Public Risk October 2011

Published by the Public Risk Management Association

www.primacentral.org

OCTOBER 2011

TREMENDOUS OPPORTUNITY, EMERGING RISK:

Wind and Solar Energy Exposures and Challenges for Public Entities Recovering from a Natural Disaster:

THE CEDAR RIVER FLOOD The Heart of the Matter:

“SELLING” RISK MANAGEMENT PART 2

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Volume 27, No. 9 | October 2011 | www.primacentral.org

The Public Risk Management Association promotes effective risk management in the public interest as an essential component of public administration.

PRESIDENT Cindy B. Mallett, AIC, CWCP, ARM-P Risk Manager City of Gainesville Gainesville, GA

CONTENTS

PAST PRESIDENT Laura Peterson, JD, MPA Director of Risk and Insurance University of Wyoming Laramie, WY PRESIDENT-ELECT Dan Hurley, CSP, ARM-P, MS Senior Director, Risk Management & Safety Norfolk Public Schools Norfolk, VA

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6 Tremendous Opportunity, Emerging Risk: WIND AND SOLAR ENERGY EXPOSURES AND CHALLENGES FOR PUBLIC ENTITIES

DIRECTORS Eddie Beecher Risk Manager City of Pompano Beach Pompano Beach, FL Betty Coulter Risk Management Director City of Asheville Asheville, NC Matt Hansen, MPA Director, Risk Management Division City & County of San Francisco San Francisco, CA

By Robert S. Beck, PE and Gerard E. Finley, CPCU

Dave Parker, ARM-P Risk Manager Pima County Sheriff’s Department Tucson, AZ

10 Recovering from a Natural Disaster: THE CEDAR RIVER FLOOD

By Steve Estenson

Marilyn Rivers, CPCU, ARM, AIC Director of Risk and Safety City of Saratoga Springs Saratoga Springs, NY

15 The Heart of the Matter:

Regan Rychetsky Director, HHS Enterprise Risk Management and Safety Texas Health and Human Services Commission Austin, TX

“SELLING” RISK MANAGEMENT PART 2

EXECUTIVE DIRECTOR Mark G. Doherty, CAE

By Marcus Beverly, CPCU, AIC, ARM-P

EDITOR Jennifer Ackerman, CAE Senior Manager, Communications 703.253.1267 • jackerman@primacentral.org ADVERTISING Donna Stigler 888.814.0022 • donna@ahi-services.com

Public Risk (ISSN 0891-7183) is published 10 times per year by the Public Risk Management Association, 700 S. Washington St., #218, Alexandria, VA 22314 tel: 703.528.7701 • fax: 703.739.0200 email: info@primacentral.org • Web site: www.primacentral.org

15 IN EVERY ISSUE 4 News Briefs | 19 Advertiser Index | 20 Member Spotlight

Opinions and ideas expressed are not necessarily representative of the policies of PRIMA. Subscription rate: $140 per year.

Back issue copies for members available for $7 each ($13 each for non-PRIMA members). All back issues are subject to availability. Apply to the editor for permission to reprint any part of the magazine. Periodical postage paid at Alexandria, VA, and additional mailing offices.

POSTMASTER: Send address changes to PRIMA, 700 S. Washington St., #218, Alexandria, VA 22314.

Copyright 2011 Public Risk Management Association Reprints: Contact the Reprint Outsource at 717.394.7350.

OCTOBER 2011 | PUBLIC RISK

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Because you can’t always predict where an accident will end up. Or where it’ll begin.

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Message from PRIMA President Cindy B. Mallett

YOUR RISK MANAGEMENT PLAYBOOK

F

or many of us, “Fall” means “football.” It’s during this time of year when we don the colors of our favorite high school, college or professional teams, demonstrating our allegiances and cheering them to victory. I happen to be a fan of college football, so I spend a dozen or so Saturday afternoons each year rooting for my team as the players attempt to outperform their latest opponent.

The three-hour contest, though, is only a small part of the team’s responsibility each week. Coaches and players spend hours planning for the big game. It’s very telling that a football coach doesn’t teach the offense just one play.

Instead, an entire playbook is developed, and every play of every game is selected with careful attention to the external factors that could affect the outcome. Strategy is critical.

The same can be said of risk management. There is no single correct way to approach the many issues that face us each day. However, our contributions can, and often do, affect the result. For that reason, a risk manager should never stop learning. Continuously adding to and honing our skills ensures a full playbook is available when needed.

One source of continued learning is right here in Public Risk magazine. Each issue contains informative and thoughtprovoking articles that are written by professionals just like you. Enjoy these articles, and consider submitting one of your own for publication.

Another very important educational resource for PRIMA members is our Annual Conference. The 2012 Conference Planning Committee is already hard at work, selecting a variety of educational sessions designed to meet the needs of every conference attendee. Whether you’re a seasoned risk management professional or brand new to the industry, you’ll find educational sessions that hold your interest, sharpen your skills and give you tools you can put to use in your entities. Plan to join us in Nashville next year!

There is no single correct way to approach the many issues that face us each day. However,

Finally, it’s not too late to take advantage of one of PRIMA’s most popular educational resources, our free Webinar series. There are only two Webinars left this year—Risk Management Alphabet Soup and Winning Strategies for Contractual Risk Transfer.

Both of these timely topics can help you keep ahead of the risk management curve. You can register at primacentral.org.

our contributions can, and often do, affect the result. For that reason, a risk

I encourage you to make the most of the many ways that PRIMA can add to your playbook. Your association is here to help. After all, we’re on the same team!

manager should

Sincerely,

Continuously adding

never stop learning.

and honing our skills ensures a full Cindy B. Mallett 2011–2012 PRIMA President Risk Manager City of Gainesville, Ga.

playbook is available when needed.

OCTOBER 2011 | PUBLIC RISK

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News Briefs

NEWS

BRIEFS NEW DIGITAL COMMUNICATIONS RECOMMENDATIONS HELP AMERICANS PREPARE IN ADVANCE OF AN EMERGENCY Recent weather events such as Hurricane Irene, the earthquake on the East Coast and other natural disasters highlight the need for Americans to prepare for emergencies. The Federal Emergency Management Agency (FEMA), the American Red Cross, the Ad Council and Google Crisis Response are collaborating to launch a new preparedness web resource, Get Tech Ready, on behalf of the Ready campaign.

Released just before the start of National Preparedness Month, this new resource educates individuals and families about how using modern-day technology can help them prepare, adapt and recover from disruptions brought on by emergencies or disasters.

A recent American Red Cross survey showed that the Internet, including online news sites and social media platforms, is the third most popular way for Americans to gather emergency information and let their loved ones know they are safe.

“As technology becomes more a part of our daily lives, people are turning to it during emergencies as well. We need to utilize these tools, to the best of our abilities, to engage and inform the public, because no matter how much federal, state and local officials do, we will only be successful if the public is brought in as part of the team,” said FEMA Administrator, W. Craig Fugate.

CITY OF MEMPHIS AND UNIONS BATTLE OVER PENSION PLAN The City of Memphis is catching flak over a proposal to make cuts to its employee pension plan, reports WMC-TV. City leaders say the debt caused by the current pension model is unsustainable while union leaders say the proposed cuts will put the public at risk.

Memphis officials say something has to give. They say the current pension model caused $531 million in unfunded liability and because of that, cuts are unavoidable.

But Michael Williams, vice president of the Memphis Police Association, says city residents cannot afford to lose qualified officers.

“You’re going to get what you pay for,” he said. “You’re not going to get the quality of officers that the citizens actually deserve.”

Memphis Fire Association President Larry Anthony says a pension is the one draw for public safety employees.

“Why would they want to come here for probably a lesser paying job than other places in the country,” asked Larry Anthony, Memphis Fire Association president.

The cuts would affect all city employees who are not yet vested, including 1,300 police officers and 600 firefighters.

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ARE ALCOHOLICS ABLE TO BE TRUCK DRIVERS? The U.S. Equal Employment Opportunity Commission (EEOC) has sued Old Dominion Freight Line (ODFL) for violating the Americans with Disabilities Act for its treatment of a truck driver who self-reported a problem with alcohol, reports Fleet Owner magazine.

The EEOC claims that ODFL violated the law when it removed the five-year employee from a permanent driving position. The suit, filed earlier this month in U.S. District Court for the Western District of Arkansas, seeks reinstatement to the driving position for the employee as well as monetary damages.

“The ADA mandates that persons with disabilities have an equal opportunity to achieve in the workplace.

Old Dominion’s policy and practice of never returning an employee who self-reports an alcohol problem to a driving position violates that law,” said Katharine Kores, director of the EEOC’s Memphis District Office, whose jurisdiction includes Arkansas. “While the EEOC agrees that an employer’s concern regarding safety on our highways is a legitimate issue, an employer can both ensure safety and comply with the ADA.” According to EEOC, in late 2009, the unnamed driver reported that he believed he had an alcohol problem to ODFL in Fort Smith, Ark. The company immediately removed him from his driving responsibilities and referred him for substance abuse counseling. It was then, EEOC contends, that ODFL informed the driver he would never be allowed to return to the road.

SUPPLY CHAIN RISK MANAGEMENT USING A CAPTIVE INSURER POSES CHALLENGES Some risk managers and organizations seeking to address their supply chain risks, highlighted by the disaster in Japan, have weighed covering their suppliers through their captive insurer, but few, if any, have taken that approach, experts say.

Competitive pricing for business interruption coverage and a general caution about adding external supplier risks to the company-owned captive have limited the approach’s appeal among buyers, they say.

Business Insurance reports that companies often require outside suppliers to obtain a certificate of insurance with specific limits per the negotiated contract. If the supplier cannot put up the amount of insurance the company wants, the company often buys an excess layer covering the supplier and passes the costs on to the outside provider, observers say.

The recent earthquake and tsunami in Japan and other natural disasters have highlighted this specific exposure that companies face. One way to handle the exposure is placing it in a captive, which brokers say could carry tax advantages as a third-party risk and assist a company’s risk management efforts.

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EEOC claims that because alcoholism is a recognized disability under the ADA, ODFL’s treatment of the driver violated both ADA and the Americans With Disabilities Act Amendment Act of 2008 “by conditioning reassignment to non-driving positions on the enrollment in an alcohol treatment program.”

EEOC is also claiming that the company’s “policy banning a driver who self-reports alcohol abuse from ever driving again also violates the ADA.”

Keep up with what’s happening at PRIMA and connect with your risk management peers!

Visit us at www.facebook.com/primacentral.

OCTOBER 2011 | PUBLIC RISK

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TREMENDOUS OPPORTUNITY, EMERGING RISK:

WIND AND SOLAR ENERGY EXPOSURES AND CHALLENGES FOR PUBLIC ENTITIES

By Robert S. Beck, PE, and Gerard E. Finley, CPCU

The United States renewable energy market has experienced significant growth over the past five years and renewable energy will play an increasingly important role in the future because of widespread public concern about reducing greenhouse gas emissions.

Growth will not only be driven by increased demand, but also by state and federal policy. The majority of states have adopted mandatory renewable energy requirements and tax incentives. Grants and subsidies are also spurring production and research to make renewable energy more efficient.

While geothermal, fuel cells, biomass, hydrogen and other technologies are significant resources, the market for wind and solar technologies holds the most promise for widespread application.

The growing alternative energy market presents both opportunities and a unique set of exposures. By understanding both of these, risk managers can help protect the public’s investment in these technologies and ultimately help keep coverage costs down.

THE WIND MARKET Wind turbines capture the force of wind to turn blades that run a generator, which in turn produces electricity. Their designs can vary greatly, from simple or very complex and are still evolving.

Simpler, small wind turbine components make the maintenance and risks more easily understood and quantifiable compared to larger wind turbines. Very large, multi-megawatt wind turbines can be 300 feet tall or more, while very small, one-or-two kilowatt wind turbines may only be 50-to-60 feet tall. Insurers differentiate small and large wind turbines by power output of the unit, rated in watts.

Consistent, optimal wind velocity and direction is the key to achieving productive wind energy. Because of topography (such as mountain ranges) and normal jet stream flow, locations with higher average wind speed usually also have fairly consistent wind direction.

According to the American Wind Energy Association (AWEA), the wind industry installed equipment that produced 5,116 megawatts (MW) in the U.S. in 2010, a 15 percent growth over 2009. The goal of the Department of Energy is for wind to contribute 20 percent of all U.S. electricity by the year 2030 (versus 2 percent in 2009).

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The growing alternative energy market presents both opportunities and a unique set of exposures. By understanding both of these, risk managers can help THE SOLAR MARKET There are two basic types of solar energy technologies.

The first, photovoltaic (PV) technologies, involves the direct conversion of solar radiation to electrical energy by semiconductor devices. The second, solar thermal electric energy generation, concentrates the light from the sun to heat a fluid, eventually making steam to drive a turbine.

The latter is typically developed by utilities and not a focus in this article.

Solar energy, while currently providing less than 1 percent of U.S. energy, has experienced dramatic growth over the past decade. This is due to increased consumer demand; rising energy prices from conventional energy sources; and policies and financial incentives from the federal government, states and utilities. According to the U.S. Solar Market Insight Report, the total size of the U.S. solar market grew 67 percent from $3.6 billion in 2009 to $6 billion in 2010. In addition, solar installations in 2010 totaled 956 MW to reach a cumulative installed capacity of 2.6 gigawatts (GW). Non-residential installations were slow to recover from the financial crisis and remained sluggish in 2010.

FIRST-PARTY EXPOSURES While the installation of wind generators or solar panels can generate energy savings, they introduce additional hazards that may not be covered by standard property insurance policies. The municipality or school is becoming, in effect, its own power “utility,” which creates a number of new risks as well as coverage considerations:

WIND ENERGY The location and design of the turbines are critical concerns and should be carefully considered. Wind turbines tend to be located in less populated or rural areas for public safety reasons and due to better energy produced by prevailing winds. Because the turbines are exposed to the elements,

equipment breakdown exposures are a critical concern and are closely related to property exposures. The cause of loss typically stems from various systemic issues such as debris, insects, ice, hail, lightning strikes, lack of maintenance and design flaws. In remote cases, catastrophic failure can occur.

Common Causes of Loss • Fire: Fire can be caused by lightning, sparks from exposed brakes and equipment arcing, as well as combustibles in the nacelle. Fires often result in a complete loss of the unit.

• Lightning: Wind turbines, by design, are the highest point in an area and are frequently struck by lightning.

• Vandalism: Shooting at the slow spinning blades is a new favorite sport for kids in some areas.

• Collapse: Collapse can be caused by an over-speed condition or high winds, if equipment has been inadequately designed or installed.

protect the public’s investment in these technologies, and ultimately help keep coverage costs down.

Natural Hazards Ice/hail, tornadoes, hurricanes, flood, earthquake and other natural catastrophes can all damage the turbine or blades of a wind generator, or even result in tower collapse.

Mechanical In addition to common “property losses,” wind turbines have a high mechanical breakdown exposure, which requires specialized coverage for equipment breakdown that may be excluded under standard property contracts. These losses can be catastrophic and can include: • Over-speed damage: This can occur due to loss of protective systems. Rotor brakes can fail (similar to automobile brakes), causing significant loss.

• Bearing failure: High oil viscosity in cold climates and vibration can cause damage to bearings in the rotor or generator.

• Gearbox issues: Typically, smaller wind turbines do not have gearboxes and use direct drive induction

OCTOBER 2011 | PUBLIC RISK

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Wind and Solar Energy Exposures and Challenges for Public Entities generators; however larger turbines and those that have gearboxes must be maintained by cleaning and lubricating on a regular schedule.

• Electrical exposures: These can be caused by arcing, lightning, surge, grid voltage swings and overheating.

SOLAR ENERGY Location and design of solar PV panels are less onerous than wind turbines, however, they can significantly increase exposures to existing property as they are typically introduced on roofs or areas that were not initially designed for the increased risk.

For public entities, renewable energy brings opportunities to reduce long-term costs and minimize their carbon footprint.

In many ways, it will be the future and should be embraced.

Common Causes of Loss • Fires: Recent significant changes in the number and size of PV systems being installed have increased the risk factor for fires. Fires are increasing as a result of arcing in solar panels due to poor electrical connections, overheating or faulty installation. These fires pose significant risk to not only the panels themselves but to existing property, which presents an increase in exposure. (Also see arc fault below.)

• Roof installation: Solar panel installations on commercial and public buildings can cause roof collapse due to the size and weight of the installations. The primary role of the roof has been to protect the space underneath and few buildings were built with excess structural capacity.

• Theft: As the solar panel industry continues to grow, so have the so-called “solar-bandits.” Fortunately, a number of companies have begun to develop mechanisms to address this problem.

Natural Hazards • Wind/tornadoes/hurricane: Excessive wind is a major concern for PV systems. Currently, the American Society of Civil Engineers (ASCE) Standard 7-05 is the standard for evaluating wind forces on structures and should be carefully considered by public entities as they review their exposures.

• Rain: Water seepage into panels will cause them to shut down. Proper drainage for flat roof solar panel structures is critical to avoid moisture issues. Additionally, improper anchoring to the roof may cause water infiltration into the building.

• Snow: Snow loads are additional concerns for residential, commercial and public buildings. Flat roofs, which allow for easy solar panel installation, are most susceptible to collapse under extreme weight.

Electrical While solar panels do not have the same mechanical exposures as wind turbines, they do have electrical exposures that are also excluded under a standard property insurance contract. This exposure would also be covered under the equipment breakdown:

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• Arc fault: An arc fault, in which electricity arcs across an undesired gap in an electrical circuit, is one of the largest fire risks for rooftop PV systems. There can be significant damage due to arcing to the panel or miscellaneous associated electrical equipment. These grid-tied systems have a larger number of connections, each of which can be a conduit for an arc fault.

CASUALTY EXPOSURES Because there are presently many overlapping casualty issues related to wind and solar, they will be discussed together.

It is important to keep in mind the “active” nature of wind technology (large moving equipment) relative to the more “passive” nature of solar equipment is an important distinguishing feature.

Liability issues for renewable energy are just starting to emerge. They revolve around a highly complex set of legal and contractual exposures spanning the entire spectrum of activity from development, to site preparation and construction, to connection to the power grid (in some cases), to testing and ultimately operation/performance.

Key sources of exposures include: • Purchase of equipment: The expertise, track record and staying power of the manufacturer is a critical aspect relative to liability exposure and needs to be fully evaluated.

• Installation: Typically, the preferred approach is to have the dealer or manufacturer install or erect the equipment and conduct all testing. This limits the potential liability exposure for the public entity for construction or performance problems and more likely will result in a better installation job. It might also be advisable to contract with the manufacturer or dealer (or someone recommended by them) to perform any required ongoing maintenance on the equipment.

• Operational: Exposures may arise from several aspects of operation, including: • Self-generation – Typically, there are two ways that alternative energy is delivered to a user: 1) Store and use the energy (currently less common); or, 2) Integrate with the power grid and sell excess energy back to the utility company. Either approach has risks associated with it, most prominently the possibility that power is not turned off when it is expected to be, thereby injuring an unsuspecting worker.

• Grid exposure – With grid integration, there is also a potential to damage the broader power grid in some way, possibly resulting in injury or damage to others as well.

• First responders – When photovoltaic systems are present, there are many hazards that firefighters or other first responders might face. For example, they may be injured thinking that the system has been shut down

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when it hasn’t been, leading to increased risk of electric shock. The system may also contribute to increased risk of roof collapse, flame spread or inhalation of toxic fumes.

• Wind Turbine Syndrome – In addition, there is another possible exposure associated with wind turbines stemming from the potential long-term adverse heath impact of wind turbine noise or “shadow flicker” (strobe light-like effect cause by the turning blades).

COVERAGE In all of the these scenarios, it is essential that there be a full understanding of contractual arrangements as well as additional insured coverage. Public entities should seek to be held harmless as broadly as possible and also be named as an additional insured on policies for manufacturers, dealers, contractors and utilities. Likewise, they should seek to avoid holding manufacturers, dealers, operators or utility companies harmless or adding them as additionally insured under their policies.

In addition, it is important to look into and understand all relevant local laws and regulations that may apply to either the wind or solar application. Such laws and regulations are growing and changing rapidly.

Wind legal and coverage issues are somewhat more developed than those for solar at present. Even for wind, however, case law is still at an early state of evolution.

Traditional coverage application will be tested, and new coverage will be developed. Potential liability exposures may arise from allegations of: • Public nuisance: These suits are brought by those claiming the equipment is a “nuisance” and interferes with another’s right to enjoy their property. These can be private (individual right) or public (common right of a group or community). They can be the more typical private “attractive nuisance” claims (normally bodily injury related) or ”other nuisance” claims (public or private) that typically do not involve either bodily injury or property damage. Neighbor suits are more common than environmental suits. While it is expected that there will be coverage for traditional “attractive nuisance” claims, some courts have also found coverage for “other nuisance’ claims under standard personal injury coverage in the Insurance Services Office (ISO) Commercial General Liability (CGL) policy as “wrongful eviction” or “invasion of a right of privacy.”

• Injunctive relief: These suits are brought to cease objectionable behavior. Courts have been reluctant to find coverage for “pure” injunctive relief (i.e., without a claim of bodily injury or property damage) under a traditional CGL policy, but such claims may be covered by a policy that includes what is known as “all sums”

coverage rather than the standard “those sums” language found in the ISO CGL policy.

• Pure economic loss: These suits are brought for loss of income or profits, or decreased property value (for example, from wind shadow or wind turbine proximity) without any tangible property damage. Historically, courts have found that such claims are not covered by traditional CGL policies.

• Misrepresentation: These suits claim failure to deliver on performance, e.g. noise, output or energy savings. Courts have been reluctant to find coverage under a traditional CGL policy without bodily injury or property damage associated with such claims,.

• Bodily injury or property damage: Obviously, these will be covered under the standard ISO CGL policy.

To date, there have been a few suits caused by blade or ice throws, towers falling or attractive nuisance. In addition, if Wind Turbine Syndrome—produced by either noise or “shadow flicker”—is substantiated, several questions are likely to be raised. These questions involve coverage trigger, exclusions or other policy language related to whether or not “mental anguish and emotional distress” are covered as “bodily injury.” Some policies explicitly include such coverage. Others, including the ISO CGL, do not. Yet even here, courts have had mixed reactions historically.

For public entities, renewable energy brings opportunities to reduce long-term costs and minimize their carbon footprint.

In many ways, it will be the future and should be embraced.

However, to protect the substantial upfront investment for these technologies, it is critical to keep up on the evolving technology and legal landscape. Carefully review potential exposures and current coverage with your broker or insurer to make sure you have the proper protection (if these technologies are already in place) or in advance of installation so that all potential costs can be factored into a purchase decision.

Robert S. Beck, PE, is a senior vice president, U.S. engineering underwriting manager, for Munich Reinsurance America, Inc. Gerard E. Finley, CPCU, is senior vice president, casualty treaty underwriting, for Munich Reinsurance America, Inc.

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RECOVERING FROM A NATURAL DISASTER:

THE CEDAR RIVER FLOOD

By Steve Estenson

As the risk manager for Linn County, Iowa, my duties are much like those of other public risk managers, but June 2008 brought a challenge that made my everyday duties seem relatively simple. On June 13, the Cedar River in Cedar Rapids crested at a record 31.12 feet. The old record of 20 feet didn’t seem like such a milestone anymore. This time around, we had river gauges to measure the flood stage and meteorological and hydrological reports to forecast the event, but nothing could have prepared us for the magnitude of what happened.

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The county did not have flood insurance on its properties but will be required to obtain and maintain it as a condition of accepting FEMA funds from this point forward. History had not indicated the river could rise to such Not unlike many U.S. cities, Cedar Rapids was founded and developed around two main vehicles of commerce, the river and the railroad. Anyone who has visited Cedar Rapids has probably seen that we have an island in the river that runs through downtown known as Mays Island. The island has long been an icon of our city, housing the Veteran’s Memorial Building, otherwise known as City Hall, as well as the county courthouse and the county jail. Because of the height and structure of these buildings and the cement river wall that surrounds the island, it looks like a battleship anchored in the middle of the river.

In the previous floods on record, these buildings were affected by minimal water in the basements. This is actually common enough during routine spring flooding that our courthouse had sump pumps installed to keep up with the pressure of water coming up through the bedrock under the building. This was not the case in 2008. The first floor of our courthouse, which is sub-grade, had approximately nine feet of water. The county jail, which sits about 20 feet from the courthouse, had four feet of water on the first floor.

There were seven other county facilities that were affected by the flood, two of which were determined to be more than 50 percent damaged by the Federal Emergency Management Agency (FEMA), a percentage that initiates the replacement process rather than repair of the facility.

The county did not have flood insurance on its properties but will be required to obtain and maintain it as a condition of accepting FEMA funds from this point forward. History had not indicated the river could rise to such a stage.

Once the floodwaters receded, the county began the clean up process and awaited the addition of our county to a presidential declaration. Eventually, the county was part of the declaration that included 85 of Iowa’s 99 counties.

Once declared, the race was on to recover as quickly and efficiently as possible.

THE INITIAL RESPONSE: If declared a disaster under a Presidential Declaration, your organization will need to assign the duty of Authorized Applicant Representative to someone who can make decisions and disseminate information internally and with the state and FEMA. This person will need to attend what is known as the “kickoff” meeting. The county’s kickoff meeting with FEMA occurred on June 27, two weeks after the flood crested. Prior to the meeting, the county was already stabilizing buildings, taking inventory of all contents and leasing temporary locations. The county secured a contractor to clean or “muck-out” our buildings within days of the crest. The county had also secured a disaster recovery firm to assist with the tracking and procuring of all transactions associated with the flood.

a stage. Once the floodwaters receded, the county began the clean up process and awaited the addition of our county to a presidential declaration.

Damage was limited to affected floors. Had the county not acted so quickly and waited two weeks for the kickoff meeting, it would have incurred additional losses due to the amount of moisture in the buildings. During initial site visit tours with FEMA in mid-July, the project specialist commended the county on quick action, noting that it prevented further loss. FEMA did question us on how we procured our contractor. Any contract or service of this size requires competitive bidding. Had this service been bid, it would have been weeks, if not months, before clean-up could occur. Having predetermined and selected contractors and providers is an excellent way to avoid being challenged on the selection of these key ingredients to recovery.

THE FLOOD RECOVERY TEAM Key to our recovery was the formation of the Flood Recovery Team—a group of department heads and elected officials from key areas of our organization that processed and analyzed information necessary in the recovery process. This group did not make decisions, but advised and educated the Board of Supervisors on their decisions regarding flood recovery.

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The Cedar River Flood

Key to our recovery was the formation of the Flood Recovery Team—a group of department heads and elected officials from key areas of our organization that processed and analyzed information necessary in the recovery process. This group did not make decisions, but advised and educated the Board of Supervisors on their decisions regarding flood recovery.

The human resources director was included on the team to assist with employment issues, as many employees had no work available or even a place to report. The information technology director was included, as the county had lost accessibility to the server as well telephone and e-mail. The communication manager was busy preparing daily press releases and updating employees, the media and the public on our latest efforts.

Other key personnel included: the purchasing director for the large number of items purchased or leased; the budget and finance directors to monitor all transactions and cash flow; the county attorney’s office reviewed contracts and leases; the construction services manager monitored estimates and repairs to damaged property; and of course the risk manager was necessary to monitor and document all losses. This team of experts initially met twice a day, then scaled back to once a day, once per week and so on. Now, three years post flood, the team meets every other week and updates the Board on the recovery status.

THE ROLE OF THE STAFFORD ACT When local government is not able to respond to an emergency, they ask for assistance from the state. If neither can effectively respond, then the Robert T. Stafford Disaster Relief and Emergency Assistance Act is utilized by the federal government to supplement state and local efforts.

This Act is authorized by the President and allows FEMA to address, through a grant program, public assistance to repair, replace or recover essential infrastructure to a county, city, town, township, local public authority, school district or certain private nonprofits. This program is known as the Public Assistance (PA) Program. Once accepted into the program, your organization will be known as an Applicant.

PUBLIC ASSISTANCE PROGRAM The first characteristic of the PA Program is the terminology that will become second nature to you. Terms like project

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worksheet, version, obligated and closeout will become a part of your everyday correspondence with staff within your organization and with the state and FEMA. A project worksheet (PW) is the document that will identify the damage by each specific area affected. For instance, there are separate PWs written for the building damage and the building contents for a particular building. Likewise, there are separate PWs written for emergency work, like stabilizing a building, and permanent work or repairing the building. PWs are also separated into large and small categories or projects. A small project is anything under a specified dollar amount. For Linn County’s disaster, that amount is $60,900. Anything above that is a large project.

For our disaster, known as DR-1763, the county alone has about 40 large projects and 80 small projects.

Estimating is the most common tool used to write a PW. This gives FEMA an idea of how much funding will be needed for the disaster. Although you’re not bound by the estimate, it’s important to be accurate to ensure there won’t be large discrepancies once work begins. There are models available to assist in rough cost estimates to repair a building based on the type of building. For example, a square foot of a jail would be considerably more expensive than a square foot of warehouse.

The county opted not to estimate based on FEMA’s recommendation on square footage for buildings and utilized a cost estimate format (CEF) for more accurate estimates. This was done by architects and engineers and identified every specific part of a building down to how many outlets and light switches are in each room. This specific type of estimating isn’t necessary on all projects. We found estimating damage to roads could be easily obtained by using linear foot measurement multiplied by the amount and type of material needed.

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The Cedar River Flood Once a PW is written, it is submitted to the state. The state then reviews the content and either forwards it to FEMA or returns it to the applicant to make changes. Once reviewed

by FEMA, and deemed reasonable, FEMA will obligate the funds that have been requested.

Once a project is obligated, the applicant may ask for those funds once it is demonstrated that expenses have been incurred. If the project changes or more damage is discovered during the work phase, a version can be requested. A version is basically an edit to the original scope of work.

CALENDAR OF EVENTS The Public Risk Management Association (PRIMA) hosts or sponsors a wide variety of educational programs for public risk practitioners. These meetings and events provide an optimum forum for public risk professionals to acquire new knowledge or skills, exchange ideas and expand peer networks.

PRIMA’s calendar of events is current at time of publication. For the most up-to-date schedule, visit www.primacentral.org.

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Risk Management Alphabet Soup November 16: FREE for Members!

Winning Strategies for Contractual Risk Transfer

PRIMA ANNUAL CONFERENCES June 3–6, 2012 PRIMA 2012 Annual Conference Nashville, TN Opryland Hotel June 2–5, 2013 PRIMA 2013 Annual Conference Tampa, FL Tampa Convention Center June 8–11, 2014 PRIMA 2014 Annual Conference Long Beach, CA Long Beach Convention Center

The final stage of the PW process is closeout. I’m currently finding that this is the most challenging stage. At closeout, the applicant is to provide all bids, contracts, change orders, invoices, cancelled checks and labor documentation associated with the PW. Another challenge to closeout is state and FEMA staff turnover. The project officers and specialists provided may not be around for the entire disaster. Therefore, some things that you may recall very clearly from early on in the disaster may be new to the staff being utilized at closeout. Likewise, what may have been acceptable to staff at the beginning of the disaster may be challenged by different staff at the end. The key is having a great documenting system in place for each PW and patience.

SEEING THE FINISH LINE Planning the funding sources on larger projects was a great challenge. Linn County has been obligated more than $60 million for recovery by FEMA. There were also other state grants that were utilized. Funding that wasn’t available from grants was generated by bonding. As you can imagine, identifying and obtaining this funding can take time.

FEMA allows 18 months to recover from the disaster and the state can authorize an additional 30 months extending the recovery to four years. Linn County is on track to be recovered within the timeline provided given our last projects can be finished by May 27, 2012. The process hasn’t been easy.

With the many factors involved in each decision, we kept our community’s long-term needs in mind. Rather than replacing some infrastructure, we opted to utilize some projects as Alternate Projects. This allows the funding from one project to be used toward another. It sounds easy enough, but it all depends on the circumstances surrounding the project and it must be reviewed by historical and environmental groups.

We also exercised our right to do Improved Projects. This entails changing the original layout or plan for the project keeping in mind that the only FEMA funding available will be the amount that was obligated for the project. For instance, we chose to add a section to our jail to accommodate our needs for the future at the same time we were repairing the damaged elements from the flood.

Funding is also available for mitigation. This program assists the applicant in relocating essential infrastructure should the disaster occur again. The county will have all electrical, HVAC and generating equipment relocated to higher levels to mitigate any damage caused by floods of this magnitude in the future.

So many other factors affect a community recovering from a disaster. Morale, budget decisions, program decisions and planning for the next event can be stressful and exhausting. Fortunately, if you surround yourself with great staff, communicate your needs and intentions and follow through with a positive, goal-oriented attitude, it can be done. We are now assembling our contingency and recovery plans for not only if this happens again, but when it happens again.

Steve Estenson is the risk manager for Linn County, Iowa.

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PUBLIC RISK | OCTOBER 2011

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THE HEART OF THE MATTER:

“SELLING” RISK MANAGEMENT

By Marcus Beverly, CPCU, AIC, ARM-P

Part Two of a Two-Part Series

In the September issue of Public Risk, we discussed how to make a business case to persuade the “minds” of management to adopt a risk management program. Now we turn our attention to the hard part—winning their “hearts.”

To effectively “sell” risk management, you must appeal to the emotions. And you need to be prepared for the question any good salesperson is trained to answer: “What is risk management, and why should I care?”

BEFORE YOU START Are you serious about reducing risk? Willing to set goals and objectives and be willing to commit the resources needed? Does your boss care? If the answer is an enthusiastic “Yes!” to each of these questions, then you should proceed. If not, don’t bother; you need to go back to your business case and make sure you have made a compelling argument for implementing your recommendation.

But if you are ready to proceed, we’ll look at a few activities that will help you motivate your audience, including: • • • •

Understanding their view of risk; Gaining trust and credibility; Being a resource, not a roadblock; and Giving and receiving feedback.

OCTOBER 2011 | PUBLIC RISK

15

“Selling” Risk Management

As discussed in part one of this article, it is very difficult to assess risk and conduct cost/benefit analyses when dealing with complicated models that project risks over many years. You often end up with dueling experts debating endlessly while no action is taken.

In those cases, the risk becomes less about the “facts” and more about how we react to them, largely based on our own pre-conceived notions.

A DIFFERENT DEFINITION OF RISK Understanding the emotional side of risk management is made easier when one considers the definition of risk coined

by Peter Sandman1:

with complicated models that project risks over many years.

You often end up with dueling experts debating endlessly while no action is taken. In those cases, the risk becomes less about the “facts” and more about how we react to them, largely based on our own pre-conceived notions.

Risk = Hazard + Outrage The hazard portion of the definition is the statistical, objective, business case side of risk management. The outrage portion is how we react to the risk—the subjective, emotional side of risk management that is harder to measure because it is so personal. Using this definition, Sandman boils down risk management communication to outrage increase (“watch out!”) or outrage reduction (“stop worrying”).

If you think about risk and risk management communication in this manner, you’ll start to be more effective, and you’ll start to notice the similarities between advertising a product or service and communicating risk management information.

For instance, when a major hamburger chain caused death and illness due to serving undercooked meat, it responded by revising its safety procedures and producing an ad campaign that in effect told the public, “Stop worrying— we cook our hamburgers now!”

Or, consider the common appeal used by environmentalists: “Watch out—we’re in for big problems if we don’t act now!”

In the case of global warming, this message has been met by some with skepticism and a counter “don’t worry” message.

As discussed in part one of this article, it is very difficult to assess risk and conduct cost/benefit analyses when dealing

16

PUBLIC RISK | OCTOBER 2011

While outrage on a personal level is hard to predict, as a group we tend to raise or lower our amount of outrage, and therefore the risk itself, based on certain principles.

We tend to be more outraged by, and therefore overestimate, risks that are controlled by others (being a passenger versus a driver); dreaded (cancer, severe burns); in untrustworthy hands (corrupt politicians, oil companies, etc.); uncertain or unknowable (like the debates over global warming or vaccines); and managed in unresponsive ways (failing to be transparent, courteous, and compassionate).

The media’s influence also causes us to downplay or accentuate the risks of certain activities. Certain risks, like terrorism or shark attack, are played up and sensationalized, while the much higher risks of death in a traffic accident are downplayed. As a result, we overreact to many risks and normalize or even downplay others.

Studies suggest that as we add more safety devices to cars, like seatbelts, extra brake lights and anti-lock brakes, we compensate by driving less safely.

TRUST ME—I’M A RISK MANAGER Gaining trust is the first step in convincing others to care about risk management. (Notice how most of the things that cause us to overestimate risk, including lack of control and uncertainty, revolve around trust). The more open and

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honest you are in presenting your ideas, the better; transparency is the foundation for trust. To be most effective, however, you must be committed and compassionate in responding to people’s concerns.

The Center for Risk Communication 2 is an excellent resource for tips in how to effectively communicate risk and risk management strategies. The Center breaks down the critical elements of effective risk communication like this:

Caring/Empathy

Honesty/ Openness

Commitment/ Dedication

Competence/ Expertise

Caring and empathy are the most important qualities for effective risk communication, followed by competence/ expertise, honesty/openness and commitment/dedication.

So, while training and experience are important in getting your message out, the saying, “People don’t care how much you know until they know how much you care…about them” applies to risk management communication.

The Center provides the following tips for communicating risk and implementing risk management measures. While these tips are meant for crisis management or large-scale risk mitigation efforts, they are also appropriate for risk management communication at any level.

• Don’t keep secrets. Be honest, forthright and prompt in providing risk information to those affected.

• Listen to people’s concerns. Don’t assume you know what they are and don’t assume it doesn’t matter what they are. Perception is reality, even if not supported by the “hazard.”

• Share power. Set up committees, advisory boards and other vehicles for giving affected persons increased control over the risk.

• Don’t expect to be trusted. Instead of trust, aim at accountability; prepare to be challenged and be able to prove your claims.

• Acknowledge errors, whether technical or nontechnical. Apologize. Promise to do better. Keep the promise.

• Treat adversaries with respect (even when they are disrespectful). If they affect an improvement, give them the credit rather than claiming it yourself.

Gaining trust and credibility starts with how you see your role. Too often, risk managers are seen as only looking at the negative. If you’re seen as a roadblock, people will find a way around you.

Let’s face it, risks happen. You can’t be in business or operate as a public entity without encountering risk and having to manage it. Rather than say no, accept that risks happen and find a way to say yes. Ask questions; act as a resource for uncovering and addressing potential risks; and ultimately, get people to regularly use the risk management process on their own.

Keep in mind, you are fighting human nature. We simply don’t want to think about bad things that could happen, like accidents or catastrophic events. We’d rather sit back and pretend everything will be fine. And most risk managers have heard the common excuses for why people ignore risks, including: “I don’t have the time, staff or money”; “Accidents just happen—it won’t do any good”; “We’re as good as anyone else—things are fine the way they are”; and “It can’t happen here.”

Overcoming these obstacles takes time, trust and specific strategies depending on the person and the objection.

For those who are too busy or can’t find the time to commit the resources, give them help and resources for getting the job done, but also get a commitment from them to accomplish certain tasks, even small ones, by a deadline. Remind people there always seems to be money or time to pay for losses or re-do things correctly when they go wrong.

Convince them that the money and time would be better spent preventing an incident than cleaning up after one.

For those who have a sense of fatalism or normalization, thinking accidents are inevitable or just part of doing business, try a personal appeal. What if it happened to them, members of their family or a close friend? Appealing to their sense of responsibility to those around them and to themselves helps bring the statistics home. The chance of a risk occurring may

OCTOBER 2011 | PUBLIC RISK

17

“Selling” Risk Management be one in a million but if it happens to them, or to someone they love, it’s 100 percent.

Sometimes, unfortunately, it takes the pain of a bad accident to get people to realize it can happen here and we should do all we can to prevent the loss of life or millions of dollars in damages. These events provide valuable lessons and should result in reflection and careful consideration of preventative measures. When something bad does happen, avoid the temptation to reflexively react by making new rules or procedures that may make us feel better, but are not effective ways to manage the risk.

THE RISK MOTIVATOR PYRAMID Another way of looking at motivating others to implement risk management is illustrated in the following pyramid.

Once you lay the foundation for your

RISK MANAGEMENT MOTIVATOR PYRAMID

ideas with a solid business case, shift

“Nice to Do”

your focus to building trust and credibility.

Strategic Proactive Customization

“Should Do” Best Practices

Become a resource

Operations, Management, Maintenance

others will seek out to help address risks, then

“Must Do” Legal and Regulatory Requirements OSHA, GASB, etc.

give them ownership and feedback and you’ll find you are “selling” risk management and being much more effective in managing risks for your organization.

You have the law on your side for the things in the “must do” category, because they carry the threat of fines, loss of permits or even third-party lawsuits. Those can all be powerful motivators. Most claims, however, don’t come from this category, and complying with the law is just the baseline for managing risks in any organization.

To get to the “should do” category, you need to motivate based on personal safety and best practices. People often want to know “who else is doing it” and how they compare to others or professional standards. Having best practices to share gives you more credibility, in that they come from others in the same field and you are not asking people to do anything that others are not doing. This is also a powerful motivator in that we like to think of ourselves and our operations as being better than average.

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PUBLIC RISK | OCTOBER 2011

At the top of the pyramid are the “nice to do” activities that most organizations have yet to achieve. This is where you move from a reactionary program based on past experience to a proactive program, tailored to the organization and based on strategic risk exposures. This is harder to achieve because it takes a commitment of time to get beyond the immediate demands of the organization, and it is harder to identify and prioritize events that may or may not happen.

But once you build trust through success with other risk management initiatives, try gaining commitment to a strategic approach and start fitting the program to the organization, not the other way around.

Last but not least, provide feedback. Set goals and let people know what has been accomplished. A quarterly newsletter and annual report highlighting performance and activity goals and results is essential, if only to show your worth in the risk management function. It can and should go beyond that, to personalize results and goals by department, risk or other factor.

Setting up a self-audit scorecard measuring achievement of best practices among departments or risk pool members is a powerful way to motivate people. Provide results publicly and establish recognition for achieving certain goals. It’s surprising the amount of healthy competition this can create to be the first at meeting the goals, or at least not the only one who hasn’t.

Most of all, never forget you are dealing with a complicated set of emotions when it comes to motivating others to care about risk management. Once you lay the foundation for your ideas with a solid business case, shift your focus to building trust and credibility. Become a resource others will seek out to help address risks, then give them ownership and feedback and you’ll find you are “selling” risk management and being much more effective in managing risks for your organization.

Marcus Beverly is a client service director for York Risk Services Group, Inc. ENDNOTES 1

Peter Sandman’s Theory, http://www.psandman.com

2

http://www.centerforriskcommunication.com

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Advertiser Index

ADVERTISER INDEX Genesis Underwriting Management Company.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 13 Munich Reinsurance America. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Back Cover Starr Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside Front Cover States Self-Insurers Risk Retention Group, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside Back Cover Travelers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 2

Has your entity launched a successful program? An innovative solution to a common problem? A money-saving idea that kept a program underbudget? Each month, Public Risk features articles from practitioners like you. Share your successes with your colleagues by writing for Public Risk magazine! For more information, or to submit an article, contact Jennifer Ackerman at jackerman@primacentral.org or 703.253.1267.

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Publication Title Public Risk 2. Publication Number 0891-7183 3. Filing Date 09/13/11 Issue Frequency 10x/Year 5. Number of Issues 10 6. Annual Subscription Price $140 Complete Mailing Address of Known Office of Publication (Not printer) (Street, city, county, state, and ZIP+4®) Contact Person Jennifer Ackerman 700 South Washington St. Suite 218, Alexandria, VA 22314-1581 Telephone (703) 253-1267 Complete Mailing Address of Headquarters or General Business Office of Publisher (Not printer) 700 South Washington St. Suite 218, Alexandria, VA 22314-1581 Full Names and Complete Mailing Addresses of Publisher, Editor, and Managing Editor (Do not leave blank) Public Risk Management Association (PRIMA) Publisher (Name and complete mailing address) 700 South Washington St. Suite 218, Alexandria, VA 22314-1581 Jennifer Ackerman Editor (Name and complete mailing address) 700 South Washington St. Suite 218, Alexandria, VA 22314-1581 n/a Managing Editor (Name and complete mailing address) 10. Owner (Do not leave blank. If the publication is owned by a corporation, give the name and address of the corporation immediately followed by the names and addresses of all stockholders owning or holding 1 percent or more of the total amount of stock. If not owned by a corporation, give the names and addresses of the individual owners. If owned by a partnership or other unincorporated firm, give its name and address as well as those of each individual owner. If the publication is published by a nonprofit organization, give its name and address.)

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Full Name Public Risk Management Association Complete Mailing Address 700 South Washington St. Suite 218, Alexandria, VA 22314-1581 11. Known Bondholders, Mortgagees, and Other Security Holders Owning or Holding 1 Percent or More of Total Amount of Bonds, Mortgages, or Other Securities.

If none, check box  Full Name Complete Mailing Address 12. Tax Status (For completion by nonprofit organizations authorized to mail at nonprofit rates) (Check one)  Has Not Changed During Preceding  Has Changed During Preceding The purpose, function, and nonprofit status of this organization and the exempt status for 12 Months 12 Months (Publisher must submit explanation of change with this statement) federal income tax purposes: 13. Publication Title Public Risk 14. Issue Date for Circulation Data Below August 2011 15. Extent and Nature of Circulation Average No. Copies Each Issue No. Copies of Single Issue 10x/yearly membership magazine During Preceding 12 Months Published Nearest to Filing Date 1595 1500 a. Total Number of Copies (press run) (1) Mailed Outside-County Paid Subscriptions Stated on PS Form 3541 1387 1344 (Include paid distribution above nominal rate, advertiser’s proof copies, and exchange copies)

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OCTOBER 2011 | PUBLIC RISK

19

Member Spotlight

PRIMA MEMBER HONORED AS WORKERS’ COMPENSATION CHAMPION Each month, Public Risk features a member who has gone above and beyond in a feature column titled “Member Spotlight.” Do you know someone who deserves recognition, has made a contribution or excelled in their profession?

If so, we’d like to hear from you for this exciting column, as PRIMA shines the spotlight on its members.

To be considered for the Member Spotlight column, contact Jennifer Ackerman at jackerman@primacentral.org or 703.253.1267.

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T

he City of Knoxville, Tenn., has received a national award for its employee health and wellness programs from National Underwriter magazine. The publication honored PRIMA Member Gary Eastes and the City of Knoxville with its 2011 Champion Award for Excellence in Workers’ Compensation Risk Management. The city is the first government employer to be chosen as even a finalist for the award.

The city was selected, in part, for its innovative health and wellness programs. Employees with the City of Knoxville have a choice of two health plans. The most popular plan requires the employees or retirees and covered spouses to participate in annual health screenings, regular physical activity, quarterly health education and health coaching, if they have chronic disease or use tobacco. In return, the employee insurance premiums are significantly less and contributions are made to a medical spending account from which out-of-pocket health costs can be paid. The city has a contract with a third-party management group to manage an on-site health facility and provide the health coaching through an on-site registered nurse, a nutritionist and a fitness counselor.

“One of the judges told me the reason our program received the award over the other finalists was our program addressed all of the eight areas on which the award was based,” Eastes, the city’s risk and benefits manager, said. “Because the physical therapist, fitness counselor and vocational rehab specialist are on-site, they work with departments to design

PUBLIC RISK | OCTOBER 2011

training and programs to reduce injuries. We believe we have only scratched the surface of the benefits and savings that can be generated with these resources.”

The city, which is self-funded and self-administered for workers’ compensation, has added on-site workers’ comp case management, vocational rehabilitation and physical therapy to the third-party contract. The award from National Underwriter recognizes how the City has integrated the health and occupational resources to make both more effective. If the treatment of an injury is complicated by chronic disease, the health coaches, physical therapist and nurse practitioner coordinate the care in a multidisciplinary approach.

Over the past five years, the city’s health care costs have risen at only 3.8 percent per year compared, to a national trend of about 8 percent per year. Workers compensation costs have declined by almost half over the same period. The city has saved approximately $4 million during this period, compared to what the cost would have been if costs had followed the national trends.

In 2010, Eastes was also chosen as a finalist for Benefit Manager of the Year by Business Insurance magazine.

Eastes was named to Business Insurance’s inaugural Benefit Management Honor Role.

Congratulations to Gary Eastes and the City of Knoxville for receiving this great honor!

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