By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®
ORLANDO, FLA.---They say that public entities are about 18 to 24 months behind the commercial sector when it comes to feeling the recession's impact. That puts them at about 2008, the depths of despair. Fiscal holes the size of the Grand Canyon leave elected officials no choice but to consider cuts--to employees, to services, of corners and, yes, of risk managers--and that leaves public-entity risk professionals scrambling to mitigate more exposure with less.
"It's all about risk managers and public entities doing more with less," said Patrick M. Gallagher, managing director of Arthur J. Gallagher Ltd., the U.K. arm of the insurance brokerage with a large presence in the public-sector space.
If done right, however, the fiscal crisis can be an opportunity for risk managers to lower their entities' cost of risk, according to Gallagher and several other experts heard from at the annual meeting of the Public Risk Management Association (PRIMA) this week.
One way public risk managers can stay on top of the crashing financial wave is to clearly communicate to underwriters, said Patricia Roberts, CEO and president of Genesis Underwriting Management Co. What cuts have been made to public services and to employment, and why? What are the added exposures and how are risk managers controlling them?
"In the end, everyone understands budgets are going to have to be cut," Roberts said. "Don't have your underwriters assume anything."
Easier said than done?
As Michael Klein, president of middle markets at Travelers, explained, a variety of losses can come out of the delay of capital expenditures, reductions and freezes on hiring, cuts in public services and other economic impacts; all of the losses coming with higher taxes perhaps, increased public ire and expectations perhaps.
Public entities in the very least, Klein said, need to guard against making cuts that impact key drivers of loss.
And even with fewer resources, risk managers need to stay "true to their word" when it comes to loss control, according to Frank X. Altiere III, president of PMA Management Corp. Risk managers have help in their vendors, whether they be their insurance pool, carrier, broker or a third-party administrator in Altiere's case.
A TPA, for instance, could help a public risk manager benchmark data against peers, for claims closure rates, medical savings, types of claims, and cost of claims this year versus last, Altiere told Risk & Insurance®.
With such analysis, a risk manager can go back to his bosses making those decisions on budget cuts, and make a return-on-investment case for why cutting, say, claims services and going to the lowest bidder might not be a good idea.
It's worth it to pay a slightly higher fee to save exponentially down the road through a TPA or other vendor's services, Altiere said
That's not to say that public entities will not be forced to chase savings, to get short-term slashes in budgets that could lead to long-term losses.
"There's so much price pressure in the marketplace," said Greg Lang, senior vice president at Munich Re, whose firm writes primary insurance and reinsurance for a wide range of public entities.
And though the fiscal situation can be described as a "death spiral," and it's a "tough time to have this conversation" about spending more now to save loads later, Lang has found a "very receptive audience" among public risk managers.
Again, it comes down to looking at that total cost of risk, and getting your management team to do the same.
"This particular market is going to make people think smarter," Lang said.
June 10, 2010
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