we complete all the steps correctly so that we can start to take applications in the next couple of months so that coverage can begin for churches at that point, July 1 or August 1. And I would say the BGCT is one of the best partners I've ever seen as far as trying to drive towards a good holistic solution for their churches that meets the needs. We're trying to have it for property and liability. We want the liability to be church-specific. So property is going to be your buildings, your contents, as well as a level for things like crime, so like theft or theft by coercion, which is where somebody calls and they've lied about changing their payroll or something like that, meaning like the bank account. So we've got something like that for churches as well as a loss of ties and donations. So that's all the property section. And then the general liability is supposed to be covering—we're trying to build something that covers the vast majority of what churches need. So a general liability policy that covers people getting hurt, people being slandered, and property damage that a church could have. And it drops down to who is an insured, saying it's going to be all these volunteers that we require to have a church operate the right way. And then we call it management liability on the other side. We're going to have general liability, and then we're going to have things like directors and officers liability. It's going to protect those people that make financial decisions on behalf of the church. Employment practices liability for churches that are concerned with employment issues—and that was the biggest lawsuits I faced when at GuideStone—employment-related sexual abuse and molestation, and employee benefits liability. We're going to bundle those two together, that property and that suite of liability coverages that we think are going to meet the needs of 95 plus percent of churches. Some of them that might have unique exposures like tuition-paying schools, we've got to figure out exactly how we're going to cover those tuition-paying schools or owned camps. We're going to figure out how we're going to handle those owned camps that churches are going to have. I had one church the other day that told me that they own a bunch of apartment complexes. I wasn't quite ready for that one, but I get it. They said, 'Will your policy cover my apartment complex?' It's not really the intention of this form, but we're trying to write one simple policy form that our churches agree to that works for them, that covers them from the property the way that they expect to be covered and covers them from the liability for the real losses and claims that we see. And then we're asking for reinsurance to sit on top of it, beside it. We want to have auto, work comp, and cyber liability, but those might be written through a traditional carrier like a Travelers or State Farm, somebody like that, because those pieces aren't hard for us to find. It's the property and the liability that's driving this marketplace up all across the nation. We are talking about building a program that's just for Texas Baptist churches, those that are affiliated with the BGCT on that side, and trying to drive towards availability—which means everyone that we can possibly get in, we're going to try to get in—and affordability. We're cutting out all of the extra expenses that we can. Like right now, we're not talking about using an agent. So normally, an insurance agent gets paid somewhere around 15% commission for placing property casualty. So if we cut 15% out of the cost of this because you have to go directly through the association, that helps drive down the cost for everybody. And that's uncomfortable. A lot of people love their agent. I worked in an agency for a long time, or we got paid that way. But it's one of the ways we're trying to drive affordability, along with getting a nonprofit ruling from the IRS so we don't have to pay any corporate income taxes at the end of the year. Since it's a church program made for churches, that's 21% of our net income that we won't have to pay out that a normal carrier would have to pay out at the end of the year. So both those things are simple ways that we're trying to drive affordability across this type of program. So pooling property and liability and then reinsuring it is what we're building with the BGCT. We're doing it with the help of actuaries and reinsurance brokers. I'm probably going to London with the team to talk through our plan and how we're going to do it to try to make sure that we can accept as many as possible. Hopefully that more than answers your question.

Yeah, that's fantastic. So the commitment that Ward has made—and I'm not going to sound like I'm running the program, but I don't, I really work just on behalf of the BGCT to help them accomplish what they're trying to accomplish utilizing best practices—but the first commitment they've made is anyone that participated in the feasibility study will be the first ones that are going to be sent the application to apply for coverage. Many churches did so. We had 247 that gave us all of the information. We had about 600 churches that said they wanted to be part of it, many of them just couldn't get their five-year loss history. Loss history is the hardest part of this thing for everybody every time we go through this. So they're going to be sent a link here as soon as we're ready, and I'm hoping that we're ready somewhere around April or May 1 to be able to send this thing out. Well, won't be April 1, let's say May 1. And they're going to be sent a link to apply for the coverage. And there's going to also probably be some kind of a press release from the BGCT that tells everyone this is when this thing is going to get started. That application is going to give us some more information on your buildings. It's going to be as simple as we can make it, but we have to know some more details than we had to collect in the feasibility study to genuinely price this thing out, both for our good and so that we can settle the claims at the end of this. We have to know what it is that we're insuring. Anyone in addition to that that's going to come in, so anybody that wasn't a part of the feasibility study, is going to be based on a first come, first serve basis. So we're going to be having the press release that's going to go out then. Churches are going to come in. The hardest part of this, I think we're going to see how interested churches are in this program as they get into it, is going to be the fact that the way that insurance programs are successful is they have to have—I'm going to say two things because they relate to this, but there's probably more—but there's two things that we've got to focus on when we get started. We have to get what's called critical mass, which means we have to have enough churches participating so that they're covering enough premiums to pay out the expected claims for each other, right? So let's say you have to have at least a hundred churches or else it doesn't make sense, right? You just have to have a lot of them. But the second thing is we have to have a spread of risk. They need to be located throughout the state. It's hard for me to do it in just one area and then have one big hurricane come through and just wipe out the whole thing. I need to be able to do kind of what I was describing earlier, where they have it in California and they have it in North Carolina and in Texas. Texas is big enough, we believe, to be able to contain its own, but I've really got to get a good spread from Dallas and from Austin and from Houston and from West Texas and from the Panhandle so that we can effectively have one area that gets hit when the other one is still doing well, so that one will always subsidize the other, which is always how insurance works. Some have claims, but everybody's paying in anticipation that they could have claims. That spread of risk is going to cause us to have to slowly grow in certain areas. So we'll be able to take everybody in that first—let's say the first 5, 10, 20, 30 churches that come from an area like maybe you guys are in Beaumont—but then I'm going to have to cut it off until we can grow in other areas so that we can keep a ratio that makes sense between the state. Does that make sense? My goal is to be as transparent as possible so that you guys know and we can accept more, and that's how these programs can successfully grow.

Yeah, that's great. So for anybody that needs coverage that applies to this and it doesn't make sense for them, or it's like, 'Hey sir, we're not ready for you yet,' I would absolutely be trying to work with more than one agency. There are very few agencies that actually have access to all of the markets that are available to a church. Most of them just have one or two or three, and the agent will always tell you they have access to everybody, but it's just impossible for that to be true. They're kind of trying to sell you something. I'm not trying to say something wrong here, it's just the truth. So my old agency, we really only had access to Brotherhood Mutual and a few of what you call the excess marketplaces. So excess markets are those markets that you can go to that don't normally do insurance in your state, but they're willing to get a little bit of a spread of risk, and so they'll come into your state and they'll write a few select pieces. It's a great way to be able to cover a lot of them, but we couldn't write Church Mutual and GuideOne, we couldn't necessarily write State Farm policy, which a lot of small churches have, or a Farm Bureau policy that a lot of small churches have. So the concept is try to have relationships with two or three different agents whenever you're going to the marketplace. Now you want to ask them, 'What are the markets you're going to approach?' And talk to someone that can tell you an answer. You know, if they look like a deer in the headlights when you say, 'What carriers are you going to approach?' you've got to find somebody that knows a little bit more about what they're doing. So that's kind of the first thing I say: relationship with more than one, and just treat each one of them with as much honesty and respect as you can, even though it's going to be frustrating waiting for quotes to come back. The second thing is really understand what I'm going to call your risk profile. Your risk profile is what are the chances, from their perspective, that you're going to have a claim. The main way to know that is whether or not you've had claims over the last five years. So I've looked at your last five-year loss history, and I've looked at what losses they're going to see. It's like your credit report when you first approach a credit agency. And be ready to address what claims you had. And if you've had no claims, tell them why you've had no claims. Don't just say, 'We've been lucky.' They're going to listen to that, and if they say that to an underwriter, they're going to be like, 'What if they're unlucky next year?' Say instead, hopefully the truth: 'We have great risk management practices here. We do the deferred maintenance that we need to on our buildings, and here's our properties committee that's doing it, or here's our staff member that's doing it.' You need to be able to make your case when you go to apply for coverage as to why you are a great risk to the insurance carrier. If you've had claims in the past, explain why you're mitigating those claims so they don't happen again in the future. Everyone understands acts of God. You can't do much about a hurricane or tornado just hit us. We expect it not to happen again. When it comes to any other claim, being able to tell the story of how you learned from it and you're doing better is something that gets a lot of insurance carriers interested in giving you a better quote as it goes, as it comes time. One of the healthiest things for churches to do, even though it's annoying to agencies, is to actually quote out every few years. So if you haven't quoted in a while, it's a good idea every once in a while to ask for multiple quotes and for them to be presented to you. It's amazing how that drives down premiums as underwriters and carriers are looking at it too. So I would say have relationships with more than one agency, even though you're going to have your favorite agent that you love to work with. This can be your primary one you want to work with. Also be talking to your friends and neighbors about who they were using. So that's fine, but have a relationship with more than one. Know your risk profile and what your argument is as to why you're a good account or a good risk for any insurance carrier to take on. And then the last one that I would just kind of mention as we kind of go through this is, do ask for multiple quotes whenever you can. You know, like ask for them to show you what it is that they're actually getting back so that it doesn't become a situation where if they get a renewal, they just tell you, 'You're lucky to have a renewal.' I don't know how many churches have called me and told me that I was told I was lucky to have a renewal. I'm not disagreeing with it, but please help me see what it is that you saw in the marketplace. And it's not just become something that you got used to saying every single time, if that makes any sense.

Yeah, I wish there was a good way—maybe the BGCT will do this—to let everyone understand. Of the 247 churches that I just mentioned that were part of the feasibility study, they gave us all the information. There were 47 different carriers for property. Just let that sink in. 247 churches had to go to 47 different companies to find insurance in Texas. So I've always believed the same thing: there's just three, right? There's just Brotherhood Mutual, Church Mutual, and GuideOne. There were 47. So people are going across the board to try to find solutions. The biggest one outside of Brotherhood Mutual and GuideOne was Church Mutual. So I have—even though I've heard this concept that Church Mutual is backing out of the state completely—it appears to me that they're just being really selective about what they choose to keep and what they choose to insure right now. And I think that's true of all three of the big ones. So they probably covered 60% of it, and then there's all of these markets that would somehow maybe have Lloyds of London in their name. Some of them were Care Providers. If any of you guys have heard of Care Providers yet, that's an organization I think it's based out of, I want to say Oklahoma maybe, but they generally want to work in social services and nursing homes and stuff like that, any kind of care providing concept, but they have a church endorsement to it also. Glatfelter is a company that's owned by AIG that was heavy in the church market. So I would just say if you're looking beyond those three, Care Providers and Glatfelter—both of those carriers can be accessed by any agent that's allowed to access the open market. They don't give specific contracts to agencies, they're available to everybody, but the agent has to know to go to them. And then it's all of these excess and surplus marketplaces that we're seeing coverage come from. That's when an agent has to know how to access the non-traditional markets through what we call a wholesale broker. And I don't want to get too detailed in that, but just say you're not alone if you're one of those three carriers isn't giving you a quote. Many other churches are in that exact same boat. In fact, like I said, 47 out of 47 carriers were the ones taking care of these 247 churches that came in. And I expected it to be more like 10. I never imagined it would be 47 different ones. And the vast majority—so most were Brotherhood Mutual, GuideOne, Church Mutual. Then I saw Glatfelter and Care Providers. The next two biggest ones were Farm Bureau, Texas Farm Bureau, and State Farm. So like these homeowners-type comp carriers had some kind of a church policy that they could do for a church. I never thought of those as being primary carriers until I started seeing how many, especially rural churches, were using a carrier like that for especially on the property piece of it. And then after that, it was what I would call excess and surplus markets, companies you've never heard of that your agent was able to bring to the table to be able to give you some kind of coverage. Now that last option I mentioned, that excess and surplus, sometimes their premiums are three, four, and five times what you're used to seeing from a traditional carrier. They can be really expensive. They sometimes will have pretty low limits because they're not governed by the state Department of Insurance, so they don't say that they have to give you floor replacement cost for your building that's valued at $1 million. They might say they're only going to give you a million dollars worth of coverage or half a million dollars worth of coverage. But there's still options to get some kind of coverage that will pay out when you have that claim. So my answer is look outside of the big three. If you need to start with the big three, I don't think Church Mutual is fully pulling out. I've heard the same rumor for a long time. I've been curious about it. Churches have told me that they have been canceled by them, but I'm hearing churches being canceled by everybody. It seems like all three are still playing to some extent in the state, and their appetites are changing based on their spread of risk every single year. So it's even worth approaching them again if you weren't able to get a quote last year. And then start looking at some of these other carriers, the admitted ones I recommend are Glatfelter, Care Providers, State Farm, and maybe Farm Bureau depending on the size of your church.

Yeah, absolutely. Most policies still do include wind that I've looked at. Glatfelter was the first one to start excluding wind all together. And most times I'm seeing it with a separate deductible. And that section of your policy is what's driving up a significant portion of your premium. I understand you guys being in the southern part of Texas, they're more concerned probably with hurricanes coming up into your area, so it being a problem. So I would say the only key is make sure that it's included in the policy that you have, unless you're not concerned with it. Some of the policies will remove wind. I think that's what your question is. You're asking, you don't always have to buy a separate wind policy. I don't know if that might be what you've heard. If you buy from Glatfelter, like I said, they are oftentimes removing wind, and you might have to look at something if you're in a zone that can do it through TWIA. You know, TWIA you can get just a wind policy from here or from the excess and surplus market. They'll sell you a standalone wind policy, but they're so expensive if you have to buy wind standalone. So the goal should be to try to find a carrier that includes wind and hail in your actual policy documents. When it comes to what we're doing for Texas Baptist, we are including wind and hail in it, but it has a higher deductible. So in a self-insurance program, it's almost always what you talk about: we're taking on some risk like a reinsurer. We're trying to have our churches, our members, take on as much as they can afford to. And eventually I'm going to ask them to set up a separate grant program that we can allow churches to apply for to help them with those deductibles they can't afford, so that everyone isn't charged for it every year, but instead we can just allocate it back to those that have the greatest need. That's what seems to work the best within pooling as we start talking about these deductibles that get too high for people to be able to afford, especially for wind and hail. Every carrier looks at Texas in at least four zones. So tier one is the counties that touch the coast, so they're actually on the water. Tier two is the counties that are one away from the coast. And then they normally have what they call Central Texas. So I've just now done a big study of how GuideOne, Church Mutual, Brotherhood Mutual, Glatfelter all are looking at the State of Texas. They filed so tier one and tier two they're going to have the highest wind deductibles and the highest wind rates because of hurricanes. Then they're going to have Central Texas. Then everyone starting to separate out this West Texas section because of what we call severe convective storm or their hail exposure. We're seeing so much hail come through this West Texas section. So my overall recommendation is just understand how your wind works with whatever carrier you're using. If you don't have a concern with wind now, wind is normally going to be your roof. It can be more than your roof, but it's normally going to be your roof that's what you're going to see damage. Then it's an obvious consideration as to whether or not you take wind coverage or not, whether it's worth insuring or self-insuring. But the programs I'm looking at creating would always have wind included in their program just because it was the biggest loss we continue to see in Texas. And most of the time for me, wind included hail, so it included like that storm damage a few years ago. We could buy separate policies that said this deductible change only applies to named hurricanes or named storms. I'm not seeing that as commonly anymore. And that was really nice because you could just have a bad storm and you could have coverage at a flat $5,000 deductible or $1,000 deductible, that's all you had to pay. You only had to increase to a percentage, one, two, three, four, five percent if it was Hurricane Harvey or Hurricane Irma, whatever it is. I'm not seeing that happen nearly as much for us here in Texas, although it's going to be interesting to see what carriers can secure those kinds of arrangements or not. A lot of it's dictated by the reinsurance market. So all of us, when it comes to catastrophic exposure—which hurricanes are catastrophic exposure, it's the one that can hit 10 or more of our accounts at one time—we rely heavily on the reinsurance markets to be able to make sure that there's enough money there to pay those claims out. And that's the hardest part of that. So I hope that answers your question overall. When you say 'what about it,' try to find a carrier that includes it. If you have to buy it separately, it's going to be so much more expensive. And then the other option is there are these things called deductible buy-downs. Maybe some of your churches buy them. And that's where you can buy insurance that just helps cover your deductible. Normally the cost of that insurance is going to be one-tenth of the amount you're covering. So just a quick lesson here: if you're trying to buy your deductible down from $100,000 to $10,000, there's a $90,000 exposure there. So you'd want the insurance company to pay $90,000 each time that you got hit with a hurricane or whatever. They're normally going to charge one-tenth of that as a premium, so you're going to be paying $9,000 for $90,000 worth of coverage. Which, if you normally looked at the way your rates work with your insurance, you just divided the two out, how much they pay versus how much you're paying, you're normally paying much less than 10% of that. You know, I'm paying somewhere around like a 40 cent rate per $100, something like that. So point 4, anyway. That's my best advice for wind coverage.

Yeah, that's exactly right. So I think you're asking specifically about self-insurance programs, right? Like the Texas Baptist program. Correct? Yeah. So in the Texas Baptist program, the way that we set the premiums and the surplus—so know that's why I had to say they had to be willing to fund this with surplus—is after we've done an actuarial study and a catastrophic modeling study, and the two together told us what with 60% confidence, 75% level of confidence, and 90% level of confidence is the amount of money we will need to be able to collect for our layer of coverage. So we set a number based on this study that we have to do. Then we have to create underwriting rules that have it. And then we buy reinsurance at that point so that we never go and solve it. The good thing with the BGCT program is they are choosing to overfund that to make sure there's enough money there. So they're probably going to be somewhere around 160% of the minimum that they would need. So not quite double, but they are overfunding the amount that they're going to need from a surplus perspective. Then of course we're going to collect enough premiums every year. We have to go through that again. So like when we go to the State Department of Insurance here in Texas as a captive insurance carrier, we have to show them how much money was left in our bank from last year. We have to show them a pro forma of how we expect this thing to work. We have to show them the new actuarial study and how we're going to charge the next year. And they have to approve our business plan every year to make sure that it protects our members, that it protects the churches. So there's actually lots of checks and balances that are built into this. So I've had several people call me and go, 'This sounds like medishare and I think it's going to go belly up.' And I always start laughing like, it's not. It's actually regulated insurance. It works exactly like your insurance carrier does now, except for it's owned and devoted to its members because the BGCT owns this program and it's only going to be available to those that are members of the program. It's really normal insurance, for a better way to say it, just driven by a membership body that's choosing to do it on their own.

No, not with captive insurance. Captive insurance does not have what you call joint and several liability. Now you're asking actually a really interesting question to me, and I'm going to go down this rabbit hole for 30 seconds and you guys can start rolling your eyes if you want to. But believe it or not, on January—not January, on February 25th, just over a week ago—a Republican House of Representatives member from Texas, I'm trying to remember his last name, presented a bill to the state of Texas that would allow for a pooling statute for churches, which allows churches—at least there has to be two or more that come together—and they can create an insurance pool. An insurance pool works kind of like what I'm trying to create in a captive, but they are not insurance companies. They are truly just, we're creating an agreement with each other that the state will see every single year that says we're going to try to reinsure each other, we're going to try to buy any kind of excess of reinsurance that we can do together, and we'll hire somebody like an RPA to administer it for us. Those programs have what's called joint and several liability, where every member is jointly and severally responsible for all the claims that happened, and they can have assessments to them. But when you buy from a captive, the captive is itself a separate insurance company, and you are transferring your risk to the captive and to their reinsurers. So I don't want to confuse this though. So I can't assess you, but I will have to increase my rates, right? So like the next year you're going to have a rate increase. And either way, they're dollars that are going to come out of it. The goal is to make it so transparent that people get why it's working one way or another. What are the claims? We all have to work on how does our program have to change so this thing can be sustainable next year. That's so hard to do when you're a big carrier that's across multiple states and across multiple denominations. It's not hard to do when you're one denomination in one state. You can have an annual meeting where everybody gets to see, 'Here's what all our claim payouts were for last year. Here's what we all have to commit to this year if we're going to drive down the claims. Here's how reinsurance is looking. Here's why our rates are going up.' And I just keep imagining, wouldn't everybody love to have that transparency on what's happening in this really expensive budget line item? You know, that's what we're really trying to create here.

Yeah, absolutely. There are several that we've talked about so far. And as this board is being created by the BGCT, they're going to adopt bylaws and they're going to adopt what's going to be the requirements for membership in there. So they can say, 'This is what it means to be—' we're going to talk about the BGCT here for a second, we could do the same thing for any other program as a side note. We're going to be talking about what does it mean to be an active member in the BGCT, and they can set their requirements for that. Then what does it mean to be able to qualify for the program from a risk management perspective? For all of the other programs that I run, I'm working with the Lutheran Church out of Missouri. I'm working with the Louisiana Church Self-Insurance Trust, which is a group of Southern Baptists out of Louisiana. They're trying to do a pooling statute. And my company works with several Catholic organizations too. But for each of those, we have a membership agreement that's signed every single year by every single member that recommits them to the risk management practices that we outline. So one of the ones the BGCT has talked to me about has specifically been everybody being willing to work together to start talking about property claims, starting to talk about things like joint purchase of roofing materials. Pretty practical thing. So if we could start saying, 'What if we started buying in bulk all of the roofing that we're going to be needing and all of the whatever else? Can we start to think through how we do this? And can we start to say we're going to commit to even using certain contractors over time?' We're not ready for that this first phase. We're not ready for those two things. But those are the kind of ideas that we want our members to start understanding and agreeing to, because that could drive down our cost by 40% for some of these claims that we're seeing all the time if we would just say this thing works differently. From the hail storms and the wind storms that we have, how can we start to control that? We're also asking for our members to tell us who it is within their church that's managing things like deferred maintenance. You know, and the difference is we're not going to have an agent that's doing it on your behalf. You will go into the platform or your church representative, and they will sign their name to, 'Yes, my church is doing these things.' And that's already a big change. We're asking for churches to commit to doing deferred maintenance. Don't just walk around your church and see water stains on the ceiling and not do something about it and just say, 'Man, I'm hoping that next hail storm gets the BGCT to pay for me to get a new roof.' You know, I think that's what we're all kind of thinking at the back of our heads. And the same thing is true when it comes to policies and procedures that a church operates by. You know, like when was the last time that your policies and procedures were actually reviewed by an attorney? Can we help create an attorney network that looks at them? When it comes to liability claims, we might be saying that we want to have a relationship between our churches and somebody like MinistrySafe when it comes to sexual abuse prevention, and that we verify it. We tie our system into MinistrySafe's system. Greg Love is a good friend of mine over at MinistrySafe. A lot of you guys probably know him as well. We've talked about child abuse prevention. We could say we can verify that the number of volunteers that you say on your application you have working with kids is the number that are actually doing the training every single year, and we're verifying that background checks are actually happening. I have not yet seen a carrier that's tied their systems together to really verify that risk management is being done right when it comes to one of the most expensive things and the scariest things for us to find reinsurance on. You're going to see a big, big push these first few years for us to be able to prevent sexual abuse because it's such a big exposure for us, and for us to drive down property claims. So most of the risk management procedures you're going to see in the application that we agree to at the end—which you're going to be checking boxes and writing in a couple of notes, that's effectively your promise: 'Here's how I'm going to be as a client' and then signed off on at the end—are going to be devoted to risk management. Now we don't—we're not planning on staffing up to where we come and audit everybody. This is a big question: 'Are you gonna have people that can come by and check every single church?' Eventually we will start having to do those things. We have to do that on all of our pools over time. But it costs a lot of money to have somebody right up front that has to actually physically come out and double-check that you told us the truth, that you really do the deferred maintenance, your roofs aren't in much worse condition. We're going to leverage technology as much as we can. There's some satellite imagery that might help us some. We're going to do our best to try to trust our churches too and believe that they do. And everybody inside of the system knows who it is. And every year each church gets underwritten again based on their own exposures. So everybody doesn't get the same rate throughout the state. There's different rates for tier one, tier two, all other Texas, and that Panhandle section. We're following the best practices there. But there's rewards for not having claims and for being a long-term member too. We're going to start giving discounts, stuff like that over time, as well as potentially premium holidays if we're having profitable years. The beauty of a nonprofit is they don't just get to put that money in their pocket and take all their agents to Mexico, right? Like these dollars are going to be any other.

Man, that's such a good question. We have not even talked about selling a policy without windstorm yet. We've been trying to make sure that we could include it the entire time. We have talked about creating a program where you could buy a liability by itself. You like already liked your property program that you were buying somewhere else. What if we could just get general liability and not be forced to buy the property? It sounds to me like you would actually say we would like to be able to have the option to remove windstorm if it didn't make sense for us. They paid for their own roof. They had to pay for their own roof themselves because the deductible cost more than it cost to replace the roof. My best takeaway is we can build it that way, and I'll report back to the BGCT board and to Ward and just say, 'You know, I had an interesting question in my meeting with Golden Triangle this week. Are you guys comfortable with us creating a policy form that allows us to exclude wind?' The only reason you see me a little bit lost in it is because we're trying to write our own policy form that's made just for churches, and it's pulled from what we think are the best practices from like a Church Mutual, GuideOne, Brotherhood Mutual, and we're trying to make it simple enough that everybody understands how the program works and it has all the inclusions that churches need automatically, so churches don't kind of handpick each piece just because of the cost. We just bundle it together and try to make it affordable for everybody so that we can pay a claim when things happen. It's interesting to start saying, 'But for this really expensive piece on windstorm, what about carving that out?' I price it separately in my underwriting system on the back end, so it's easy for me to do. I just need to get approval from them as to whether or not they're okay with it. But I'll make that recommendation if you feel like people would want to.

Yeah, and to me, I mean, I'm in agreement with everything you're saying. All I'm doing is rolling my eyes on how broken it is that you paid $25,000 for insurance to cover an exposure that only cost you $26,000, and so you got $1,000 out of it. How—I mean, nobody's going to look at that and not say, 'Yeah, that doesn't make any sense.' So I'm in agreement over this concept of at least making that recommendation to the board. They're taking most of my recommendation so far if it comes from any of the churches that would be insured by it. But the best part of this is this is the kind of conversations we should be having together. You know what I mean? We should be saying, 'How much is it really costing? How much are people worried about? Is there a better way to be able to handle—' because we could even have a separate wind program that people could buy into against us as a loss, even though.

Yes, sir. You know, that's a good question too. Most times in the membership agreements, we will ask for a 60-day notice. So like, give us notice because we have to go and buy reinsurance as a group. And there's going to be a couple of differences between this program and what people are used to. Just kind of understand it. I think my short answer is no. I mean, like, I don't know of a penalty that you're going to have. Some policies have a short rate penalty, which means if you join, you're going to be required to pay a minimum of 25% of your premium no matter what. So if you leave in the first three months, you still owe for the first three months, if you will. We do not have the intention of doing that. But we are going to ask for a longer notice than you might normally get, which means we also have to give you more time to know what your renewal is than anyone else would give you. You can't get your renewal 14 days before if I told you you had to give me 60 days before you can cancel. But we're talking about a program that even if it launches this year, we're planning for it to in July or August. We're talking about an annual renewal for all members happening on January 1, so that we underwrite everybody every year at the same time and everybody gets their renewal around the same time. And that just helps us with the overall administrative cost of this program. So everybody would have a short policy or a long policy. So like, let's say you came in the last six months of the year, your policy is going to wrap all the way till January 1 of the next year. So you could have a 17-month policy, 16-month policy, 15-month policy if you did it more than six months before January 1, just based on when your expiration of your current program worked. You'd have like an eight-month policy, a seven-month policy, nine-month policy, and then you would renew again that year. But that's how it's worked the best for all of our programs: to name one time that it happens. You get your renewal pricing. You know what it is based on your previous exposures. You go into the system and you tell us any changes that have happened in your ministry that we need to cover so that we can show you what new quotes are or any increased limits that you want to have, anything like that. And you have a price really early on. So for a January 1 renewal, our goal is going to be to have you a firm price by the middle of October. So you're already budgeting for this coming up on the next January, and you have time to tell us if you're going to renew or not, because we have to sell that to the reinsurers too. We have to say, 'Here's who else is going to be in our program next year,' even though people can come in throughout it based on the contracts we have. So my biggest answer is we'll probably have a minimum amount of time we're asking you to give us before you cancel. Now you say, 'Or what?' Nothing. It's something I can do. If you don't give me 60 days notice, it just hurts the entire rest of the program. It's not like I'm going to—or Ward or anybody from the BGCT is going to come after you and send you an additional bill. But we are trying to get people to give us a verbal, you know, an emotional if you will, commitment to the program for a while so that we can get that first piece that I kind of talked about, called critical mass. We need enough churches to buy into it to start spreading out this risk to make it work. And then we need them to give us enough notice so that we can run it really effectively because it's smaller. This isn't going to feel exactly like a normal insurance carrier. Now your claims are going to be handled by a licensed insurance claims adjuster. We're going to have to find a third party—there's five or six of them here in Texas that do that—that'll know how our policy works and they'll have to tell us what claims are being paid. Some of those pieces are going to be really similar. But otherwise, these programs only work when all the members like what it is and they feel like they're part of something together, you know. So that's kind of the big piece. We're hoping that our members don't think of it as normal insurance. It's like, 'I chose it because it was cheaper. I didn't like it, so I just jumped right back out because somebody else gave us a cheaper quote.' Of course we get it. You know, at the same time, it can hurt the entire program if we don't run it really well. That's a long answer to you. There's no intention of charging a church if they leave. We do need some notice if you're going to.

Yeah, I mean, there's no reason that the SBTC couldn't create the same thing. And I do think that they're trying to figure out what they can do. I think they're just in a different financial position than the BGCT is overall, just being a younger convention. That's just my honest opinion. They want to be able to do these kinds of things, it's just finding that surplus to get it started is probably a little bit of a different position for them. I have not heard of any conversations between the BGCT and the SBTC that have said, 'Let's do this thing together.' I have no reason why they couldn't. But as far as that's concerned, I don't know of anything like it that's being created for the SBTC yet. I have had people tell me, like just you guys in the room might say, 'I bet the SBTC is going to want to do this next after they figure out what the BGCT learns from it, you know, what they do wrong so they can do it right kind of thing.' And maybe that'll be the case. But I don't have any good news as far as like, 'Hey, here's another program that's about to get started by the SBTC for the churches that are not either aligned with the BGCT or duly aligned.' And the hard part of being a BGCT church and allowing a BGCT program and allowing a non-aligned program is the dollars that are going to fund this came from BGCT-aligned churches first. And you don't want to exclude a BGCT church from it because you allowed somebody else in, and it will have limited capacity. Now I'm hoping it's a lot. I'm hoping that we can have hundreds and hundreds of churches join every single year. But you know, I think last time I looked, there was over 4,000 BGCT churches. I mean, this is going to be a really big insurance company a few years from now if we run this thing well. And I do understand the question, and all I can say is I hope that the SBTC or somebody similar can create something that really works for an even broader audience than just BGCT.