As a local government official or employee, you take risks everyday. Any action, or failure to take action, by you or other public officials can leave your community exposed to potentially catastrophic losses.
The erosion of sovereign immunity has made public agencies the target of an increasing number of lawsuits, and the complexity of providing essential services within budget constraints has made governments increasingly vulnerable to losses.
Generally, larger governmental units tend to have greater and more diversified loss exposures. However, these communities also have access to a wider range of options for dealing with their exposures. Small communities must deal with many of the same problems, without the resources for dealing with their loss exposures.
Rural America is struggling for economic survival., Agricultural income has suffered staggering declines. Other natural-resource-based industries, such as mining, lumber and petroleum have also eroded. Dwindling tax bases, decreasing land values and funding cutbacks have contributed to an economic crisis unmatched in recent history.
To complicate matters further, the cyclical costs associated with traditional insurance puts an almost unbearable strain on local governments.
But small communities in America have not given up. Many are making aggressive efforts to restructure and revive their economies while maintaining their rural identify.
However, with economic revitalization comes new exposures. As a result, local government officials must pay greater attention to issues that may have not concerned them in the past.
All communities, regardless of size and location, face many types of unexpected losses. Small local governments, however, cannot afford to let the risk of those losses go unattended. Risk management helps you identify loss exposures so they can be handled appropriately. In fact, risk management is a critical component of any sound management structure.
How Risk Management Works
Risk Management has often been called “structured common sense”. It does not necessarily require complex theories or complicated programs. It does not require that you spend huge amounts of money. It does require that you think about potential losses as you operate your local government.
Risk management begins with the realization that your government will eventually suffer a loss of some kind. Once you recognize this, you can take appropriate measures to anticipate losses and to minimize their adverse effects.
Chances are, you already have certain risk management techniques in place. For example, if you require all shop workers to wear steel-toed shoes, you are practicing risk management. If you install smoke detectors, fire alarms, or sprinklers in public buildings you are practicing risk management. If you have a policy dictating the way you pay for minor claims such as slips and falls, you are practicing risk management. Since you may not be aware that you already practice some risk management techniques, your efforts may be somewhat fragmented.
Rather than taking a piece-meal approach by taking action only when the need arises, you need to begin coordinating your risk management efforts to ensure that you do not overlook any exposures.
Mention the term “risk management” and most local public officials think of insurance, which traditionally has been the primary way that local governments manage risks. Insurance provides financial protection against accidental loss, it cannot keep losses from happening. In contrast, by managing your exposures, you can prevent unexpected losses.
Insurance is important, but it is just one of several techniques for dealing with losses. While it may be the most common method, it is also, quite frequently, the most expensive.
When insurance is relatively easy to obtain, during a “soft” market, public entities may tend to rely on it too much. In fact, it has been suggested that the easy purchase of insurance undermines sound risk management practices. In addition, overdependence on insurance can leave your government dangerously unprotected during a “hard” phase of the marketing cycle, when insurance coverage tends to be less affordable and less available.
What Is Risk Management?
Before you start managing your risks, you should know what “risk management” is. Many different definitions exist. For local governments, managing risks is no different than for business or industry; the risks simply come in a different wrapper. Think of risk management as:
Planning for the negative consequences of any decision, process or action.
An effective risk management program is based on this simple concept. Unfortunately, insurance has too often been used as a hedge to protect local governments from negative consequences. Rather than spending money to improve a police department or jail, for example, many public officials are content to let claims happen, then turn them over to their insurance company. After all, they reason, that is whey they purchase insurance. Fortunately, that mentality is changing in most local governments who belong to a Joint Insurance Fund (JIF).
Why Is Risk Management Important?
Risk management is a critical component of any sound organization. Whether you realize it or not, the cost of providing goods and services to your citizens is directly related to your ability to handle your risks. Every dollar spent on property damage, on-the-job injuries, liability claims and insurance premiums is a dollar not spent on services for taxpayers. One of the goals of risk management is to divert budget dollars from non-productive uses to productive ones.
What Does Risk Management Entail?
The classic steps of risk management are:
- Risk identification: identifying the services and assets that could cause a financial loss to your community.
- Risk evaluation: determining how often particular losses can occur and how severe they may be.
- Risk treatment examining ways to handle the risks by preventing accidents and minimizing losses after an accident, as well as by exploring ways to cover a loss financially.
- Selection and implementation of treatments: determining which risk treatment measures are most appropriate for your community, then putting them into place.
- Monitoring the results of treatment actions: making sure that the risk management steps are effective.
What Is The Role Of Officials And Employees?
Preventing losses should be the concern of everyone in the local government, from the highest elected official to every worker earning an hourly wage. Unfortunately, risk management is often in conflict with the status quo or administrative freedoms often enjoyed by some departments in your organization. Some departments may need to change their policies, and workers may have to adopt new work habits. Financial losses can be caused by any employee or department, so everyone in the organization must support the goals and objectives of the risk management program. When initiating efforts to manage your risks, the most important tasks is to gain the support of all top elected and appointed officials. Three elements are important in gaining support:
Education. The first step in gaining support for your risk management efforts is to teach public officials about your community’s loss exposures. Many officials are not aware that they can control losses. Try to get officials to think about the risk management implications of agenda items or policy changes. When your chief executive or governing board asks if an item has been through risk management review, you know that your efforts are paying off. Even if they choose not to follow the risk management recommendations, the officials took the time to consider the consequences of the decision they are about to make.
Support. If your local government has risk management policies, the governing board must support these policies. If the board does not support its own policies, your community is in a potentially disastrous situation. It would be better not to have risk management policies. Support from the top is also critical for successfully introducing new policies or procedures. Without high-level support, new policies are doomed to failure.
Role Models. We all know that informal leadership and lines of communication are much more powerful then any official position. If you see workers doing something unsafe and you do not say anything about it, you unintentionally approve of their negative behavior. Further, many states have ruled that observation is considered “notice” of the unsafe action and your jurisdiction may be held liable for damages if an official knew of unsafe practices and did not correct them.
Conversely, officials and supervisors who practice good safety and risk management procedures set good examples for their employees and reinforce the importance of managing risks.
- Appoint a person to coordinate and oversee risk management efforts
- Appoint a risk management committee
- Write a risk management policy statement
The long-term health of your risk management efforts requires that those efforts do not interfere with daily operations. Department heads are paid to make decisions. If you disrupt the relationship of responsibility and authority, you create a situation that can only end in disaster. By incorporating safety and loss control into existing operations, you will ensure that risk management is practiced by front-line employees and their supervisors without disrupting daily activities.
Using This Handbook
This manual is intended to assist you as you implement your own safety programs. It is intended to be used as a resource. Use the materials to suit your specific needs and modify them as you see fit.
JIF Safety Professionals
Finally, feel free to call upon the JIF Safety Professionals for specific help. They are there to assist you wherever necessary.
Plan of Risk Management
For More Information, please contact us:
Paul J. Miola, CPCU, ARM Executive Director
P: (856) 446-9130
Paul Forlenza, Deputy Executive Director
P: (856) 446-9135