Risk Management Saves Taxpayers Money
Litigation, property losses, workers comp claims all benefit from exposure control
From New York to California, public entities are reassessing their risk management programs to consider not only the heightened security risks post-Sept. 11, 2001, but also the increasingly litigious environment within the United States.
While different from public and private companies in many respects, public entities are no different in their need to identify risks and develop a customized risk management program to help combat the costs related to their unique exposures.
With government spending at an all-time high, many in local government wonder if risk management programs are worth the money they cost to implement. After all, budget cuts are being made in almost every state across the country, prompting some to ask, "Why do we need risk management? Isnt that why we have insurance?" Or, "We dont need a risk management program because were such a small organization."
Unfortunately, risks are inevitable, and its important for all public entitieslarge and smallto have a program in place to minimize risks, analyze losses, and establish new procedures and policies to decrease exposures and related expenses.
It is important to recognize that minimal expense up front in establishing a risk management program can dramatically reduce the costs associated with court settlements, jury verdicts, workers compensation bills and property damage. It is also essential that the success of a program be considered above short-term savings.
Many employees and volunteers of nonprofit and government agencies tend to believe they operate under some form of governmental or charitable immunitythis, however, is not the case.
At one point in time, there was no fear of liability for these groups, but in the last 30 years that has changed. There is now no state or municipal entity that has total immunity, and courts have ruled that governmental immunity does not apply to constitutional violations. This includes common occurrences such as discrimination and violations of freedom of speech and freedom of religion.
At one time, it was unheard of to sue the governmenta situation that seems hard to believe when looking at the number of lawsuits that are now filed against everyone from the local police force to the president of the United States.
In Incline Village, Ind., for example, residents are planning to sue the county for raising property taxes 30 percent. Also, due to a series of harassment and discrimination complaints against state employees, the state of Iowa has paid more than $1.2 million in court settlements and jury verdicts over the last two years, a number which does not include judgments that are currently under appeal.
These are just two of the thousands of similar stories repeated around the country every day. Clearly, individuals and groups are no longer afraid to take complaints to the courts, and this includes those against public entities.
The primary factor affecting the public sector insurance market in recent years has been losses outpacing revenues while investment markets have soured. Unfortunately, the losses from the terrorist attacks of Sept. 11, 2001 exacerbated the poor financial returns occurring within the insurance industry. Those factors have contributed to the hardening of the public sector insurance market.
In 1984, more than 100 insurance carriers were underwriting government risk. By 1995, only nine carriers were writing for the public sector. Today there are even fewer insurers working in the public sector. This is due to both the decreased return on investments and the tightening of the reinsurance market.
It is essential in todays insurance market for public entities to research the terms, underwriting guidelines and carriers thoroughly to be sure they are getting the coverage they want and need.
Creating an effective risk management program can be the key to tremendous cost savings for any public entity. Risk managers are responsible for identifying and addressing risk exposures. Once the risk exposures are identified, risk managers can develop policies and procedures to help reduce the severity and frequency of those exposures.
Public risk managers are facing a plethora of new risks and need to be aware of the best risk control practices available.
A solid risk management program can lead to a significant decrease in the severity and frequency of claims, and potentially save public entities millions of dollars in jury verdicts, settlements and workers compensation costs.
To keep from putting your public entity at risk, establish an effective risk management program today that will serve you well into the future.
Joe Palermo is a risk control specialist in Public Sector Services for St. Paul Travelers Companies in New Windsor, New York. He can be reached at Joe.Palermo@stpaul.com.
Reproduced from National Underwriter Edition, April 16, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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