Mature risk management addresses emerging risks
The principal risks facing U.S. municipalities and school districts are the same ones they’ve faced for decades, according to Scott Rohr, divisional president of Great American’s public sector division.
These include employee safety, upkeep of public spaces, and the maintenance of fleets of autos and mobile equipment, he says. In addition, Rohr sees a series of emerging risk exposures for public entities, including drones, cyber bullying, excessive use of force by police, and evidence of lead in potable water supplies.
Great American’s principal approach is to address these risks as a partner to hundreds of public sector risk pools. These pools have emerged since municipalities, schools districts, and other public entities experienced severe disruptions in the cost and availability of insurance in the 1970s and 1980s.
Roughly 80% of the nearly 90,000 public entities in the United States participate in one or more of over 500 such risk pools, according to a 2014 report of the Association of Governmental Risk Pools (AGRiP). “Because of pools’ expertise managing public entity risks, local government agencies and schools are once again attractive to commercial insurers,” the report reads.
“Approximately 95% of our business is insuring or reinsuring risk pools through-out the U. S.,” says Rohr. “We have seen the pools improve greatly in areas such as claims handling and risk management, and they provide the stability and financial strength public entities and underwriters are looking for.
“Given that, we believe our main role is to augment the efforts of our pool clients and provide best-in-class risk management techniques and tools.”
While Great American’s public sector division concentrates on supporting risk pools, Glatfelter Insurance Group positions itself as an alternative to them.
“While these pools offer an alternative to insurance, some have collapsed for a number of reasons—mostly lack of financial stability,” says Mark McCrary, president of Glatfelter Public Practice. “We generally view the pools as a competitor of sorts to our fully insured offerings.
“It really comes down to providing a choice,” he adds. “Unless the pool is fully insured or reinsured, the member is likely to be bearing risk, rather than transferring it to an insurance program.”
A harsh spotlight
As local governments emerge from acute financial crises brought on by the last recession, public sector risk pools and program partners find themselves tested by emerging risks that may occur rarely, but that shine an intense and critical light on the conduct of local governments and their employees.
In particular, police body and dashboard cameras, along with social media footage provided by civilians, have cast a harsh spotlight on police shootings of civilians. Incidents that once may have been local in nature are instantly broadcast worldwide. While it is unclear whether such incidents are happening more or less frequently, reports are that such cases have become costlier to settle, and municipalities have increased their loss reserves in response.
“There is a high degree of scrutiny of law enforcement,” says McCrary. “Cellphone cameras, social media, and easy access to the Internet have propelled these stories into mainstream news in near real time. The near future appears to offer more of the same, and municipalities must look to mitigate risk with training, public relations, body cameras and more.”
There is a certain irony to this, according to Stanley Corcoran, executive vice president of the Massachusetts Interlocal Insurance Association, a governmental risk pool in the Bay State. In a September 2015 article on “The Evolution of Municipal Risk Management,” published by the Risk & Insurance Management Society (RIMS), Corcoran wrote that “body cameras and [aerial] drones have created unanticipated exposures, even though their adoption was originally intended to reduce municipal liability.”
The Internet and social media expand liability exposures for municipal employees and officials other than those in public safety, Corcoran added.
“Social media has enhanced the ability to communicate within and outside of town halls,” he wrote, “yet it has also made local officials more vulnerable to violations of open meeting and public records laws, and freedom of information requests. [Social media] has made it easier to run afoul of the law or ethics rules, even inadvertently.”
Like virtually all organizations—public and private, for-profit and non-profit—municipalities face growing “cyber” exposure for breaches of networked data that compromise personally identifiable informationon individuals, households, and businesses.
McCrary believes that many public entities underestimate their exposure to cyber loss and are unaware that
coverage is available. In response, he says, “Glatfelter Public Practice embedded the coverage in all municipal business several years ago, as a proactive way to provide entities with cyber coverage.”
According to Rohr, Great American’s dedicated cyber unit offers eight separatecyber insuring agreements that can be purchased in any combination insureds and their agents choose. “These coverages address not only expenses and other first-party charges related to a cyber breach, but also the entities’ potential liability to others,” he says.
Among the cyber loss control and loss mitigation services available under Great American’s program is access to “DataRiskStages,” an online cyber risk assessment tool that insureds can use to identify their cyber exposures, protect them from a breach and help coordinate a response if a breach happens.
As public entities face emerging liability exposures, they also face growing exposures for first-party property loss, particularly in regards to aging infrastructure, which slowly but steadily increases the chances of catastrophic loss.
“Aging municipal infrastructure should be a concern to all,” says McCrary. “This has implications for insurance as well as public sector budgets with regard to upkeep and maintenance.”
One way Glatfelter responds to the property coverage needs of public entities is by avoiding the use of margin clauses in its property programs.
Margin clauses essentially cap the amount recoverable under blanket property programs to a stated percentage of declared property values. The percentages often are in excess of 100%, but can still have the effect of denying the insured full replacement cost coverage, especially for property that is old and undervalued.
According to McCrary, “If a carrier uses a margin clause and the insured’s property is not properly valued, the insured could be recovering less than the full amount of the loss.”
For his part, Rohr finds that “the property market for public entities continues to have an abundance of capacity, and is one the softest lines of business.
“The benefit of this,” he adds, “besides the obvious cost savings, is that it allows our pool clients to explore additional coverages, such as cyber insurance.”
Agents and brokers
Understanding that many communities like their public bodies to “buy local,” McCrary says that Glatfelter seeks out agents with strong connections to their communities and local decision-makers.
So does Great American. “It is important for agents and brokers to go the extra mile in representing their public sector clients,” says Rohr. “Their specialty expertise adds significant value to their role in the distribution of the product.”
He adds, “The agent/broker should work to align clients with the right carrier based on the economics of the deal, but with consideration for who can provide value-added risk management products and services over the long term.”
For more information:
Glatfelter Public Practice
Great American Insurance Group
Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P-C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.