October 2002

A Risk Management
Yankee
In King Arthur's Court

Allen
Iampaglia

In late 2000, my superiors in the city of
Glendale, Arizona, received a rather daring proposal. After more than two
decades as risk manager for the city and another eight years of private sector
experience, I had decided to go to London for three months starting in May 2001
to work with various brokers, government entities, and university staff members
to open a line of communication among these groups here and in Europe. The
ultimate goal was to arrive at a best-practices standard that could be used by
local governments to acquire better insurance products at more competitive
premiums. An added goal was to open new markets to local governments.

It has become clear that the traditional
nature of the insurance market will not change in the foreseeable future. The
continuation of market cycles will mean several years of cheaper insurance,
followed by several years of expensive insurance. These cycles also may cause an
overall shortage of coverage because of the number of carriers leaving the
government-sector market. (And now, with the events of September 11, 2001, still
fresh in people’s minds, the problems of coverage and capacity have become even
bigger issues in the industry.)

Even with substantial rate increases, some
carriers continue to reevaluate their role in the local government market. We
were faced with this reality during Glendale’s insurance renewal period in
January 2002. Fortunately, we were able to find an alternative carrier for the
city’s $300 million in property.

Proper Techniques in Place
One of
the problems that have plagued local governments in their efforts to obtain
stable coverage has been an inability to prove to the insurance industry that
proper risk management techniques are in place to handle risk factors and
losses. We, as risk managers, have not done a good job in educating the
industry—and, in some cases, our own organizations—on how a local government can
employ a strategic approach to risk management issues.

By developing a set of best-practice standards
specific to risk management, local governments could succeed in improving their
insurability image in the global marketplace. Clearly, this would not happen
overnight, but a good first step would be to make contact with European brokers,
government agencies, and carriers.

Insurance leaders and agency representatives
with international experience agree that agents and brokers will find it
increasingly necessary to develop relationships with their counterparts
overseas. In my opinion, the same need holds true for other organizations
involved in risk management and insurance.

Because the insurance markets that local
governments can go to for coverage are shrinking, the time has come to explore
other markets. We could even take the argument further and propose that
government should not only seek out other markets but also work to generate new
ones. If we developed a line of communication with other entities around the
world, the wealth of knowledge and experience could only improve our chances of
success.

Working with Glendale’s stateside and London
brokers enabled me to meet with risk management professionals in the United
Kingdom, France, and Germany. My first stop was a regional conference hosted by
the Association of Local Area Risk Managers (ALARM).

Like its American counterpart, the Public Risk
and Insurance Management Association (PRIMA), ALARM is the professional
organization of risk managers working for local authorities and other public
sector organizations. With more than 1,200 members, representing most local
authorities in the United Kingdom, the association’s aim is to enable the public
sector to develop and implement successful risk management strategies. And, like
PRIMA, it is committed to supporting and raising the profile of risk management
practice, along with promoting education, training, and research and the
dissemination of information. The ALARM annual conference at the University of
Warwick is the biggest public sector event of its kind outside the United
States.

It was ALARM’s commitment to our project that
gave me the necessary entrance into the U.K. risk management arena. My plan was
to attend the conference in April 2001 and introduce Glendale’s project concept
to the members. I would then return in May and begin working with some of the
members I had met during the conference.

While working with many of these entities, I
came to understand some of the problems they were facing. Discussions developed
as we compared issues, problems, and solutions. When one of the discussions led
to a meeting at which we reviewed how to measure the results of various
programs; I was able to share some information on how Glendale deals with risk
management issues and how we have traditionally measured our success rate.
Several members of the group described some new concepts they had been working
on with the government audit office in London.

Much of the information gathered from these
meetings led me to ask the other group members who was doing the best work in
this area. All fingers pointed to Scotland. So, with laptop in hand, I was off
to Scotland and the department of risk and finance at the Caledonian Business
School in Glasgow, where I met with Dr. Lynn T. Drennan, whom I had first
encountered during my earlier U.K. trip, to attend an ALARM conference in
Coventry. Dr. Drennan, who heads the department of risk and finance, and I
decided to work together on a strategic plan.

She was especially interested in helping to
develop the format for the property database for Glendale’s risk management
department. Dr. Drennan had started her insurance career as an underwriter, and
this knowledge and hands-on experience have given her special insights into the
inner workings of the insurance industry. As an educator, she was able to apply
this insight to the problem and to give to me valuable information on how to
format the proposed database.

Glendale’s risk management staff have worked
with information technology departments both here and in Glasgow to build a test
version of this database. A member of Dr. Drennan’s staff came to Glendale for
three months to work on this and other joint projects. We finished the testing
of the database this year and put it into operation. The final step in this
project will be to introduce this new concept to various insurance carriers in
the United States and Europe.

The database employs a Web-based technology
that allows any user to log on to the system and view every aspect of existing
or developing property. Digital images, along with site plans, building specs,
traffic flows, infrastructure, and proposed policies and procedures will be
accessible with a click of the mouse. Updates will be automatic, and each city
department will be able to input information regarding construction and use.
Underwriters viewing the system also will have the capacity to comment on any
aspect of the property.

The benefits gained from this project will be
far-reaching. They include the results of the Glendale Best Practices Program,
which already have begun to change what staff members are doing. Discussions on
new product development continue regularly with our broker and with several
other carriers. The continued relationship with ALARM furnishes new and
insightful information, and the ongoing partnership with Caledonian University
in Glasgow has developed into an international internship program that will
continue well into the future.

Allen Iampaglia is a risk manager,
Glendale, Arizona (mailto:[email-masked]).

Copyright © 2002, the International
City/County Management Association (ICMA)