Managing Your Risk
Identify exposures at outset of risk management initiative

By Michael Kelly
Property and Casualty Program Specialist

In county government, initiating a risk management department or assigning an individual to be responsible for risk management can be a daunting task. The process requires an expansive, in-depth review of all facets in your operations from administration to law enforcement.

June's "Managing Your Risk" column introduced the basic concepts for establishing a risk management process and the five distinct steps used to accomplish it. The first step, identification of risk, is generally considered the most important because overlooking a key exposure can result in real financial hardship.

Here are 10 of the best tools used for uncovering and identifying the exposures traditionally facing county operations:

Loss history review: An examination of past losses can help establish projections of future losses. Loss reports will broadly define the areas of operations that are most adversely affecting experience. The loss detail can be generated by an insurance carrier, in-house internal proprietary software or incident reports developed in operations.

A problem with loss history review is it could be too late in showing a given problem area needing risk management's attention (post-loss), but it does provide a general accounting of how a risk management program may be working – or not working, depending upon specifics.

Insurance policy analysis: Examining the perils insured against via various insurance policies can help identify exposures, conditions and/or exclusions that might need to be altered to properly fit circumstances. Quite often it is the examination of the exclusions in a policy that will give rise to knowledge of a problem in coverage. Once a coverage area discovered to be exhibiting problems is identified, it becomes possible to explore methods to correct it.

Contract identification and analysis: Controlling who can sign a contract on behalf of your county is extremely important. County governments engage in all kinds of contracts with many different entities. Examples may include purchase orders; contracts for service; contracts for construction, leases, hold-harmless agreements, employment contracts, supply contracts and rental agreements; and even bills of lading during the procurement process. Often reviews of contracts already in-force or yet-to-be-executed will identify "holes" or gaps in a risk management plan.

Checklists/surveys and questionnaires: Although this tool is used more frequently in the private sector, developed checklists or questionnaire forms will often uncover subtle areas overlooked in day-to-day operations. The benefits are they can be standardized and utilized by non-risk management personnel, such as various department heads. In addition, these forms can provide history, as well as solid documentation if completed on an annual basis (at a minimum). The information generated can then be classified and tabulated for report form sorting.

Flow charts and process mapping: This effort often will illuminate circumstances of interdependency within a county's operations and may help to identify "bottleneck" exposures. Such situations given the "perfect storm" set of loss circumstances can produce catastrophic results. An example could be inadvertently allocating emergency staff to be in two places at the same time, or having counter-opposing responsibilities during a hurricane or similar emergency.

Physical inspections: Nothing will provide a more personal visualization of working processes, locations or assets than a personal survey. This can be outsourced to a safety engineering professional provided through an insurance company, a regulatory agency such as OSHA, or an internal safety department. An occasional unannounced visit may lead to the discovery of additional exposures.

Financial statement analysis: Reviewing an operation's financial statements may help identify values or assets subject to loss and the potential fiscal impact after the loss occurs. Particular attention should be directed to any county indebtedness/loans for assets and/or any auditor's opinion statements in the written financial statement verbiage.

Compliance review: The types of compliance reviews can be statutory or professional. Statutory reviews can range from local to state to federal. Professional compliance reviews may be voluntary, involuntary or industry standard, or through government insurance programs. An example is meeting the compliance requirements after receiving funding from Federal Emergency Management Authority (FEMA) for uncovered flood/hurricane losses. Failure to continue to comply with the mandated purchase of flood insurance after the initial loss may compel a county to reimburse FEMA for the prior received reimbursement funding.

Policy procedures review: A risk manager's examination of employee manuals, procedure/process manuals, operational policies, mission statements, organizational charts, board of commissioners meeting minutes, and even internal risk management policies may help catch exposures that others inadvertently create.

Utilization of experts: Employing experts could save time and money through obtaining the benefits of experience and greater knowledge, without the traditional negative learning curve. Types of experts range from internal – via staff and operations – or external though a given industry or specialty. While at times costly or difficult to find, external expertise can be helpful in lowering the long-term cost of risk, when used in limited areas.

Tools are only effective when taken out of the box and put to use. The more risk management tools a county possesses and employs, the less chance that county will have of missing an important loss exposure. I hope these tools serve as a starting point.

Next month, I'll introduce various methods for initial analysis of uncovered exposures.

NCACC Property and Casualty Program Specialist Michael Kelly writes a regular column on risk management for CountyLines. Archived versions of the column can be found online at www.ncacc.org/managingyourrisk.html.