Public entity risk managers both here and in the United Kingdom are being subjected to drastic budget cuts that can compromise their effectiveness, requiring sharpened loss control techniques as well as better communication about the value of their work with peers and the public alike, experts in the field warn.

Coming forward with real-world examples and hard data to document the importance and savings achieved by loss control might help protect risk managers from across-the-board budget cuts impacting safety efforts, suggested Patricia H. Roberts, president and chief executive officer of Genesis Underwriting Management Company, during a panel session at the Public Risk Management Association's recent annual conference in Orlando, Fla.

Ms. Roberts said risk managers should also be clear with their underwriters and speak specifically about where cuts have been made and what the impact might be.

Ms. Roberts also warned that due to the economic downturn, there is much higher potential for loss. She said risk managers often must delay purchases, which can increase risks to certain departments. She added that expectation for services can be higher for citizens who are paying more in taxes to close budget gaps.

She also warned risk managers to guard against cuts that impact key drivers of loss.

Patrick M. Gallagher, managing director of worldwide property and casualty with Gallagher London, warned that with jobs going away and a resulting upswing in claims, “don't cut your [employment practices liability].”

Tight budgets and dwindling resources are impacting public risk managers in the United Kingdom similarly to their U.S. counterparts, the director of a U.K. public risk management organization, who did not participate on the panel, told National Underwriter during the PRIMA conference.

Paul Dudley, director of PRIMA's U.K. counterpart, the Association of Local Authority Risk Managers (ALARM), said the recession has meant heavy budget cutbacks for his membership as well.

U.K. public risk managers, as a result, are taking measures such as cutting staff and finding new, lower-cost ways to provide services, he said. “So yes, we have a lot of similarities [to the U.S.] in terms of the savings required,” he told NU.

Mr. Dudley said that his public entity–the Hartfordshire County Council, located north of London–will have its budget cut by about 20 percent over the next three years. He said this would be done through “smarter procurement” and staff cuts. Similar situations exist all over the United Kingdom, he noted.

Local authorities and public entities, he said, would have to find “new and different ways of delivering local services, but with a lot less money and trying to maintain the quality of those services.”

The intention, he added, is to “take the community with us,” by explaining to citizens the alteration of services and why the cuts need to be made.

For example, he said libraries may see shortened hours, but that could be offset by finding different ways of providing library services. Because of more widespread use of computers, he explained, “there is also much more online processing, which requires less staff.”

New technology plays a key role, he added, because it means staff can be more flexible and work in different locations, requiring less space.

“Many local authorities now don't have sufficient accommodation for their office staff,” he said. “So there is a lot of team-desking, working at different locations across the county or even at home.”

Renting less office space means savings for public entities, he said, reporting that some authorities are concentrating staff in fewer locations while getting rid of leases and selling off property.

The disadvantage of this trend, he said, is that public workers can become more detached from the people they serve and also must travel further to provide services.

A top issue for all U.K. and U.S. risk managers, according to Mr. Dudley, is how risk management is “sold” within the organization. “So even though there are some external drivers [in the United Kingdom],” he said, “it is about making the business case that effective risk management will help you achieve your objectives.”

He added that stressing the “opportunity” or “upside” of risks is a positive direction for risk management.

“More development is needed,” according to Mr. Dudley. “But once we get our arguments together about how to identify opportunities, I think that will be more engaging than the negative, which is [to focus on] the risks.”

As for the PRIMA panel, Ms. Roberts, Mr. Gallagher and Michael F. Klein, senior vice president of business insurance and president of Travelers Middle Market Business, observed that public entity risks are improving due to better management.

But at the same time they warned that public agencies are becoming more of a litigation target. Crises and disasters, such as some of those being seen at schools and universities, are highly publicized, which can lead to more lawsuits, Mr. Klein noted.

To stem the tide, he said, caps and immunities are needed in tort laws.

Panel moderator Ron Hays–the outgoing president of PRIMA and risk manager of the Calcasieu Parish, La., school board–asked about fraud, because it has been speculated that the recession would prompt a spike in fake and padded claims. All three panelists said they have not seen significant growth in fraud claims so far.

Asked whether the creation of a Federal Insurance Office would help or hurt the industry, Mr. Gallagher and Mr. Klein agreed the function of such an office might be a positive force, although that depends on how much authority it is given. Mr. Gallagher observed that the London market is “comfortable with the concept of some form of government oversight.”

He added that the lack of knowledge of the insurance industry by some state insurance commissioners and at the federal level is “astonishing in some cases.”

However, Ms. Roberts, describing herself as the “blinking yellow light” on this issue, said the current state oversight system is creaky in some ways.

“I'm nervous to think about what we might get [with federal intervention],” she said. “It could be just another layer of regulation,” which she fears might merely drive up costs.

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Recession Prompts Gov&#039;t Budget Cuts, Jeopardizing Risk Management Efforts

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