Magazine article Risk Management

The Evolution of Municipal Risk Management

Magazine article Risk Management

The Evolution of Municipal Risk Management

Article excerpt

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 2.58, 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 2% 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.


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. …

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