Public Risk March 2013

Published by the Public Risk Management Association

www.primacentral.org

THE ART OF

MARCH 2013

COST ALLOCATION PLUS The Value and Role of the Public Sector Risk Manager in Driving Successful Public Private Partnerships Contracts Addressing Injury Prevention Through Dialogue Not Data

Going Above and Beyond “Sometimes I have to go above and beyond—literally.

“Traveling the Alaskan bush to over 150 cities, boroughs and school districts is daunting, but I love what I do.

Helping our members is hugely rewarding. They aren’t just risk partners, they’ve become personal friends.

“To protect them from risk and losses, we rely on Genesis for reinsurance. When we encounter a little turbulence — or worse— it’s comforting to know we can trust their specialized expertise and top notch security.

“With Genesis, we can always count on safe landings no matter what risks cross our path.”

Visit our website at www.GenesisInsurance.com

— Kevin Smith, Executive Director Alaska Municipal League Joint Insurance Association

Genesis Management and Insurance Services Corporation, 120 Long Ridge Rd, Stamford, CT 06902

A.M. Best A++ XV

S&P AA+

A Berkshire Hathaway Company

Volume 29, No. 3 | March 2013 | www.primacentral.org

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

PRESIDENT Dan Hurley, CSP, ARM-P, MS Senior Director, Risk Management & Safety Norfolk Public Schools Norfolk, VA

CONTENTS

PAST PRESIDENT Cindy B. Mallett, AIC, CWCP, ARM-P Risk Manager City of Gainesville Gainesville, GA PRESIDENT-ELECT Betty Coulter Director of Risk Management and Insurance University of North Carolina at Charlotte Charlotte, NC

6

11

Dean Coughenour, ARM Risk Manager City of Goodyear Goodyear, AZ

6 THE ART OF COST ALLOCATION

By Debra Darnofall, ARM-P, Sarah Perry, ARM-P, and Marilyn Rivers, CPCU, ARM, AIC

11 THE VALUE AND ROLE OF THE PUBLIC SECTOR RISK MANAGER IN DRIVING SUCCESSFUL PUBLIC PRIVATE PARTNERSHIPS CONTRACTS

DIRECTORS Ed Beecher Risk Manager City of Pompano Beach Pompano Beach, FL

By Corey R. Stein, MPA

Michael Fann, ARM-P, MBA Director of Loss Control TML Risk Management Pool Brentwood, TN Matt Hansen, MPA Director, Risk Management Division City & County of San Francisco San Francisco, CA Amy Larson, Esq. Risk and Litigation Manager City of Bloomington Bloomington, MN Regan Rychetsky, ABCP Director, HHS Enterprise Risk Management and Safety Texas Health and Human Services Commission Austin, TX

14 ADDRESSING INJURY PREVENTION THROUGH DIALOGUE NOT DATA

EXECUTIVE DIRECTOR Marshall W. Davies, Ph.D. EDITOR Jennifer Ackerman, CAE Deputy Executive Director 703.253.1267 • jackerman@primacentral.org

By John Cummings, MBA, PHR, CIC

ADVERTISING Donna Stigler 888.814.0022 • donna@ahi-services.com

14

Public Risk 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 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.

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

IN EVERY ISSUE

Copyright 2013 Public Risk Management Association Reprints: Contact the Reprint Outsource at 717.394.7350.

4 News Briefs | 19 Advertiser Index | 20 Member Spotlight

MARCH 2013 | PUBLIC RISK

1

Risk credibility

Capital credibility

Street credibility

word on the street is we know risks.

Credibility is important, especially in complex times when it is essential to partner with an expert who has all risks in view. Our global knowledge network is ready to work with you to create reliable solutions. Face any challenge with a market leader who knows their way around.

Find out how at www.munichreamerica.com

Not if, but how Products and services provided by Munich Reinsurance America, Inc. Princeton, New Jersey

Message from PRIMA President Dan Hurley

SPRING STARTS THE EVOLVING CHANGE OF PRIMA LEADERSHIP

A

s we move from the colder months and the unpredictable winds of March, we experience a change of season—transitioning to the long-awaited spring. This period is also a time of change for PRIMA as new leaders emerge for the forthcoming 2013–2014 year. Current board members interested in the step forward to the president’s chair present themselves as candidates and undergo board interviews for the presidentelect position. Shortly after the president-elect interviews, final candidates for two board positions are interviewed by the Leadership Development Committee and selected in early March.

The candidates represent the type of leaders that can lead PRIMA to the future and hold the qualities of leaders as described by Peter F. Drucker who stated, “The leaders who work most effectively, it seems to me, never say ’I.’ And that's not because they have trained themselves not to say ’I.’ They don't think ’I.’ They think ’we;’ they think ’team.’

They understand their job to be to make the team function.

They accept responsibility and don't sidestep it, but ’we‘ gets the credit. This is what creates trust, what enables you to get the task done.”

The ‘team’ emphasized by Drucker, of course, is the board of directors and indirectly, the membership of PRIMA. During my four years serving as a board member, we have had excellent directors truly working as a team, voicing opinions that are not always in agreement but working toward a consensus to make decisions that benefit us all as public risk managers.

To each of the candidates who have offered their services to PRIMA, whether you were selected or not, please know that your offering to serve is greatly appreciated and that your consideration by either the existing board in reference to president-elect or the Leadership Development Committee posed a great challenge, since each of you are highly qualified.

To each of the candidates who have offered their services to PRIMA, whether

One thing we can all appreciate is that candidates who may not get selected this time, and for board members whose eligibility ends in June, they do not just walk away, they continue to contribute to PRIMA through their continued work on committees, task forces, contributions to Public Risk magazine, recruiting new members, assisting with sponsorship and contributions to PRIMAtalk.

you were selected

In this year of the movie, Lincoln, it seems only fitting to close with a quote from him, “In the end, it’s not the years in your life that counts. It’s the life in your years.” Thank you to all those who have offered part of their life to serve and to continue to do so.

by either the existing

Sincerely,

Development

or not, please know that your offering to serve is greatly appreciated and that your consideration board in reference to president-elect or the Leadership Committee posed a great challenge,

Dan Hurley, CSP, ARM-P,MS 2012–2013 PRIMA President Senior Director, Risk Management and Safety Norfolk (VA) Public Schools

since each of you are highly qualified.

MARCH 2013 | PUBLIC RISK

3

News Briefs

NEWS

BRIEFS CALIFORNIA STILL HASN’T BOUGHT LAND FOR BULLET TRAIN ROUTE

Construction of California's high-speed rail network is supposed to start in just six months, but the state hasn't acquired a single acre along the route and faces what officials are calling a challenging schedule to assemble hundreds of parcels needed in the Central Valley, reports the Los Angeles Times.

The complexity of getting federal, state and local regulatory approvals for the massive $68-billion project has already pushed back the start of construction to July from late last year. Even with that additional time, however, the state is facing a risk of not having the property to start major construction work near Fresno as now planned.

It hopes to begin making purchase offers for land in the next several weeks. But that's only the first step in a convoluted legal process that will give farmers, businesses and homeowners leverage to delay the project by weeks, if not months, and drive up sales prices, legal experts say.

One major stumbling block could be valuing agricultural land in a region where prices have been soaring, raising property owners' expectations far above what the state expects to pay.

"The reality is that they are not going to start in July," said Anthony Leones, a Bay Area attorney who has represented government agencies as well as property owners in eminent domain cases.

State high-speed rail officials say it won't be easy, but they can acquire needed property and begin the project on time.

"It is a challenge," said Jeff Morales, the rail agency's chief executive. "It is not unlike virtually any project. The difference is the scale of it."

Quickly acquiring a new rail corridor is crucial to the project, which Gov. Jerry Brown touted as the latest symbol of California's tradition of dreaming big and making major investments in its future.

4

PUBLIC RISK | MARCH 2013

COURT SAYS PATIENTS CAN SHARE MARIJUANA Medical marijuana supporters received a key victory in January—and the Michigan Attorney General's Office suffered a setback—when the state Court of Appeals unanimously ruled that patient-to-patient transfers of the drug are allowed for medical use under state law, reports the Detroit Free Press.

The court said that state-registered patients can legally deliver the drug to one another, as long as they don't exchange money and they follow other provisions of Michigan's medical marijuana act—such as staying within the act's 2.5-ounce limit for anyone possessing the drug.

"It's a huge deal," said Southfield attorney Neil Rockind, whose practice includes defense of medical marijuana users in criminal cases. "A lot of us have been saying all along that the act allowed this, but police and prosecutors kept going after patients who did this."

The published opinion, binding on all lower courts, not only broadens access to medical pot, it also eliminates an illegal step that medical marijuana users were forced to take to begin growing the drug, Rockind said.

W W W.PRIMACENTRAL .ORG

BILL: GIVE TAX CREDITS TO UTAH EMPLOYERS WHO HIRE HOMELESS Sometimes an employer needs an extra nudge to take a chance on hiring someone who is homeless.

HB274, a bill sponsored by Rep. Brian King, D-Salt Lake City, is King’s second attempt to install an incentive by providing businesses with tax credits of $500 to $1,000 for each homeless individual they hire to work 80 to 160 hours per month for six months, reports the Salt Lake Tribune.

The measure cleared its first hurdle, passing out of the House Revenue and Taxation committee with a favorable recommendation. But members of the public were equally adamant in voicing opinions for and against HB274, probably signifying a tough battle the bill will face when it receives full debate on the House floor.

Davis County resident Peter Cannon, a fan of limited government, spoke against the bill.

“In my favorite world, we would have volunteers taking care of the homeless rather than having government do that,” said Cannon, who conversely opposes the idea of reducing the amount of money that should be spent on education.

Pamela Atkinson, a longtime advocate for the homeless community, said she believes that businesses need incentives to take a chance on hiring a homeless person. She also believes such a choice pays big dividends.

“The first thing when they get a job, their self-esteem goes up. They feel, ‘I’m worth it,’ and they put a lot of energy into making this opportunity work,” Atkinson said.

Gayle Ruzicka of the conservative Eagle Forum spoke against the bill.

“I think this idea of creating an unfair advantage”— giving a tax credit for hiring a homeless individual instead of hiring someone else also in need of a job—“over a period of time [could make] the people you didn’t hire end up homeless,” Ruzicka said. She argued that such policy falls outside the proper role of government.

However, Linda Hilton, project director for the Coalition of Religious Communities, said the tax credits would help give homeless individuals equal footing—not an advantage—when they apply for jobs.

The committee vote on the measure was 11-5 in favor, with the bill now heading to the full House.

King said he would work with Rep. Gage Froerer, R-Huntsville, on the possibility of adding a sunset mechanism that would require evaluation of the measure’s success after a specified period of time should it pass.

Providing Excess Workers’ Compensation Since 1990 for Single Entities, Groups & Public Entities

Provided by an A.M. Best “A” (Excellent) IX Rated Carrier Aggregate Coverage Available

SIRs starting at $300,000

Installment Schedule Available

Claims Management Available

Minimum Premiums: • Individual: $50,000 • Groups: $100,000

Risk Control Services Available

Preferred Business Classes

• Healthcare • Schools (K-12, Colleges/Universities) • Public Entities & Special Districts • Agricultural • Hospitality • Specialty Artisans • Manufacturing

• Retail • Transportation • Religious Institutions • Utilities • Auto Dealers • Contractors • Financial Institutions

For additional information, please contact: Phone: 800.800.4007 ExcessWorkersComp@midman.com midlandsmgt.com

MARCH 2013 | PUBLIC RISK

5

THE ART OF

COST ALLOCATION

By Debra Darnofall, ARM-P, Sarah Perry, ARM-P, and Marilyn Rivers, CPCU, ARM, AIC

Are you a risk management professional who has developed unique allocation methodologies for charging out the fair share of insurance premiums, self-insured retentions, claims adjusting, risk management and safety staff expenses and more?

Has senior management recognized this practice as a valuable tool that gets the point across to cost-center managers that reducing the cost of risk through successfully practicing risk management will lower their expenses?

If you answer no to either of these questions, then read on. This article focuses on the whys and why not’s of cost allocation, what elements to consider for allocation, and a few successful methodologies that may be copied or modified and most assuredly debated.

WHY IS IT A GOOD RISK MANAGEMENT PRACTICE TO ALLOCATE YOUR PUBLIC ENTITY’S TOTAL COST OF RISK? It is a fair question to ask, especially since the government activities of our public entities are funded by tax levies and public revenue. Money is tight for each and every one of us both individually and collectively as a community. Supporters of allocation methodology argue that allocation promotes fiscal responsibility and transparency. In this day and age of the technological explosion of social media, each of us as professional public risk managers would argue that accountability is paramount to success.

Allocation in its most simplistic approach means that each piece of an entity budgets and pays for the cost of its risk based upon the goods and services it provides to the community—its exposure. Simple right? It’s not.

6

PUBLIC RISK | MARCH 2013

W W W.PRIMACENTRAL .ORG

As a department engages in the provision of a good or service to the community, it does so with a certain level of quality and quantity that has varying levels of risk dependent upon the human characteristics of the individual delivering the good or service, the natural and/or man-made characteristics of the environment in which the good or service is being delivered, and a certain amount of cosmic good luck. If all the planets align and the good or service is delivered in an appropriate manner, the loss experience associated with the act is positive. If, however, life happens and something goes wrong in the process, the loss experience is negative. Both the positive and the negative loss experience are factors into the allocation of the cost of your organization’s risk.

Let’s go back to the point of exposure within a particular department’s activities. Are the activities you may be allocating high risk—emergency management, law enforcement, airports, harbors or snowplowing? Or, are you allocating for an activity that is relatively sedate—for example, clerical? How you classify the risks associated with those endeavors will affect the sliding scale you may assign for exposure and experience.

Loss experience is a heavy duty factor in the assessment and the allocation of risk. Supporters of the allocation methodology assess an algebraic factor for poor loss experience that adds cost to a baseline allocation value. The poorer the loss experience, the greater the factor charged to that baseline starting point. The better the loss experience, the lesser the factor charged to the baseline.

Do you give credits for good behavior? Is there that one department that actively attends your safety meetings, offers assistance to you in your safety programming, partners with you and supports you when you need it to? What factor do you have the ability to assign to your equation that will show the department all those activities have positively affected its bottom budget line? Meaning, how best are you able to reward them and your continued piece of mind?

Exposure is a science in itself. Public sector risk exposures are unavoidable. We as public employees provide services 365-daysa-year, 24-hours-a-day, seven days a week. We don’t get to say to our constituents, “Sorry can’t walk that law enforcement beat today. It’s too hot…or it’s too cold.” Or, “Yup, it is a blizzard outside madam, but the snow is too deep for me to get you to the hospital for you to deliver that baby of yours.”

The assignment of exposure within your realm needs a touch of realism. You can easily account for the number of property units you insure including boats, trains, planes, buildings, automobiles or computers through a viable fixed asset system.

If you have a robust fixed asset system, you can easily utilize the reporting mechanisms as a baseline of the number of items you need to insure. You take into account the vast numbers of all of

your equipment and its age and value. (Remember to use all your fingers and toes and carry the one appropriately.)

The provision of services to the community has a life of its own.

Recreation, economic development, health care, social services, community planning, public safety and administrative services are often nebulous and dependent upon the human genome of work habits and socioeconomic values. Each of these examples has the capacity to be impacted by external factors including regional, state, and federal funding and regulatory pressures in addition to that of the global economy. May we all say unfunded mandate together with a sigh?

How should you rate the exposure and experience of the new Hazmat Emergency Management Program your public entity just funded? What risks may be associated with the new ski jump your entity added? Remember public works just accepted free labor from the local penal institution.

How do you measure the known and unknown risks associated with these new endeavors?

Most folks still wonder what public risk management is.

The contemplation of the allocation of risk associated with the provision of public goods and services says it all. Pat yourself on the back right now and give yourself a high five.

By thinking through your entity’s total cost of risk and the allocation of the goods and services, you are well underway in assessing how much you should charge for the insurance you allocate to the entity providing the service.

So, let’s talk about some practical approaches to the mathematics of the allocation of risk.

Remember, each of us needs to formulate our algebraic equation for our version of budget reality.

Allocation = {[(Exposure) (Risk Factors)] + [(Experience) (Positive or Negative)]} – Discount for Good Behavior We’ve talked about using fixed asset reporting for a baseline and listing out those services each department within your organization provides. Remember, you are developing your own sliding scale of factors that recognize rewards and “oops you did it again when I told you not to” demerits.

Wait! Let’s talk. Are you charging for the services YOU provide each department within your entity? What measurement factor or cost do you assign for all the training, education, psychological counseling, hand holding, tissue giving service that you and your staff provide?

MARCH 2013 | PUBLIC RISK

7

The Art of Cost Allocation Ahhh. Let’s add to the equation.

Don’t be fooled— claims grow over time. Workers’ compensation cases have life-long longevity depending upon the worker and your state’s labor laws. General liability often has a threeyear window, while a simple property damage claim tends to settle quickly.

Thoughtful considerations of claims that are Incurred but Not Reported add complexity to your allocation methodology. Allocation factors with objective justifications, and justifications from outside your entity, will be easier to defend.

Allocation = {[(Exposure) (Risk Factors)] + [(Experience) (Positive or Negative)]} – Discount for Good Behavior + Cost of Risk Management Services Provided The sophistication of your allocations will depend upon the totality of your insurance program. Remember, there will be out-of-pocket self-insurance funds you will need that you may or may not know of at the time you prepare your budget. It is important to realize that the more sophisticated and robust your insurance program is—trust, captives, self-insured retentions, etc.—the more analytical and statistical data will be needed for a determination as to the appropriateness for reserves and other expenses.

Cost allocations need to be as mathematical and apolitical as possible. You will need to develop a methodology that promotes transparency and accountability. A cost allocation that hits the bottom line becomes a measurable cost of doing business, with a manager who will be interested in what goes into the calculations, and a desire for predictability and fairness. The question remains as to whether or not the allocation assessment will have a beneficial result and will have enough impact on the department’s bottom line to trigger action to pay attention and reduce the potential for losses.

WHAT TO ALLOCATE? The answer can range from a fairly simple spreading of insured and self-insured premiums, to a complex compilation of elements known as “cost of risk” that includes all the organization’s risk costs including insurance, retained or self-insured costs, and internal and external service expenses that can include but not be limited to risk management, safety, legal counsel, claims, actuarial and other associated fees and administrative costs.

Don’t be fooled—claims grow over time. Workers’ compensation cases have life-long longevity depending upon the worker and your state’s labor laws. General liability often has a three-year window, while a simple property damage claim tends to settle quickly. Thoughtful considerations of claims that are Incurred but Not Reported add complexity to your allocation methodology. Allocation factors with objective justifications, and justifications from outside your entity, will be easier to defend.

Let’s get back to our algebraic equation.

Allocation = {[(Exposure) (Risk Factors)] + [(Experience) (Positive or Negative)]} – Discount for Good Behavior + Cost of Risk Management Services Provided

8

PUBLIC RISK | MARCH 2013

Exposure is based upon units of service, product on hand and the fixed assets your entity owns. Risk factors associated with those goods and services need to be on a sliding scale of vulnerability and danger. On a scale of one to 10 with one being the least risky, one might be assigned to clerical administration and 10 to a firefighter or police patrol officer.

A clerk is less likely to lose a computer than a firefighter at the scene of a fire.

As you mathematically compute your loss experience, will large claims be charged at full value or capped at a set amount? If so, what is the amount? Will the experience factor be based on claims history, potential exposures or both? Is the department’s claims experience positive or negative? The best way to assist in determining the point value is to use your loss runs and speak with your claims representatives to identify trends and place a value on that trend. Remember that more often that not, you have a five-year window to examine and work with. You need to communicate that window each time you prepare and share your allocation reasoning.

How do you discount “good behavior”? What exactly is “good behavior”? The definition is one that best fits your public entity or organization. How does your organization measure success? The mathematical allocation equation needs to remain apolitical, but it needs to be composed of truthfulness. Does membership at safety committee meetings count? Will you give credit for participation in training and education? Will you give credit for positive feedback for community assessment? Take a hard, thoughtful look at who makes your risk management programming easy and who gives you grey hairs and work from there.

Here are examples of how some entities successfully utilize allocation methodology: The City of Saratoga Springs, N.Y., uses the mathematical equation presented within this article. Exposure and experience are allocated based upon the size of the exposure and the loss experience associated with the risk for each department. An allocation is assigned for the proportional use of property for offices and activities and the fixed assets “owned” by each department for their specific use. The City’s fleet is underwritten utilizing the City’s commercial insurer’s values for use, make, and model and loss experience for unit cost, physical damage and liability. Credits and debits are given for participation in the City’s robust safety committee and its many activities and counts toward the “good behavior” factor of the equation in addition to the number of community complaints received for services provided to the community. The City’s total cost of risk

W W W.PRIMACENTRAL .ORG

Are Your Drivers as Safe as They Could Be? No public fleet is immune from drivers taking risks in their vehicles. Drivers can be distracted, lose sight of driving fundamentals and exhibit any number of behaviors that can cause risk to your fleet.

DriveCam saves you money and protects your drivers and your community.

Read how one innovative community addressed safety throughout its 2,200-vehicle fleet and join your colleagues at more than 500 companies and communities who have already made the decision to use DriveCam.

To learn more, click here or call or visit DriveCam. 866.419.5861

www.drivecam.com

The Art of Cost Allocation is underwritten prior to any submission to its commercial insurer for coverage. Self-insured deductibles are measured on outstanding claims and litigation and loss history. Lastly workers’ compensation is based upon a group formula calculated on payroll, individual experience and case experience.

The City of Columbia, Mo., uses a balance of claim history and exposures by budget group (department/division).

Department/ Division

Five Year Claim History

Employee Rates by NCCI Code

50%

30%

Motorized Total Cost On-Road of Allocated Vehicles Risk 20%

100%

The five-year claim history includes all workers' compensation, auto property and liability, general liability, and property claims associated with each specific budget group. Claim costs are the total incurred, so will fluctuate as reserves are changed. If there is reimbursement by a thirdparty for claim costs, the specific claim’s cost is reduced.

To allocate for workers’ compensation exposure, the state’s NCCI undiscounted rates are used and converted to a percentage of the total. For example: 8610 (Clerical) is $ .50 7720 (Police) is $1.50 7539 (Electric Company) is $2.00 7710 (Fire Fighters) is $2.25 9403 (Garbage Collection) is $3.00

= = = = =

16.7% 50.0% 66.7% 75.0% 100.0%

Allocation for vehicle property damage and liability is based on the number and type of vehicle. Again, in the interest of being “objective,” ratios used by the insurance industry for increased exposure of different vehicle types and uses are applied. While not specific to each vehicle, the ratio used is as follows: General Auto, Light Trucks & Vans Heavy Trucks, Transit Vehicle Police Cars, Fire Apparatus

1.00 1.50 2.00

The number of vehicles within a given budget area are multiplied by the ratio to come up with a total vehicle exposure.

By utilizing this objective percentage approach for each department/division/budget group, it is possible to identify the amount each department should “contribute” to the self-insurance fund annually. The number needed has already been identified through an actuarial study and loss projections. These costs are part of intergovernmental charges every budget group pays. Other charges in this category include IT charges, maintenance and general administrative costs.

10

PUBLIC RISK | MARCH 2013

Longmont, Colo., uses a similar approach, with a few changes. Using triangulated loss experience worksheets to predict insurance budget needs for workers’’ compensation and all other claims, it determines the amount needed for the self-insurance fund. The City uses a seven year claim history to more fully capture the possible life span of different types of claims. Large claims are individually capped at $25,000. Instead of a mathematical ratio for vehicles, Longmont uses a fleet valuation worksheet to capture the potential property loss exposure for each of its vehicles. Workers’ compensation exposures are based on the budgeted salaries in each budget group or account number.

This allows them to figure both the potential self insurance fund exposure and objectively compute the amount each area will be allocated.

As you can see from each of the examples given, allocation methodology is specific to the entity and to the people who make the entity come to life. The basic mathematical formula may be manipulated to those factors you believe are important to your organization in measuring its total cost of risk. No one formula is alike because no one public entity is alike in its nuances and its services to its community. While we share common goals and aspirations, our communities are different in their goals and aspirations.

Does allocation methodology work in promoting accountability in public entity risk management? One would argue yes, if even for the support of the exercise of examining the risk within your organization. Allocation provides a means to differentiate the types of risk within your organization and the opportunities each risk presents. A very wise nun once said there are no problems, only opportunities for improvement in risk management. She was right. Each risk presented, measured and the cost associated with same gives an opportunity to capitalize on the task, the service and the ability to improve though its practice or the cost of its provision.

As you contemplate allocation, embrace its mathematical objectivity and its ability to be your partner in developing new risk strategies. Seize its apolitical attributes and promote its goals and objectives in providing an outline of a roadmap you may build on for your own risk management programming. Risk is a challenge, embrace the ability to allocate that challenge for your own risk perception and for your entity’s future.

Deb Darnofall is the risk manager at the City of Longmont, Colo.

Sarah Perry is the risk manager at the City of Columbia, Mo. Marilyn Rivers is the director of risk and safety and the city safety and compliance officer for the City of Saratoga Springs, N.Y.

W W W.PRIMACENTRAL .ORG

The Value and Role of the Public Sector Risk Manager in Driving

SUCCESSFUL PUBLIC PRIVATE PARTNERSHIPS CONTRACTS

By Corey R. Stein, MPA

Risk transfer and the role of the public sector risk manager play a critical role in the financial success of P-3 projects. Opportunity is twofold for the risk manager. One, the public sector risk manager grows professionally and two, they play a key role in assisting in their organizational success in navigating these contracts.

MARCH 2013 | PUBLIC RISK

11

Successful Public Private Partnerships Contracts A public-private partnership (P-3) involves an equity partnership between a public and a private entity generally involving the upfront investment of dollars by the private entity in exchange for an equity position that produces a fair return on investment for both parties. This contract must also demonstrate that it is serving the best interest of the taxpayer. Attributes of P-3 contracts can be:

 What are the key financial risk components that must be considered and controlled, and what insurance products are available to fit that need?  Is there a need for additional financing that will become part of the contract? What additional risks or responsibilities could that add to the risk management process.

 Value for the money /cost savings.  Allows for consideration of Alternative Development Projects (ADP) that the public entity would not have been able to consider otherwise.  Often times a more efficient project management approach.  Better guarantees that costs stay within the projected budget.  Project has higher likelihood of finishing on or before the deadline. This is particularly important for infrastructure improvements that have regulatory or safety urgency such as water and sewer systems as well as bridges and roads.

As we know, the public sector risk manager must report to top public officials and could at some point be faulted for not being proactive in these contracts, even if they were not invited to early discussion. Generally, if conflicts arise once these contracts are completed, there is an assumption that the risk manager played an active role in the contract's creation.

The public sector risk manager’s role in achieving operational auditability and transparency by bringing cost and exposure understanding and documentation to the table is a necessary component to driving the financial success of the project.

Taxpayers and elected officials today are faced with unprecedented debt. There is a need for vast infrastructure upgrades and not nearly enough money to accomplish these tasks. There is a demand for clarity in understanding the financial and risk advantages of entering into a P-3 contracts.

In the past, the risk manager was often invited in too late to influence an advantageous outcome of terms. They were not allowed enough time to quantify and assemble information.

Rest assured, the private entity partner has already been studying the risk transfer components of the contract in order to understanding where their most lucrative strategy lies. The public sector risk manager must be present early in the discussion to help initiate consideration of the following issues:  Will the insurance on this partnership contract operate under an insurance wrap-up including umbrella coverage for all participants?  Who should control, design and procure that insurance program: The public entity or the private partner?

12

PUBLIC RISK | MARCH 2013

In order to evaluate a fair return on investment, one must have a thorough understanding of the risk factors involved that could cause financial loss for equity investors on both sides as well as impact negatively on the operational factors that drive revenue.

There has never been a more important role for the public sector risk manager than now, in relation to P-3 contracts.

The risk manager is equipped to bring a dual understanding regarding financial risk as well as the operational risk to insure that a fair contract is negotiated.

For the public sector risk manager to be included early in the P-3 contracts, they must initiate and drive discussion using appropriate risk management strategies. It is not a matter of if, but when these contract opportunities will be presented to your public entity. You must be proactive.

This is extremely important today because public entities currently find themselves trying to solve difficult financial problems within their organizations.

Often, a P-3 contract rises out of a recently discovered budgetary crisis or significant infrastructure improvements that need to be made or excessive debt load that is no longer sustainable. It could also be newly highlighted development that is needed to drive economic growth and prosperity in a geographic region.

To a large extent, many of these contracts are never launched when needed due to the inability to explain to taxpayers and elected representatives the true financial risk associated with these contracts or prove that the financial projections generally developed by the private sector equity partner has been vetted and audited.

Private investors are now realizing that working directly with public entities is key. Without it, public bodies and

W W W.PRIMACENTRAL .ORG

Often, a P-3 contract rises out of a recently discovered budgetary crisis or significant infrastructure improvements that need to be made or excessive debt load that is no longer sustainable. It could also be newly highlighted development that is needed to drive economic growth and prosperity in a geographic region.

personnel will resist externally imposed offers and solutions.

The risk manager can help facilitate success of a win-win P-3 contract outcome by proactively communicating and bringing risk transfer solutions to the forefront to help ensure that the public entity investment is rewarded and better understood and quantified. The public sector risk manager can also provide value by:  Identifying specialized risk management resources that are often used in mergers and acquisitions to better quantify cost and rewards.  Identify insight on business income interruption protections/guarantee options.  Relate risk perspective to performance guarantees in the contract.  Help provide clarity throughout the deal to help reduce conflict once the P-3 begins. Focus on the win-win and how that will be measured and guaranteed.  Initiate new bridges of information sharing to help ensure the success of the project.

It is often surprising to many that lawyers, financial consultants and accountants are not well versed in current insurance terminology and best practice insurance policy forms. Therefore the insurance marketplace and unintended legal interpretations may not adequately address the risk transfer as intended by the P-3 contracts.

The public sector risk manager, if they are to drive maximum positive outcomes, must:  Form strategic partnerships with internal and external players on both sides of the P-3 deal.  Demonstrate their facilitating qualities and strengths as well as their problem-solving and technical abilities.

 Establish and maintain the confidence of all elected officials and not be seen as a partisan participant.  Be proactive in raising discussions about P-3 deals to help ensure early involvement and most importantly, the best chance of success.

This implies that the contracts that originate from the public side, and have at least allowed significant time for public side scrutiny, have the best chance of success.

Today this is not how most of these contracts are born.

The public sector risk manager can be very instrumental in bringing a more proactive thought process to the forefront helping both the public and private side of the contract succeed.

Ultimately the success of these P-3 contracts may depend on an understanding that there are really 4Ps that require managing. The taxpayers need to be kept informed as a partner and communicated with during each step of the process. The risk manager is well positioned to assist in this process and help manage results, garnering confidence from all stakeholders.

There is no question that the public risk manager must respond to the financial challenge facing most public entities and be proactively involved in facilitating and ensuring the success of these P-3 contract initiatives. If they are not, they may be relinquishing an opportunity to demonstrate their value and worth in the organization.

And most importantly, ensure that the best interest of the taxpayers are considered.

Corey Stein, MPA, is a senior advisor, Public Private Partnerships, with Aon.

MARCH 2013 | PUBLIC RISK

13

ADDRESSING INJURY PREVENTION THROUGH DIALOGUE NOT DATA

By John Cummings, MBA, PHR, CIC

This article could easily be titled, How You Are Going To Lose Your Audience in the First Five Minutes of Your Workers’ Compensation Loss Trend PowerPoint Presentation.

Many of us have been there. We are right in the middle of presenting incredibly relevant bar charts utilizing the entire color spectrum of the rainbow only to watch our audience disappear into the soft warm glow of their tablets and smart phones.

Or, in a slightly different scenario, the audience remains but the dialogue keeps returning the common refrain that their workers’ compensation exposures are just different and cannot be analyzed in this fashion.

We find ourselves asking, “How did this happen? This is incredibly important data. Why are we not breaking through to help them reduce their injuries? Is it because we have become so enamored with our risk reporting software packages that we cannot help them find the forest for the trees? Why are we stuck debating the validity and reliability of the type of trees in said forest?”

What we have had to remind ourselves here at MMIA is that the data, in all its colored bar chart glory, is there to help tell the story; but it cannot be the story. Rather the story needs to come from an honest dialogue with our members and their staff on how and why the workplace injuries are occurring.

As a quick background to this case study, the MMIA is an interlocal governmental risk retention pool for municipalities.

We provide workers’ compensation, liability, property and employee benefits coverage. As a member-based organization, we began to realize that some of our members were requiring a new approach with our risk management message. This case study will focus on how we helped a real city, who we’ll call City X, with its approach.

14

PUBLIC RISK | MARCH 2013

W W W.PRIMACENTRAL .ORG

Our first step was to approach our member municipality as if we were an outside consultant. We developed a formal proposal for risk management services, with the key aspect that the services to be provided were free-of-charge. In addition, we attempted to focus these services first on dialogue and interviews and then on the data. What we found in our conclusion were causal factors that the data just couldn’t capture, or maybe just couldn’t articulate through a bar chart or even a nice pie chart.

What we have had to

Once the proposal was accepted, MMIA conducted more than 23 interviews throughout the city with a wide range of employees. In these interviews, MMIA spoke with all levels of staff, including employees who had been with the city for decades and those who have been on the job for only a few months. In addition to these interviews, MMIA traveled to six other municipalities to discuss how they are maintaining a lower than average injury rate as compared to City X.

data, in all its colored

In the course of the interview process, MMIA came to a conclusion that just could not be found in the black and white data points. Rather, the root cause of the injuries came down to the fact that there was no global safety culture throughout City X. In addition, even within individual city departments, supervisors and employees were viewing safety and injury prevention quite differently.

story; but it cannot

The interview questions, and follow-up questions utilized for City X and the other cities surveyed in comparison were:

come from an honest

remind ourselves here at MMIA is that the

bar chart glory, is there to help tell the

be the story. Rather the story needs to

dialogue with our

INITIAL INTERVIEW

members and their staff on how and why

Department:___________________________________________________

the workplace injuries

Length of Time in the Job:_________________________________________

are occurring.

1. How would you rate the safety culture of your department from 1 to 10?

2. When it comes to safety and injury prevention, what do you think are the strengths and weaknesses of your department?

3. What type of safety training did you receive upon hire?

4. When was the last safety program or meeting you attended and what did it include?

5. Have you ever been part of a near miss-type accident? How was this handled?

6. When was the last time you witnessed a workplace injury? What happened and how was it handled afterward in regards to accident investigation and discipline?

7. How could it have been avoided?

8. What type of personal protective equipment is available for your position and how often do you wear it?

9. What happens when an employee in your department does not wear their PPE or works in an unsafe working condition?

10. Have you ever had any interaction with the MMIA as it relates to a workers’ compensation claim?

11. Do you have the authority to shut down a worksite if you feel it is unsafe (for other departments?)?

12. When it comes to safety and injury prevention what do you think are the strengths and weaknesses of the city as a whole?

13. If you could help improve safety or injury prevention for the city, what would you do?

MARCH 2013 | PUBLIC RISK

15

Addressing Injury Prevention Through Dialogue Not Data

FOLLOW-UP INTERVIEW (handled 2-to-3 weeks later)  Since our last meeting, what thoughts have you had about how safety and injury prevention are working in your department?  When was the last safety training you attended, what did it include and how long did it last?  When was the last safety training you initiated for your department, what did it include and how long did it last?  What is your schedule for the rest of 2012-2013 safety training (dates and topics)? Do you have anything formally developed and in place?  When was the last time you personally witnessed a workplace injury? What happened and how was it handled afterward in regards to accident investigation and discipline?  Can you email us any of the following especially for your department: checklist for new employee orientation / performance evaluations / near miss and/or accident report / sample interview questions you often use?  Finally, thoughts and comments… Questions?

It was interesting to see the different answers received based on the department. For example, MMIA asked employees to rate the city’s emphasis on safety from a scale of 1 to 10. When speaking with employees directly, without the human resource department and department heads present,

The education choice for

95 of the top100

most employees rated their safety culture at about four.

Individual department heads and supervisors tended to rate their safety culture much higher in the ranges of nine or ten. Quite simply, when given the freedom to talk openly, many employees saw a much different type of safety being practiced rather than what might have been in policy.

The interviews also showed that some department heads and supervisors were working on safety in their own departments, but this was not being translated into global city objectives. In addition, it appeared that in some of the departments, regardless of quality standard operating procedures, line supervisors let things slide in order to get the job done. Once again, this was a discovery that the data would not illustrate in such a dramatic fashion.

In the course of MMIA’s interviews with other municipalities, several global practices for safety and injury prevention became apparent. These global practices include, but are not limited to, the following: • All city employees are expected to act as safety officers.

• An expectation of safety as a priority goal set by city administration to department heads with regular reporting of safety-related issues at management level meetings.

There is only one!

There is only one risk management education program that is attended by 95 of the top 100 U.S. brokers. The Certified Risk Managers (CRM) Program, from The National Alliance, offers 5 course options to provide you with a solid foundation in risk management. CRM courses are available in the classroom and online.

According to the July 16, 2012 issue of Business Insurance, 95 of the top 100 U.S. brokers attend the CERTIFIED RISK MANAGERS PROGRAM

Learn more 800-633-2165 or www.TheNationalAlliance.com

16

PUBLIC RISK | MARCH 2013

W W W.PRIMACENTRAL .ORG

PRIMA’s 2013 Annual Conference

HOLDING RISK

JUNE 2–5, 2013 | TAMPA, FLORIDA

Early bird registration rates end March 14!

For more information, visit http://conference.primacentral.org.

Addressing Injury Prevention Through Dialogue Not Data

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

WEBINARS 2013 • March 20: Distracted Driving: Beyond the Cones • July 17: Winning Strategies for Contractual Risk Transfer • September 18: Implementing ERM in the Public Sector: Obstacles and Opportunities • November 13: Amendments to Americans With Disabilities Act—Implications for Human Resource Management PRIMA ANNUAL CONFERENCES 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 June 7–10, 2015 PRIMA 2015 Annual Conference Houston, TX George R. Brown Convention Center June 5–8, 2016 PRIMA 2016 Annual Conference Atlanta, GA Hyatt Regency Atlanta OTHER MEETINGS November 4–8 PRIMA Institute 2013 Milwaukee, WI UPCOMING CHAPTER MEETINGS Chapter meetings are listed on a space-available basis. For a complete list of PRIMA chapter meetings, visit www.primacentral.org. For information on a specific meeting, please contact the chapter directly.

Arizona April 19 Minnesota March 7 Missouri April 10 South Carolina March 10–12 To have your chapter meeting listed on the PRIMA Web site, contact Bles Dones at bdones@primacentral.org.

• Department heads are held accountable to enforce safety policies and practices and safety issues are addressed in annual performance appraisals.

• An expectation is set at all levels of city administration for open communication with employees regarding potential hazards and near miss incidents.

• Hiring practices should include collaboration between human resources and department heads working to identify and implement selection tools that ensure departments get the very best candidates.

• A citywide culture of accountability to use all required personal protective equipment including slip and fall prevention in winter months.

• A citywide focus on safety being the primary priority rather than production.

• A city WC claim policy specifying a set length of time an employee can be off work with a follow-up review for possible termination at the deadline.

• A significant focus on early return-to-work options throughout the city that allow employees to work in departments other than their own (may require labor relations negotiations).

MMIA believes that most of City X’s departments had strong operation procedures and guidelines that are similar to those utilized in other cities. Yet, in several of MMIA’s interviews of front line employees, we came across instances of unsafe behaviors or working conditions either not covered by, or possibly not imagined by, City X supervisors.

In summary, throughout this process, we have relearned that the data, in all its colored bar chart glory, is there to help tell the story; but it cannot be the story. Rather, the story needs to come from an honest dialogue with our members and their staff on how and why the workplace injuries are occurring. The ultimate success of this engagement with City X is still ongoing, but some initial successes have appeared over the past four months since the presentation of our findings: • City X has requested that MMIA provide additional in-person training in how to be a local government supervisor. This four hour in-person class is titled Supervising for Success and Safety and helps educate new supervisors on both liability and injury prevention topics.

• The safety committee has noticed employees appear to be more aware of safety and working with a team/culture approach.

• A couple of department supervisors who were utilizing only discipline for safety violations are moving toward a safety first/reward the right behavior approach.

• The safety committee is having more inquiries about how to do things safely.

• Management convened one high-level management team meeting for safety; further work on how to structure this and link it to existing safety efforts is ongoing.

• Whale Done by Ken Blanchard has been added to the required reading for all new police cadets; this book is about training using positive feedback versus emphasizing mistakes and punishing wrong behaviors; this book was introduced by the safety committee chairman.

• Finally, City X has had a marked improvement in claim experience in a comparison to previous periods. The following results have emerged (data has been adjusted to account for variations in staffing levels and payroll): • Incurred workers’ compensation dollars from July – December, 2010 were $391,000 with 39 claims; • Incurred workers’ compensation dollars from July – December, 2011 were $603,000 with 66 claims; • Incurred workers’ compensation dollars from July – December, 2012 (after our study period) were $26,148 with 15 claims.

Finally, the information has been presented and digested by City X and MMIA is working with them to facilitate a move toward a municipal-wide culture of safety and accountability. Yet, as with all large scale cultural shifts, this will undoubtedly take time and additional communication efforts.

John Cummings, MBA, PHR, CIC, is the MMIA human resource and risk management program manager.

18

PUBLIC RISK | MARCH 2013

W W W.PRIMACENTRAL .ORG

Advertiser Index

ADVERTISER INDEX DriveCam. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 9 Genesis Underwriting Management Company.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside Front Cover Midlands Management Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 5 Munich Reinsurance America.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 2 The National Alliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 16 Safety National. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Back Cover

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.

FIND US ON FACEBOOK!

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

Visit us at www.facebook.com/primacentral.

MARCH 2013 | PUBLIC RISK

19

Member Spotlight

PORT OF LONG BEACH CREATES AN INNOVATIVE BUSINESS CONTINUITY PROGRAM 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.

M

ore than 40 percent of the nation’s cargo is filtered through the Port of Long Beach, Calif.

Therefore, the Port is incredibly important to the local, state and national economies and any large-scale event may have significant consequences that will be felt across the nation.

The Port’s business continuity plan has approximately 30 recovery teams who are charged with continuing critical processes like payroll and accounts payable, as well as performing assessments of critical Port infrastructure assets.

These teams then implement the pre-determined workaround strategies to mitigate impact on business operations.

To ensure that its operations can continue in the event of a man-made or natural disaster, the Port of Long Beach has developed a Business Continuity Management Program (BCMP). The program includes the creation of a business continuity management plan as well as an all-hazard business continuity plan. This program enables the Port and its tenants to seamlessly continue commerce operations in the event of a service interruption that could adversely impact the Port.

“Historically, risk management in the public sector has focused on safety and risk transfer as the main risk mitigation techniques,” said Baratta. “However, with the addition of the BCMP, the Port’s risk management function has evolved into one of a comprehensive, enterprise risk management approach. Business continuity has become infused into the planning of future infrastructure engineering projects by considering methods of backup power and closely examining whether the design of vital infrastructure may create potential business-impacting situations in a disaster.”

“Without sufficient preparation, many government entities would not be able to adequately perform their responsibilities when disaster strikes,” said Rich Baratta, director of risk management. “As a result, many businesses would eventually fail, resulting in a severe negative impact on the local and regional economy. The Port’s BCMP counters this by prescribing pre-defined workaround strategies that are intended to be deployed quickly and efficiently so commerce operations may resume quickly.”

Baratta also said that this program coordinates recovery efforts with governmental and business entities through the use of common incident management principals and terminology, memorandums of understanding and contracts with public and private entities to better ensure that adequate resources are available during a businessimpacting event.

20

PUBLIC RISK | MARCH 2013

Baratta says that the Port’s BCMP is fully adaptable to public entities because it incorporates the best management practices from both the emergency response and business continuity fields. The Port’s BCMP integrates the Incident Command System (ICS) structure into its program—a structure that is nationally recognized and practiced by government personnel. Because the Port’s business continuity program takes an all-hazard approach, which focuses on remedying the effect of an incident and not focusing on the cause, the workarounds are broad enough to be utilized and implemented by any comparable agency with only minor modifications.

For more information on the Port of Long Beach’s Business Continuity Management Program, contact Rich Baratta at baratta@polb.com.

W W W.PRIMACENTRAL .ORG

JOIN US AND BECOME A PROUD

MEMBER-OWNER I N O U R N AT I O N A L P U B L I C

ENTITY RISK MANAGEMENT

SUCCESS

S T O R Y.

States members and staff gather with 2012-2013 PRIMA president, Dan Hurley (first row, center), also a States member, to support public entity risk management now and into the future.

We know the challenges you face...

States provides its member-owners with a long and proven history of

reliability, accountability, and well-earned trust.

STATES OFFERS YOU: • A broadly interpreted excess liability coverage form that is second to none in the industry.

• Premium stability and sound financial results for our partner members – member premiums are investments in their own Company.

• Excellent claims and loss control support, including on-site.

• Specialized public entity-oriented services from experienced, service-driven professionals.

FOR INFORMATION CONTACT: States Self-Insurers Risk Retention Group, Inc. at 1-800-640-0345, extension 3310, or visit our website at www.statesrrg.com