7 Critical Risks Facing the Public Sector
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. &