6 minute read
Keys to Safety and Prevention
Risk management: You need a partner – not just a vendor
by Robert Inzer
In the magazine’s last issue, I explained council’s risk management role and, more importantly, its responsibility. No one expects you to be an expert on risk management, but you are ultimately responsible if there is a problem. Your job is to provide oversight, ensure that the government has the policies and programs in place to adequately protect your city and monitor those policies and programs to make sure they are regularly reviewed, updated and followed.
WHAT DOES RISK LOOK LIKE?
Risk comes in many forms. There are risks associated with your regulatory activities. For example, cities were very involved in regulatory risk during the COVID-19 pandemic when deciding how best to manage the risk for your citizens and employees. You also assume risk when you invest your funds. These risks relate to credit risk and interest rate risk. You can also assume risk in how you manage your debt such as the amount of outstanding debt you have and how much of it is fixed versus variable. But the risk you are probably most aware of is property and liability risk.
Property losses are generally caused by fire, a water leak, falling limbs or trees or damage caused by a hurricane or other weather event. Unfortunately, your opportunity to manage these risks is limited. When an event occurs, the city has two objectives. First, get the facility back in operation as quickly as possible so there is minimal disruption in services. Second, minimize the damage and related costs. A building that is damaged or has a major water leak that is not addressed quickly will develop mold, and the damage will multiply.
Liability claims run the gamut from falls to false arrests. Some result from negligence to maintain infrastructure or legal issues such as not following your policies in terminating employees. Aggressively managing these exposures and claims can save you significantly on your future premiums.
Unlike the risks mentioned in the last issue, you can transfer the risks noted above to another entity by purchasing insurance or participating in a pooled liability program.
HOW TO PROTECT YOUR CITY FROM RISK
Most cities in our state protect themselves from these risks by participating in the Florida Municipal Insurance Trust (FMIT). FMIT is large enough to distribute risk and avoid concentration risk. The large asset base gives it the flexibility to retain more risk than other pooled programs, thereby reducing the cost of purchasing reinsurance. More than twice as many Florida cities participate in FMIT than any other provider. There are many reasons why most cities choose FMIT, but the most important reason is that FMIT is your risk management partner and not just your insurance provider. Let me say that again since this statement is very important: FMIT is your risk management partner and not just your insurance provider. Created by cities and managed by cities, FMIT is sensitive to cities’ needs. Its objective is to work with you as a partner to manage and mitigate risk, not just to pay claims.
A good partnership is one in which the goals and objectives of both partners are aligned and your partner has the financial stability to uphold their responsibilities under the partnership. FMIT is the most fiscally healthy provider of the major insurance pools, with over $522 million in assets and nearly $200 million in reserves. Also, no money escapes to pay a shareholder or private corporation, and 100% of your insurance premiums are used to pay claims, support administration or fund other services benefiting Florida cities. In addition, there are no commissions or brokerage fees.
FMIT also provides property damage mitigation coverage at no cost to you, which enables you to return to business quickly and efficiently after a property loss. This coverage also allows you to immediately stabilize the property by water extraction or other remediation services to minimize long-term damage and reduce overall losses. They understand that this approach is the best way to minimize losses and, more importantly, get your facility back into operation as quickly as possible.
RISK PREVENTION
Most insurance providers collect premiums and pay claims. What separates FMIT from the other providers is its focus on actively engaging the city in identifying risks and reducing the number of future claims. FMIT understands that the best liability claim is the claim that never occurred. By examining prior claims experience and inspecting your facilities, they focus your staff on actions to keep future losses from occurring. FMIT is your partner promoting safety and is the only program giving matching safety grants.
Effective risk management cannot be judged by just today’s costs. Safety programs cost money today but save you money tomorrow. Claims are also more than just dollars.
If you are making the insurance decision based solely on today’s premium and not on long-term risk management, you are probably making the wrong decision.
FMIT’s focus is on offering long-term risk management and minimizing costs. To avoid claims, FMIT created the Employment Law Advisor service. This service provides all FMIT participants with access to employment law legal experts at no cost. Employment law is one of the most complex and fastest-growing liability risks. As your partner, FMIT understands that providing sound legal advice on the front end avoids large legal settlements behind every claim who was hurt on the back end. This step potentially increases the costs of and suffered. An aggressive safety today’s premiums but drives down future claims, expenses program saves dollars, but it also and premiums.
Sometimes, paying an unwarranted claim today may be cheaper than investigating minimizes human suffering. and fighting it. Unfortunately, paying fraudulent/unwarranted claims, even small ones, encourages future fraudulent claims. FMIT is the only provider with a special investigative unit to examine and prosecute fraudulent claims. Claimants and their attorneys know that FMIT will not just roll over and pay a claim; it is committed to defending its program participants. While the program has successfully avoided and recovered millions of dollars, its true value is in preventing future claims.
For 20 years, I was responsible for the City of Tallahassee’s insurance program. My Insurance Director instilled in me the long-term benefits of active safety and risk management programs. He routinely reminded me that you could not measure avoided claims, but that doesn’t mean they are any less real. My office was also very engaged with the safety officer and the city’s attorney’s office to identify potential risks and then develop policies and training to minimize our exposures and losses. We were fortunate to be large enough to afford and justify our safety officer, but this option is not available for most cities. The safety and costs avoidance services offered by FMIT are an attractive alternative. While it may make today’s premiums slightly higher, it will drive down claims and future premiums and save your citizens money.
Robert Inzer is an advisor to the Florida League of Cities. He has 46 years of municipal finance experience that includes 30 years with the City of Tallahassee, 20 years of which was spent as City Treasurer-Clerk.
