Many people assume that risk management is standard across the board. What works for one entity will work for the next and the next, no matter their industry. If you work in the public sector, however, you know this isn’t true.
Although there’s some overlap between public and private risk management strategies, public entities present significant differences in both needs and resources. A talented risk management authority must understand a public entity’s unique position to address their needs and implement the correct strategies.
In this blog, we’ll review 5 unique risks that public entities face and ways you can protect your organization, your employees and the citizens you serve.
5 Common Risks
There are many types of risks that public sector agencies need to consider when assessing their risk management practices. For these entities, managing risk is often more critical than for businesses in the private sector. Public sector organizations typically have smaller budgets and less flexibility to manage sudden costs resulting from loss, which is why risk management is key to providing protection.
Of the many risks that can affect any type of entity, the public sector is especially vulnerable to the following five.
1.) Large Scale and Unique Exposures
Public entities often own or manage significant properties including local government buildings, historic buildings, infrastructure (roads, water, sewer), and other facilities open to all members of the public.
The scope of these properties increases an entity’s exposure to catastrophic or man-made disasters simply because they have more to lose than an entity that owns only one building. Such disasters can drastically interrupt routine and mandated public services, which creates additional losses.
The cost burden of these sudden or unexpected losses can place significant stress on a public entity’s budget. Where many large, private businesses could pivot their funds to cover additional costs of a small-scale exposure to natural disaster, public entities lack the flexibility to adjust to the large-scale and unique exposures they’re subject to.
2.) Cyber Threats
Managing cybersecurity is a critical element of public sector risk management. Public entities are particularly vulnerable to losses through cyber threats because they regularly handle sensitive data and provide necessary services to the community. When those online services are compromised or data is stolen, the entire community is affected.
This particular weakness is partially because public entities are required to employ a certain level of transparency about their organizations. It’s much more difficult for them to keep private items like contact information, salaries, budgets and other sensitive information safe. Therefore, maintaining good practices for cybersecurity becomes a key part of effective risk management.
In addition to being more susceptible to cyber attacks, public entities are also limited in how quickly they can respond to potential cyber risks. They likely have small budgets and staff to manage their cybersecurity. For this reason, it’s often better to perform an internal audit (also called a cyber risk assessment) and act proactively than wait for threats to compromise data and systems.
3.) Significant Regulatory Requirements
Public entities bear a significant amount of regulatory requirements and are subject to different legislative actions that often increase their risk exposure and costs.
For example, many public entities have a first responder exposure if they employ their own police force, EMT team or fire crew. Due to legislation in most states, these employees are far more expensive to cover through worker’s compensation because of their likelihood for serious injury.
Other laws regulating governance requirements, employee/employer relations, and even prevailing wage requirements can make losses more costly, and thus risk management practices more important, in the public sector.
4.) Lack of Agility
In a world where the nature of risks is quickly developing and evolving, public entities face several barriers to the agility required to meet these new challenges. Their risk tolerance is already lower, and exposure higher, than that of many large and private entities, making it even more difficult to shift their funding to address new risks.
Additionally, public entities are often composed of, governed, or funded by various special districts, state and county government departments, and local governing boards. This usually means budgets are fixed due to static funding, which makes it difficult for an entity to adjust to significant swings in insurance costs, uninsured losses, or necessary loss prevention measures.
These tight budgets and complex governing standards only reinforce the importance of risk management for these public entities. Without strategic planning and the right risk management approaches, these entities stand to face significant financial risk in the event of a loss.
5.) Labor Limitations
Although labor challenges exist in both the private and public sectors, personnel management can be especially difficult for public entities. Due to labor agreements and regulatory requirements, it’s more difficult to replace or supplement staff in the public sector.
Employees have incentives to stick with a particular public employer, such as a generous benefits package or pension plans. So when someone is out of work due to an injury, it becomes much more difficult for senior management to find someone to fill in for them because they can’t easily hire temporary help.
This creates a specific risk for those public employers: that important work for the public entity will not be accomplished as needed when an employee is on a leave of absence.
How to Protect Your Organization
If you work in the public sector, many of these risks can seem daunting. It might seem like truly protecting your organization is out of your control. However, there are a few good practices you can use to protect your employees and the people you serve.
- Join a public entity risk pool that offers coverage for your unique risk profile and follows quality risk management principles. The right pool can assist you with risk analysis exercises to find where your entity is most vulnerable and offer advice on how to mitigate your risk exposure.
- Make sure the risk pool you’re considering offers adequate coverage limits for your needs. Some public entities feel forced into subpar coverage because they have little internal control of their budget. This shouldn’t stop you from receiving the coverage you need, though. Your risk pool should feature stable rates and appropriate coverage limits so you can have the peace of mind that you’re protected.
- Find a worker’s compensation claims service that’s a good partner for your organization. You want someone who can manage claims effectively and with compassion. Too many times poorly managed claims lead to tension between valued employees and their employers. Avoid this issue by choosing a service that understands your unique needs as a public entity and is willing to work with you collaboratively.
- Cybersecurity is one of the most prevalent government risks of the modern world. Many small or rural cities and towns don’t have the resources for online risk identification and so are susceptible to serious cyber threats. What’s worse is because few people fully understand how cyber criminals can infiltrate and harm their organization, the risk culture surrounding cybersecurity is often severely lacking. It’s imperative that you prioritize cybersecurity and protect your systems and data and teach your employees about common cyber risks and how to avoid them.
Finding the right risk pool for your public entity can feel overwhelming. There are many options out there, but they can’t all meet your needs or your budget.
At GSRMA, we’re here to help you protect what matters most. Contact us today to see how we can help you protect your organization, employees, and the people you serve through appropriate risk management practices and affordable insurance coverage.