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 [email protected]

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.


Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.

R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.


We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?


Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.


Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.


More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]