How the hard market impacts public risk managers

Budgeting is where risk managers of publicly owned organizations feel the hard market the most.

Public risk managers must often buy insurance for their entire region or branch while predicting what future losses may be. Like all risk managers, they run up against budget constraints (which may not be drawn from scratch on a yearly basis). And they must adjust based on what the actual market is doing; so, when the market is hard, so is the budgeting.

But for public risk managers, the task can be particularly difficult when budgeting cycles run over several years, said Tina Gardiner, manager, risk management services at The Regional Municipality of York. For example, her region does its budgets in four-year cycles.

“I have to do four-year crystal-balling [and projections] of what I think losses [and premiums] are going to do based on 10 or 12 years of history…to ensure we are adequately funded in the budget,” she told CU. “The hard market made it more challenging: I might have thrown a number out there for what I thought the market was going to do, and then I had to increase that number.

“I had to be very aware of, and quickly understand, market shifts to make sure that I wasn’t too low — because you don’t want to underestimate what it’s going to cost — and equally important, that I wasn’t too high.”

Each department’s annual budget may fluctuate slightly, but Gardiner said her insurance budget went up significantly. “We had to provide detailed explanations to council and staff about why the insurance was higher than our usual 2% or 3% increase. Now it was more like 10% or 15%.”

Inflationary increases added to premium costs. Recent price hikes can get lost in translation with members of council, most of whom may not be insurance savvy, said Valerie Barber, director of the insurance and risk management branch (department of consumer protection and government services) in the province of Manitoba.

“Not only did we have to go to those above us in order to seek approval for the premium, but then we would also have to [explain] to departments and agencies from where we were recovering the premiums,” she said.

Not just insurance buyers

Beyond minding insurance programs, public entity risk professionals must watch the bottom line. That requires them to break out of the box of ‘commercial insurance buyers’ and become a strategic partner to their leaders.

For public entities offering transit, healthcare or education services, transparency and communication are key to maintaining the general public’s safety and security. In the same way, public risk professionals must educate their organization’s senior leaders and employees about risk.

“If someone calls me [about] something, I don’t just give them the answer, I give them background as to why,” said Barber. “I also encourage them, if they have any other questions, to approach the branch and we’re always available to assist.”

Proactively disclosing risks is another way risk managers keep executives in the loop about potential threats.

In the face of inflation, supply chain shortages and increased demand for materials, property values have been increasing — in some cases, by double digits. As Barber said: “[Start gathering renewal information] early, because the whole process is probably taking twice as long.”

Doing this can help embed risk management across the organization, and help show the underwriter the organization understands its own risks and is acting to neutralize them.

“[That way], the broker is not the only person talking to [the company that’s] underwriting my risk, I want to talk to them too. And I want to be part of that marketing process. I want to be part of telling the story,” said Gardiner.

This story is excerpted from one that appeared in the August-September print edition of Canadian Underwriter. Feature image by iStock.com/simonkr