It's not to say that the government of New York City doesn't believe in risk management.
It's not fair to pass judgment. Who says how a city the size of New York should manage its risks? Most tourists get lost just walking in Manhattan. So how could you expect a single man or woman to handle every exposure of the financial and cultural capital of the world?
And no single person heads the risk management department of New York. No central head office even exists. The Big Apple has no deputy mayor of ERM. Hell, the city doesn't have insurance for much of its exposures.
Our story could start a decade ago or so when the city did hire a head risk manager. He came from outside, from a small city from another region, and he didn't last a year, the story goes.
Makes you wonder. In a city where the sanitation employees number in the small town range--about 34,000--where the bureaucracy is thicker than even some European countries', can one risk manager rule?
THE NEW LAWMEN IN TOWN
Before tackling those questions head-on, let's instead start our story with Bloomberg (who by the way declined an interview for this story). The Bloomberg administration has continued with the city's long-standing policy of not buying insurance for most of the city's exposures, not appointing a risk czar to oversee the 8-million-people-plus enterprise--but it's an administration that supposedly has an increased interest in managing the city's risk.
Steven Levi, deputy chief in the Law Department, is one city official at the center of the effort to step up how the city deals with its risks. Levi heads up the Risk Management unit and its three other attorneys and support staff, which is part of the Tort Division and its 200 or so attorneys.
Levi's Risk Management unit was created after Michael A. Cardozo became head of the Law Department as corporation counsel for the Bloomberg administration. Though Levi says the unit builds off work he did before, his role is now refined and centralized, a major step forward toward tackling the city's claims. Last year, 24,155 new claims came in, compared with 25,176 the year before that and 26,330 in 2001.
Levi explains in that quick, verbose, lawyerly way how he coordinates litigation risk management for all of the city departments. Call one of these agencies about risk management, and they refer you to the Law Department ... which leads you to Levi. Such is the case with the Parks & Recreation department, in charge of green areas and historic buildings all over the city, as well as Shea and Yankee stadiums.
Ask about risk management at the Department of Citywide Administrative Services, which provides overall facilities management for 54 public buildings, including City Hall, court houses and the health department, and its spokesman also directs you to Law, which, the spokesman explains, "has a central perspective" on risk management.
As Levi, at the center of this central perspective, puts it, "The whole breadth of the city comes together in our very small unit."
City agencies generally have their own safety and health departments and are geared toward serving and protecting the public, he explains. But departments never really have been familiar with how litigation heavily weighs on the city when public service supposedly goes wrong. Prior to the formation of his Risk Management unit, a wall existed between the tort lawyers and the agencies. Enter Levi.
"I advise them in terms of: Lawsuits are expensive," he says.
Levi taps into the agencies through their various general counsels, he says, "which brings us very close to the commissioner of each agency." He cites the 60 or so meetings he had in 2006 alone with agencies. He and his staff work with the different departments to prevent lawsuits and to identify problem areas and behaviors.
His unit, Levi explains, advances "the lessons learned in litigation to help the agencies in their operations and inform lawyers to better defend the agencies."
In general, the Risk Management unit passes these lessons on. For instance, it could mean ensuring that city planners have been careful in securing qualified immunity from any liability that might arise from their designs. This is a matter of documenting that the designers did an adequate study and made "rational choices" while planning.
Or it could be a matter of just training agencies in preserving their documentation for anything from inspections to training to equipment repairs--or even merely being able to find such paperwork amongst cobwebs and file cabinets. Come time to settle or go to court, such evidence is crucial.
Much of Levi's work is in contractual risk management. He helps agencies enter contracts with responsible partners who will stand on their own two feet and take responsibility for insurance and indemnification. The city will accept "vicarious liability," Levi says, such as if the city is involved on another entity's property. It won't accept "cross-indemnification"--"the devil's playground to lawyers," he calls it--where the city would agree to indemnify if someone else is in the wrong. In the end, says Levi, that means that nobody agrees to accept fault.
Levi's contract work extends to special events, such as a Macy's Thanksgiving Parade down Broadway or the New York Marathon. Each year, Levi views about 100 special event permits. Overall, the risk management unit might examine hundreds of transactions and contracts for indemnification agreements.
And the unit's legal lessons can also find their way into the mundane activities of each city department. And here again, the "enormity of how big New York is" becomes apparent, Levi stresses.
"Can you imagine the size of the river that we're trying to change the current of?" he says.
The risk management unit works with everybody from the Office of Emergency Management, to city lifeguards, to vehicle accidents coming from every city agency. When individual city employees get sued, the unit can step in to offer advice on representation issues.
"The things that we do here, I don't think I've seen in other places," Levi says.
And these things, according to Levi, appear to be working. He cites figures on new actions taken against the city. In 1997, about 11,000 actions were filed. In 2007, that number was down almost half to 6,000. Some of this could be attributed to the training and lessons the unit passes along to the city departments. But Levi suggests that, because of the law department's "diligence," plaintiffs' attorneys also are beginning to recognize that the city is not an easy mark and are less likely to initiate an action.
The diligence can be seen in the work that the Tort Division has done overall to reduce the number of pending tort cases against the city. Levi estimates there are about 27,000 pending cases still out there, but that's down from the 58,000 facing the city 10 years ago.
"One of our big missions here was to reduce our case load so we could actually litigate a case," Levi says.
Levi says the department works to cast away smaller cases, dormant cases or cases that can be settled. "We've made a big effort to try to get rid of the little cases," he adds. "You don't usually litigate a $5,000 case."
Instead, the division is overseeing more and more early resolution through the Comptroller's Office. As many as 85 percent of cases settled fit into this "small" category, with payouts under $7,000.
The Comptroller's Office, by the way, might disagree that Levi's office is the center of Gotham risk management. The office--through the post of the Deputy Comptroller of claims and adjudication, manned by Heriberto Barbot--is the city's claims operations.
The office declined several interview requests.Yet the department has made public statements to its ability to "continue to save the city millions," as the subtitle for one press release went.
The office trumpets its recent accomplishments such as creating an online claims resolution tool to lower settlement costs, implementing a data-mining tool to reduce investigative fees, and establishing new units to target "key" areas: a Medical Malpractice Early Intervention Unit, Police Action Early Intervention Unit, Motor Vehicle Personal Injury Division--and, yes, now a relatively new Risk Management Division of its own.
This division "focuses on citywide loss prevention efforts by identifying patterns in claims to implement risk prevention strategies."
The Comptroller's Office wields as proof of its success claims costs statistics that show a drop for the last five years. About $496.4 million was paid out in FY2006 for settlements and judgments for personal injury, law and property damage claims, versus $529.8 million in the previous year.
Out of that FY2006 total, $458.5 million consisted of 14,678 so-called personal injury claims: slips and falls, motor vehicle accidents, police and school issues, and medical malpractice. Med mal alone cost $155.2 million, paid out in 293 cases.
Would you call those numbers sign of improvement? Mind you, any knowledgeable risk management pro would tell you (as one mentioned to us) that New York City would face higher claims costs because of several reasons--more child- and auto-related claims, no chance to spread risk, greater levels of fraud--yet let's be real.
That $496.4 million number is huge.
And mind you, these figures do not include the 14,000 new workers' comp claims, 190,000 processed medical bills and $140 million in wage replacement benefits from 2006. Workers' comp claims and issues do not get dealt with by the Comptroller. That risk management responsibility falls back on the Law Department, but not Levi's Risk Management unit. No, the Workers' Compensation Division handles it under the leadership of Division Chief John Sweeney, who also did not respond to interview requests.
OTHER RISK FOCI
Confused yet as to how, and if, risk management gets done in the Greatest City on Earth? It gets yet more intricate. New York City does not buy insurance for the above exposures, from the workers' comp risks to every claim that Levi and the Comptroller's people handle, across much of the property in the city.
Some other exposures in the city are insured, however, and are overseen by other central risk management figures.
James D. Harper has been program director for the last 20 years of the citywide Central Insurance Program, which is run out of the Mayor's Office of Operations. Harper is the closest thing in the city to what traditional meat-and-potato risk managers would consider a risk manager.
The CIP is an insurance pool, managed by Marsh and fronted by ACE, that provides general liability, workers' comp, disability, some benefits and other coverage to not-for-profits that sign contracts to work with the city. There is nothing like it in the city, says Harper, and nothing else like it in any other city for that matter.
"New York was kind of ahead of its time in doing it many years ago, and the model doesn't really translate well because what you're doing is cutting the necks of many brokers," he says with a Gotham accent as thick as the crowds in Times Square on New Year's Eve.
In fact, the CIP won a 1994 Innovations in State and Local Governments Award from the Ford Foundation and the John F. Kennedy School of Government at Harvard University.
About 1,200 agencies participate, mostly the "little guys," says Harper, like a Head Start center at a Baptist church in Harlem, a neighborhood senior center in Queens or a home-care program that reaches out to any of the 32,000 people who receive care in their own residence.
"Now if they had to go out and buy insurance on their own, they'd be paying today $8,000 or $10,000," Harper says of these not-for-profits. "By being part of this program, it's about 20 percent of what they pay at market."
The Central Insurance Program also provides loss-control support to its agencies. Harper came onboard when the sex abuse scandals were breaking in day-care centers, but managed to quell the crisis through mitigation. This service continues today, including about 100 safety inspections at day-care centers.
"Our eye is trained to look for safety when we go in there," he says.
Harper's staff of 15 have the first crack at any possible claims, and manage to make sure only about 800 reported incidents--out of an average annual total of 8,000--become claims. Harper is also on the look out for possible lawsuits, and to prevent them, he wields a special accident policy, which can make available immediately $5,000 in medical care.
"So, say your kid breaks his wrist on the playground," Harper explains. "I say, 'Look, you don't have to go to a clinic if you're on Medicaid. You take that child to the best orthopedist and have the work done, and we'll pay the bill right away,' and that helps to prevent future liability lawsuits."
If an incident does become a claim, then the third-party administrator from the fronting insurer comes into the picture and works in conjuction with the in-house claims manager. Harper estimates they settle 90 percent of claims before they hit trial.
"It's a pretty well-thought-out program," says William G. Carroll, Harper's account executive at Marsh. Although Harper's focus is narrowed to just nonprofits, it's still a pretty big picture and about $50 million in pure loss size, according to Carroll.
From the city's nonprofits, we travel next to one of the city's income-generating centers where we find yet an another node of risk management. Technically a not-for-profit, the New York City Economic Development Corporation manages 45 property locations for the city worth $700 million in value. It handles infrastructure development projects, and it also manages redevelopment projects.
The EDC is part of the city machinery and budget, yet not an official direct city agency, explains Chris Malin, vice president and assistant treasurer, a position he's held for more than four years. Within its sphere of influence, the EDC assumes the risk and buys the insurance, says Malin.
It's a lot of property to buy coverage for, which also leads to huge GL exposure, he says, because it's "a lot of square footage."
"Some people are scared off of our account, but when you look at our loss history," he says, "it's rather low."
In large part, it's because Malin and the EDC are also responsible for handling loss control at these city-owned properties and projects. A large part of that, he says, is contractual risk transfer--meaning, "We try to transfer all that risk to contractually whoever we're dealing with," says Malin.
It also involves safety training for employees, health and wellness programs, and working with insurers on property loss-control surveys and programs. Then there is insurance for when all else fails. In 2007, this included $100 million in liability limits placed with Chubb, and about $110 million in property limits placed with Lexington. According to a financial statement for the year ending June 30, 2007, the EDC's settled claims haven't surpassed these limits in the past three fiscal years.
How does City Hall fit into all of this work by the EDC? The city is always named as an additional insured on all policies, says Malin. And when the EDC is named in a lawsuit, it passes it over to, where else, the Law Department.
IN ITS OWN LEAGUE?
So is the Comptroller's Office the closest thing to a central risk management department as we'll find in the city? We can't say, they never responded. Or is Levi as close to a central risk management figure as you'll get in the city? Levi hesitates to suggest that his unit's operation is really risk management per se. After all, his unit does not do loss control or handle safety.
His work then is just a component, the legal cog, in the--perhaps the word should be--"federalized" risk management function of the city.
But maybe federalized is the wrong word. Perhaps it should be "fragmented" or "very much pieced together," the descriptions used by Rich Famigletti, the city segment leader for A.J. Gallagher's public entity and scholastic division. Sure, Famigletti is an outside observer with brief history working directly with New York (he had business with the Housing Authority one year, and helped with claims management in another instance).
But Famigletti has been in brokering for nearly 20 years. And he's seen how other big cities do it.
Chicago and Philadelphia have centralized risk management functions, to name but two. Some of the largest cities opt for outsourced risk management or claims services, which New York doesn't. And they tend to buy some insurance, usually property, boiler or excess liability over a high retention.
Like other big cities, New York is not "uninsurable"--contrary to a claim made by at least one government insider.
"I don't know if uninsurable is the way to put it," says Famigletti.
If New York were interested in buying some, it could find insurance above its big retention. The broker admits, though, that New York City might be in its own league. "It's such a huge city," he says. "Our experience with large cities doesn't really compare."
But even NYC has some similarities with other cities. The focusing of risk management functions in the comptroller and legal divisions is similar to other large cities, says Famigletti.
Carl Patchke, a principal in Integro's casualty practice, suggests that such an arrangement makes the most sense.
"I would think that that would be the most efficient and effective way to do it, (providing) consistency in the management of the process, whether it be in settlement values or in litigation and defense strategy," he says.
Patchke is an attorney himself and worked, when employed at Willis, on the account of the Metropolitan Transit Authority from 1997 to 2002. The MTA is New York's semiautonomous, quasi-governmental transportation agency.
The MTA brings us to the end of our story. Maybe the way risk management get done in New York City does work?because it is segmented. The Port Authority controls bridges, tunnels, airports and water ports. The MTA controls the subways and the trains. Con Edison, subsidiary of Consolidated Edison Inc., operates gas and electricity throughout most of the sprawling area, except for portions of Queens. They all operate autonomously.
Meanwhile, for the city, legal does law. The Comptroller handles claims. Harper's efforts go toward nonprofits. EDC handles its properties. Each department does its own thing.
And as long as everybody does their job right, who needs coordination? The folks in the government appear to think so, though they balk at the idea that no coordination exists.
"Given the spread of responsibilities here, and the massive amount of people or dollars concerned, many of the agencies kind of autonomously do their own (thing) with the law department overseeing it and with my program for not-for-profits that have contracts with the city," says Harper.
Levi stresses that how they handle things is not "disjunctive." In fact, it's "pretty effective," he says.
"The things really fit together," he says. "It does coordinate the stuff. It goes into the higher levels of government."
As Harper puts it, all of pieces perform the functions of risk management "organizationally."
But of course, in such a politically charged environment, where saying the wrong thing could get you fired, what else are Bloomberg's employees going to say?
MATTHEW BRODSKY is senior editor/Web editor at Risk & Insurance®.
July 1, 2008
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