Municipal risk management has evolved significantly over the past four decades. Many of the changes began in the late 1970s with the loss of municipal immunity, the legal principle that public entities had limited liability for the negligent actions or inactions of municipal employees. When this was eliminated, municipalities were suddenly exposed to a wide range of risks.
Municipalities responded to this new risk landscape in different ways. In 1979, the state legislature in Massachusetts, for example, attempted to control such exposures through the passage of Massachusetts General Law (MGL) Chapter 258, which provides the framework for presenting claims against municipalities and outlines a number of strong defenses and immunities available to municipalities. Since its passage in 1979, however, many of those defenses and immunities have weakened.
Economic pressures have also played a significant role in local governments’ appetite for change in insurance costs. In Massachusetts, the passage of Proposition 2½ significantly limited the ability of cities and towns to raise property taxes—the primary source for local revenue. Consequently, local governments were eager to find alternate strategies to obtain lower-cost coverage.
In the early 1980s, the majority of cities and towns were in the assigned risk pool for workers compensation coverage, which resulted in higher premiums and fewer services than would typically be available to “good” commercial risks. The availability of coverage reached a critical point by mid-decade, when local governments found they could not get affordable coverage or, in some instances, coverage was simply not available.
Municipal risk management was further bolstered by the rise of municipal self-insurance groups (SIGs), entities formed to fill the gaps in coverage and service from an inconsistent and unpredictable commercial marketplace. These groups featured products and services specifically geared toward municipal risks. Far from a temporary fad, municipal SIGs still provide the vast majority of cities and towns throughout the country with insurance coverage and risk management services. While previously perceived as adverse risks to be avoided, municipalities are now considered desirable risks to SIGs, particularly when risk management tools are in place to reduce, prevent and mitigate losses.
Municipalities inevitably find themselves in the crosshairs of exposures that seem to increase exponentially over time. For example, while new technology has provided greater efficiencies and cost savings, it has also increased exposures. Social media has enhanced the ability to communicate within and outside of town halls, yet it has also made local officials more vulnerable to violations of open meeting and public records laws and freedom of information requests—and made it easier to run afoul of the law or ethics rules, even inadvertently. Body cameras and drones have also created unanticipated exposures, even though their adoption was originally intended to reduce municipal liability.
The workings of local government affect the entire community, from zoning to police and fire to schools and libraries, and the scope of liability exposure is vast. One could argue—and case law plaintiffs’ attorneys have—that a municipality’s actions or inactions are a contributing factor in the majority of personal injury, bodily injury and property damage claims made by its citizens. Further complicating the issue, cities and towns face huge unfunded liabilities and simply do not have the resources to stay on top of them all.
Incentivizing Risk Management
Changing times have called for adjustments in the strategy to manage municipal loss control prevention and mitigation. Although loss control non-compliance was once met with punitive actions, that is no longer a practical solution. Instead, the future of municipal insurance will offer incentives to encourage municipal leaders to take control of local risk management practices.
The Massachusetts Interlocal Insurance Association (MIIA), for example, has engineered a strategy that gives the municipal pool access to lower-cost options, while encouraging and empowering them to act in their long-term best interest. MIIA built a structure based on rewards, working as partners and delivering multi-year commitments. Through voluntary participation, members make choices that result in lower costs on their own premiums in the form of credits earned toward the following year’s premiums. They also see the results of their choices in the form of mitigated risk and liability, safer employees and communities, and reduced burden on local taxpayers.
Since its inception, MIIA has returned “added value” instead of being a purveyor of a commodity, building long-term partnerships by essentially allowing members to determine their own costs. This risk management approach enables more sustainability over time. More than 300 Massachusetts public entities receive some form of insurance coverage or insurance services from MIIA.
Six Factors of Rewards-Based Management
Since the launch of MIIA’s rewards-based approach in 2002, municipalities in Massachusetts have worked to find new ways to lower their costs and mitigate risk through both employee education and assessment of potential risk areas. Many are accessing workplace safety training, emergency response driving courses, and seminars that focus on skills that employees can use to better perform their jobs—and, indirectly, reduce potential liability exposures—such as stress management or how to deal with difficult residents.
Each local government has its own set of priorities when it comes to safety issues and risk management challenges. While coastal communities must factor rising seas into risk planning, others may need to address building and school security, or highway work zone safety. Any program must be tailored to meet local needs, but there are six common underlying techniques that local entities employ as they develop and carry out risk management strategies.
1. Change workplace culture. By implementing a wide range of programs that engage employees of all levels across different departments, municipalities are creating workplace cultures with safety and health at the core. For example, some municipalities supplement a full course of regular training with mini-training “tailgate” sessions to review existing safety policies on a regular basis. While some affect change through inter-departmental and proactive workplace safety committees, others are hiring dedicated coordinators to focus on and address potential issues and plan safety and risk mitigation-related training. Each approach contributes to a pervasive culture that promotes loss control and safety.
2. Predict and prevent. Through data analysis, trend analysis and sharing of best practices, local governments are identifying specific potential safety hazards and providing targeted employee training programs. Grant funding is also available to prevent specific problems. MIIA has provided grants to municipalities for customized sewer system preventative maintenance programs, data security audits, emergency response trailers, and surveillance cameras to discourage vandalism and theft, as well as to prevent frivolous lawsuits.
At an enterprise level, risk management now includes safety, health and wellness initiatives. On the health insurance side, cities and towns are looking at chronic disease statistics and the use of health care services, then implementing programs that can better provide employees with opportunities to learn how to manage their own health and their health plan. Health care consumer workshops cover alternative options employees can access when an expensive trip to the emergency room might not be necessary. These programs equip employees to better manage their own out-of-pocket costs.
3. Wholly prepare employees. By providing free employee education opportunities related to safety, health and wellness, and management and policy issues, municipalities are working to enhance injury prevention, mitigate liability and positively impact the health of their employees. In doing so, they are demonstrating a focus on the whole employee and consideration of physical and mental health in addition to on-the-job safety. When workers are healthier overall, they lower their risk of injury and increase their ability to heal faster and get back to work.
A good example of a municipality that takes a comprehensive approach is Amesbury, Massachusetts. The city conducts regular safety-related training sessions for employees, in addition to seminars focusing on legal, regulatory and liability updates for police officers. Over the past several years, it has also developed and implemented a robust employee health and wellness program that consists of team fitness challenges, weight management courses and healthy cooking demonstrations.
4. Work as partners. Cities and towns often work in tandem with external partners, such as employee assistance programs (EAPs) that help with mental health solutions. Many are also connecting with surrounding communities to ensure faster emergency response and stronger school security. The town of Essex, Massachusetts, for example, has built a partnership with four other nearby communities as part of the Cape Ann Emergency Planning Team. This benefits the participating towns by offering emergency preparedness through wide-scale public health threat drills, monthly coordination meetings and special guest presentations.
Brendhan Zubricki, Essex’s town manager, said this collaborative approach to risk management helps promote greater efficiencies that use shared resources to bridge the gap between the immediate aftermath of an event and when long-term assistance arrives. “The real power of the team is the development of working relationships and familiarity with neighboring community counterparts, the Red Cross, the local hospital, the local HAM radio group and others,” he said.
5. Maintain and enhance strong leadership. MIIA has recently seen higher turnover in municipal leadership as a result of retirement, which creates a challenge in continuity related to all aspects of governance, including risk management. Ensuring key stakeholders are continually educated and engaged is crucial. Having a police chief participate in a liability or emotional survival training seminar, a department of public works director involved in a work zone safety training, or a town leader engaged in a fitness challenge helps publicly reinforce the safety and health culture.
The city of Newburyport, Massachusetts, for example, ran a pedometer walking challenge last fall that pitted city employees against school employees, with both the mayor and the school superintendent visibly participating. This boosted employee engagement, helping to foster a culture of health and wellness, which can impact health risks and associated costs long-term.
6. Ease taxpayer burden. Cities and towns face annual increases in fixed costs such as health insurance rates, so working to control losses in other areas helps them stay within budget constraints. Many municipalities are identifying specific claims areas for improvement, accessing programs provided at no cost by insurance partners, and securing grant funding that mitigates exposure areas.
Although resources must be expended to send staff for safety training, doing so results in significant reductions in claims when an accident or loss occurs. Onsite driver training for emergency responders, for example, addresses a specific claims area—vehicle accidents—and impacts the bottom line. All of these activities bring the added benefits of offsetting premiums and lowering claim costs.
Although the landscape has evolved, municipal governments still encounter many of the same challenges that they always have: workplace safety, employee injuries, extreme weather events and internal management issues. By looking further ahead, municipalities are working to influence workplace culture, focusing on the whole employee, leveraging partnerships, engaging leadership, and controlling budget and taxpayer costs in the process.
Municipal risk management may require a slightly different and more innovative approach today, but the overall goal remains the same: to keep employees prepared and cities and towns safe so they can focus on teaching, policing, recreation and all the things that matter to ensuring quality of life for residents.