Governmental Risk Management in Public Policy and Legislation: Problems and Options

Author:

Pfennigstorf Werner

Abstract

Governments, like business organizations, are exposed to risks of many kinds and have a wide range of options how to respond–from bearing the full risk themselves to obtaining full insurance coverage. The author discusses some of the traditional approaches to governmental risk management in the light of new and increasing risks–such as the liability risk–and the growing sophistication of risk management methods. He notes in particular how a government's risk management decisions differ from those of a business organization because of the unique characteristics of government entities: perpetual existence; taxing power; the need to prevent nepotism, bribery, and corruption in government administration; and political mandates and pressures of all kinds. These forces account for restrictive procurement rules and for various forms of “self-insurance” arrangements. The author finds, among other things, that in most states the rules have not kept pace with the multiplication of risks and the development of new risk management and insurance techniques, and that small and medium municipalities, especially, suffer from inadequate access to sound risk management services. On the basis of an examination of European municipal risk management practices, the author then suggests as an appropriate solution the formation of special mutual insurance organizations for municipal governments, controlled and administered by local government officials.

Publisher

Cambridge University Press (CUP)

Reference262 articles.

1. See especially Nolting, supra note 7; Garnett, supra note 22; Hanson, supra note 22; Todd, supra note 9; Self-Insurance on State-Owned Property, supra note 13, at 9-21.

2. This is not the place for a detailed discussion of governmental bankruptcies–a challenging subject in its own right. For recent surveys of the legal situation of municipalities facing financial difficulties, see American Bar Association, National Institute on Freedom from Fiscal Fiasco, Washington, D.C., Dec. 2, 3, 1976; and the symposium in 1976 Duke L.J. 1051.

3. (1) Be responsible for statewide risk management coordination in order to:

4. An illustration is provided by the history of the North Dakota State Fire and Tornado Fund, which was established in 1919 and at that time was designed to accumulate a reserve of 10 percent of the total risk. The percentage was reduced to 5 percent in 1927; in 1931 the limit was set at $2,000,000, which was reduced to $1,500,000 in 1935. In 1943, the figure was increased to $3,000,000, in 1944 it was reduced to $2,000,000, and in 1947 it was again increased to $4,000,000. See Hanson, supra note 22, at 33. Since 1963, the limit has been at $12,000,000. N.D. Cent. Code sec. 26-24-13 (1970).

5. For instance, there was considerable publicity in 1973 when the City of Chicago transferred a large insurance account from one insurance agency to another shortly after the mayor's son had joined the new agency as a partner. See Richard J. Donahue, Another Insurance Sensation Pops Out in the Chicago Press, Nat'l Underwriter, Prop./Casualty Ins. Ed., Feb. 23, 1973.

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