City governments provide a wide variety of services to citizens which requires them to hire quality professionals and use different types of equipment. As with any individual or private business, cities need to purchase insurance to protect their assets and develop risk management policies.
Insurance and Risk-Sharing Programs
Just as individuals buy personal homeowners and auto insurance, businesses and other organizations purchase insurance to protect themselves against the adverse effects of property and liability losses. Commercial insurance provides protections for private business and non-profit organizations by transferring the financial consequences of a loss to an insurer. As a general rule, the property and liability insurance needs of a business or governmental entity are more complex than individuals or families. Accordingly, commercial insurance involves a far greater number of policy forms and endorsements than those used to provide personal insurance.
Participation in a group self-insurance, or risk-sharing program, comes with many benefits to members. Perhaps the most commonly cited benefit of such programs is the cost savings members receive. Other benefits can include customized services and resources, such as loss control and member education. Since participants of such pools enjoy member ownership, governance is provided by a board of directors representing the program’s membership.
A risk-sharing pool is an association of organizations formed to combine their resources for a common advantage. In a risk management context, the common advantage is cost-effective management of funds for financing recovery from losses. Because of their unique risks, in the late 1970’s many public entities were unable to procure insurance at any price, which led to pooling as a way to secure risk financing under more favorable terms and conditions than commercial insurers offer. This also means these programs are tailored to the specific needs of the group they serve.
Risk Management for City Governments
Public entities, such as cities, are responsible for many governmental functions, such as law enforcement, fire protection and public utilities. These services must continue because they are essential to an orderly and reasonably safe society. Unlike private business managers, who are free to change the basic mission of their organizations, city officials do not have the option of discontinuing essential public services. Public entities are also subject to legal requirements that restrict the actions of governmental bodies. Consequently, city officials have some powers and duties as well as some limitations that private organizations do not have. Another differentiating characteristic is that public entities typically are not profit-seeking, but instead strive to achieve specified public interest or governance objectives within budget constraints. The measure of success is not profit, but the satisfaction of the citizens.
Property and Liability Insurance
Property coverage and liability coverage are two distinct coverage formats. In each coverage or insurance contract, multiple parties are involved:
- The member (entity)
- The risk-sharing program or pool
- Any individual or group who is separate from the first and second parties and who may have experienced a loss
Property coverage protects the first party, the member, against damages to their actual property, such as buildings, equipment, computers, automobiles and other physical objects. Casualty (or liability) coverage protects the member from claims for injuries to the third party, which means anyone other than the member or the pool. This could be an individual or group who sustains injury or financial loss on part of the member.
It is important to note that the definitions above are intended for informational purposes only and that damage to one’s property and/or an injury or financial loss does not automatically entitle the third party to collect damages from the risk-sharing program or pool. Rather, there are several requirements that must be met in order for a claim to be valid. Entities should check with their coverage provider for clarification.
Workers’ Compensation Coverage
Workers’ compensation laws require employers to pay specified medical, disability, rehabilitation and death benefits for employee job-related injuries and diseases. The obligation exists regardless of whether the employer or employee was at fault, with few exceptions. In theory, employees are precluded from suing the employer for occupational injuries and illnesses. Again, there are some exceptions to this general rule.