“Combat” is, sadly, an appropriate verb to describe what public entities must engage in as they battle the spiraling cost of insurance. The public sector seems constantly pressed to “do more” and often with less. So, having to redirect funds to cover the ever-increasing insurance premiums that would otherwise support services is frustrating to all of us in the public sector.

Legislative action may be the only thing that can bring significant relief to liability and workers’ compensation insurance costs. And, in the case of property insurance costs, a few years of relief from worldwide disasters may be what it takes to stabilize that market. Most likely, however, and at least for the short term, things are only going to get worse.

While much of the problem is out of individual agency control, there are things that they can do to combat the rising costs. In addition to keeping insurance costs at bay, embracing the strategies and tactics described below can result in a more efficient and resilient organization.

Manage Your Risk – Invest in Prevention

Sometimes, spending money is necessary in order to save money. A reasonable investment in loss prevention can go a long way toward lowering the cost of risk. In many cases, the bulk of the additional investment is staff time, rather than funds, reallocated to loss prevention activities.
It is essential to have an individual or committee assigned to safety and loss prevention. A Safety Officer or, in a larger organization, a Safety Committee should be responsible for and given the authority to develop and enforce loss prevention policies and procedures. This individual or committee must have the support of the highest level of the agency.

Their responsibilities could include:
– Reviewing and enhancing safety protocols, standard operating procedures, training topics.
– Ensuring a Disaster Recovery Plan exists and is properly maintained and tested.
– If appropriate, working with Human Resources to manage the safety and loss prevention component of employee education.
– Overseeing the implementation of employee wellness programs, including access to an Employee Assistance Program and healthy workplace initiatives.
– Conducting JSAs (Job Safety Analyses) where individual tasks are evaluated for safety/risk exposure.
-Ensuring a “Competent Person” as defined by OSHA is on staff and able to advise junior members of the crew on technical safety operations regarding: excavation and trenching, fall protection and prevention, etc.

In Practice: Two grounds people are returning to the shop – one driving a tractor and the other sitting on the tractor fender or standing on the tongue of the trailer being pulled behind the tractor. Company policy would encourage all employees to recognize this unsafe condition and report it to the Safety Officer. The Safety Officer would educate the two employees involved, document the event, and include it as an example to analyze at future training sessions or tailgate meetings.

Reduce Cost of Claims

The best way to reduce the cost of claims is to resolve issues before they become claims. For example, since employment practices issues are such a significant risk for any employer, any agency with employees should aggressively contact legal services immediately when any employment issue is detected. Taking the wrong step can be very costly. GSRMA, for example, offers an HR “hotline”, that provides access to employment law attorneys at no cost for those districts where cost is a barrier to accessing legal counsel.

When claims do occur, timely reporting and cooperating fully with the Claims Adjusters can result in better outcomes. Reporting claims or even pre-claim incidents as soon as possible gives the adjusters the opportunity to settle with a claimant or potential claimant to avoid costly defense expenses. Providing adjusters or investigators with the facts of the incident while the details are top of mind can make a difference if defense is required.

Cooperating with Claims Adjusters as they manage a strategy to resolve a claim can also be very helpful. Depending on the facts of the case, sometimes settlements are the best strategy. A claim that ends up in court can be costly to defend, and decisions made by judges or a jury are never guaranteed. Counsel or Adjusters should also be notified before any additional action related to the incident is taken since such action can be detrimental to a favorable outcome.

Specifically for workers’ compensation claims, studies have shown time and again that the sooner a worker can return to work, even when needing accommodation for an injury, the better the outcome for both the employee and the agency. GSRMA can point you in the right direction with early return-to-work plans as well as access to consultants who may be of further assistance.

In Practice: A fire district was paying a significant amount in overtime because they had multiple employees off work due to injury. In California, emergency response employees have no financial incentive to return to work due to Section 4850 pay. The agency was able to follow doctors’ requirements to return several of the employees to the station to do non-emergency-related work. These tasks might be: conducting inventory, depreciation research on vehicles and mobile equipment, or even assisting with the district’s safety inspections. These tasks kept the employees in a working state of mind and encouraged them to strictly follow their providers’ recovery plans to get back to their regular positions as soon as possible.

Reduce Exposure

Insurers calculate the costs of insurance based on an insured’s exposure. Depending on the type of insurance, this can include the type of work employees do, the number and salaries of employees, the value of insured assets, and the kind of work the agency engages in.

Payroll is the most common exposure used for public entity workers’ compensation and general liability. Asset value, such as for buildings, contents, vehicles, etc., is the most common way to gauge property exposure. Staff reductions are always difficult, but they do reduce risk exposure and insurance costs. It may be possible to transfer some ancillary work duties to contractors, to which the liability can be transferred.

Deciding to negate coverage on property that is aged or otherwise not worth replacing if damaged is another strategy. Engaging in risky activities may significantly increase the cost of coverage or may be excluded from coverage entirely. For example, transportation, weapons-related, and construction activities,  should be evaluated for their cost to insure versus the benefit provided.

In Practice: An agency was considering employing armed guards to protect their facilities. The insurer planned to re-underwrite the agency based on this new risk and substantially increase its liability insurance premium. They considered contracting with a private security company to transfer their risk to the contractor. In the end, they not only contracted for security guard services but engaged unarmed guards only.

Partner With Other Public Entities Engaged in the Same Fight

Support Your “Local Risk Pool”

Congratulations, by the way, if your agency belongs to a public entity risk pool. You have already taken the single most crucial step in mitigating the challenges of risk financing. This is particularly true if your pool is well managed, adequately funded, and embraces the “all for one, one for all” philosophy required for a risk pool to thrive. Since public entity risk pools have no profit incentive, it can truly be said that they exist for the benefit of their members. And the benefits they provide go far beyond what most individual agencies can afford to do themselves.

By “pooling” the resources of their member agencies, an active risk pool can:

– Analyze claims data to help their members prioritize loss prevention investment.

– Produce predictive analytics, which uses data from large data repositories to recognize trends early and predict where expensive claims will likely occur.

– Take on or self-insure more of their pool’s risk. This can lower the cost of excess or “stop-loss” insurance. (While individual agencies could do something similar, they rarely have the internal expertise nor the budget flexibility to manage the risk of self-insuring.)

– Provide much higher limits and expansive coverage at minimal incremental costs.

– Get the best pricing due to their buying power.

– Commit resources to stay on top of regulatory changes as they relate to risk management.

– Join with other like-minded parties to advocate for favorable legislation.

– Increase efficiency to reduce the overhead cost of risk management.

– Assemble the highest level of expertise in the public risk management arena.

Of course, what any member entity gets out of their participation in a risk pool depends on how they prioritize risk management. Actively pursuing recommendations made by Risk Control or Claims staff is one way you can ensure your participation in this manner. More often than not, these recommendations are based on your district’s actual experience or that of member districts like yours. In other words – we’re not making this stuff up.

Manage Risk to Manage the Future

It does seem that things are going to get worse and that it may take a crisis of public entities failing under the weight of insurance costs before the situation is corrected. The best overall strategy at this point is to significantly increase the attention spent on risk management. Ideally, doing so will result not only in cost savings but also in improved efficiency and processes. On the other hand, ignoring the threat could spell disaster for the unprepared entity. Start a conversation with your Risk Control Advisor today to see how we can help. Just email Riskcontrol@gsrma.org to get the ball rolling.