7 Critical Risks Facing the Public Sector

Mass shootings, cyber liability and medical costs are all public sector risks. Add to that budget shortfalls and the picture is grim.
By: | October 24, 2018 • 6 min read

The public sector faces every risk the private sector does and then some.

Adding to the complexity of public sector risk management is the transparency required in public sector deliberations, including contract negotiations and the burden for public sector risk managers to proactively mitigate risk at a price their cash-strapped employers can afford.

What follows is a list of critical public sector risks, any one of which could reduce a public entities’ budget to a shambles if not properly managed.

1) Mass Violence

Vehicles driven into crowded sidewalks in Toronto and London. Juveniles in Florida, Colorado and Connecticut picking up automatic weapons and mowing down their classmates.


The threat of mass murder that could break out at any second is giving public sector risk managers nightmares. In some cases, this public sector violence and madness is leading to innovative insurance coverages.

One public sector risk manager, Dianne Howard of the Palm Beach County School District, sought out the insurance markets to help her solve a property concern related to active shooter incidents. What would happen, she wondered, as was the case at Sandy Hook, if her district needed to demolish a school building because of the horrible memories it evokes for parents who lost their children or for classmates and teachers who survived a mass shooting? The carriers were able to offer her an arrangement that transferred some of this risk.

In the case of a vehicle crashing into a crowd, public sector risk managers need to take a hard look at their policies. Is a vehicle defined as a possible weapon in your policies? Might be, might not be. Better check.

2) Cyber Liability

As cyber risk became understood and cyber coverage evolved, the first areas insurers felt they could be of use was in covering the forensics to run down the source of a breach and the costs of notifying customers that their data was possibly in the hands of bad actors.

In the public sector though, in the event of a breach or even a concern that a breach may have happened, the process of arranging forensic assistance becomes very complicated. What if you think you had a breach but you’re not sure?  You contact your carrier, who then instructs you to hire a high-priced legal firm that conducts forensics. The firm wants a big retainer up front.

In the public sector, you need to go the board for approval at a — you guessed it — public meeting.

Sitting in the audience are newspaper reporters eager to write down and publish every word you say. You don’t even know if you had a breach, and news of one, real or imagined, can be almost as bad as the real thing from a reputational standpoint. See the dilemma?

Smart risk managers are arranging this forensics cover up front and eating the deductible so they can move forward with forensics and inform the public when it is appropriate to do so.

3) Health Risks for First Responders 

Two recent pieces of legislation signal a growing delta of exposure for state and local governments in the area of public responsibility for the health risks of first responders.

A Florida bill extended workers’ compensation benefits for emergency workers who suffer from post-traumatic stress disorder. The psychological fallout from the 2016 mass shooting at the Pulse Nightclub in Orlando and the massacre at the Marjory Stoneman Douglas High School in Parkland this year were key factors in the law’s creation.


“You hope that these things don’t happen a lot, but as they do, it is incumbent on us to take care of those who take care of us,” said Kristy Sands, a vice president of marketing and communications with Gallagher Bassett.

Of course it is, but there will be a substantial cost to the public purse to cover treatments for not only the police and firefighters who responded to the Pulse and MSD shootings but also to other events.

In September, New York lawmakers extended workers’ comp benefits for responders to the World Trade Center bombings until 2022. Cancer from asbestos exposure is just one of the health risks that New York emergency personnel are experiencing as a result of the event.

“There is no doubt that these incredibly brave people who ran into buildings to save others are now facing a crisis of their own,” Sands said.

Related medical costs, though, (including pharmacy costs for these claims), could be massive.

“The medications required for first responder heart and lung claims are extremely expensive,” Sands said. “I had a client who had a concentrated exposure, and in looking at their drug costs, opioids weren’t even in the top 10,” she said.

4) Budget Restrictions

Workers’ comp is just one area where restricted public sector budgets are on a collision course with economic trends. As we all know, health care costs continue to rise, just as many risk managers in the public sector are seeing their budgets capped or cut.

“One of my clients saw a 9 percent reduction in their budget,” Sands said. “They were doing extraordinarily well with their costs, but now they are going to have to figure out how they are going to continue with health costs going up and their budgets going down.”

“Risk managers are going to have to get creative in looking at loss prevention,” Sands continued. “That means getting out there more and seeing where their challenges are and addressing them head on.”

But health care and workers’ comp are just one piece of it.

As this summer’s heatwave in the Northeast demonstrated, the ability of many school districts to provide a comfortable — not to mention healthy — learning environment for children is in doubt.  In the Philadelphia School District and elsewhere, inner city students who can ill afford to miss classes found themselves locked out of school. The schools lack air conditioning, and it will take millions to install it — millions the district doesn’t have.

5) Crisis Management and Reputational Risk

In the age of connectivity, when reputational risk is at everyone’s doorstep, how governments and school districts respond and communicate during a crisis is of paramount importance. An increasingly diverse U.S. population requires an increasing number of communication channels for the public sector to get its message across.

Take the example of a district with Asian students, many of them from different countries, and Latin American students, also from a variety of birthplaces. What happens when a vital piece of information goes out to a school population in general, but 20 percent of the students or their parents can’t understand the message?

Liability and accusations of prejudicial treatment is what happens; not to mention the potential loss of life if crucial evacuation orders or some other emergency communications are not received.

6) Fleet Management

Distracted driving, impaired driving and a critical shortage of driving labor are all factors that are making fleet risk management in the public sector a critical risk. Some think that autonomous vehicles may provide some measure of risk relief, but they carry their own set of shortcomings.

7) Disaster Recovery

Another area where the public sector is facing a real dilemma is in its ability of cities, counties and towns to recover from natural disasters.


As Risk & Insurance® reported in 2016, the state of our nation’s infrastructure has reached a critical stage of disrepair. Trillions will be needed to bring bridges, roads and levees up to acceptable standards, and it is not at all a given that there is the political will in this country needed to get those improvements made. Climate change and the resultant sea rise and increased storm intensity are adding to this problem.

Just look at the flooding and wind storm damage from Hurricanes Michael, Florence and others of their ilk. With public sector budgets already strained, it’s not only the cost to infrastructure, but also the tens of thousands of people who will end up on public assistance.

With no savings and limited incomes to begin with, many of those in Florida and North Carolina who were displaced by hurricanes this season will struggle to get back on their feet again, adding more of a burden to the public purse. &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at dreynolds@lrp.com.

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.


Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”


Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.


“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at riskletters@lrp.com.