5 P&C Insurance Tips for Public Sector Entities

Public sector entities — including counties, cities, town villages, local law enforcement and special service districts — offer vital services to our communities. They also face growing challenges, some from the constituencies they serve, as they navigate heightened public scrutiny, shrinking budgets and inflation.  

In this challenging environment, having a comprehensive property and casualty (P&C) insurance program, supported by a strong risk management strategy, is more crucial than ever.  

To help strengthen your insurance protection and enhance risk management strategy, here are five actionable tips for your public entity.   

Tip 1 ― Ensure adequate limits to cover building ordinances and laws. 

New Jersey’s Perth Amboy City Hall, built between 1714 and 1717, holds the distinction of being the oldest public building in America still in use today. While most buildings aren’t as aged, many are older structures constructed before modern fire and safety codes were implemented. This makes them particularly vulnerable to fire and water damage. Without adequate ordinance or law coverage, public sector entities may face significant financial burdens following a covered property loss.  

Ordinance or law coverage typically consists of three parts and helps cover the costs of bringing a damaged structure up to current building codes, even if only part of the building is affected: 

• Coverage A: The undamaged portion of the building; 
• Coverage B: Building demolition of the undamaged portion of the building; 
• Coverage C: Increased cost of construction.  

For older buildings, it is recommended to secure ordinance or law coverage equal to at least 50% of the building’s current replacement cost calculation. Ensuring adequate ordinance or law limits can help avoid substantial out-of-pocket expenses, particularly for older structures.   

Tip 2 ― Implement training for children’s and youth programs. 

Public sector entities that offer youth activities face significant insurance challenges due to the high risk of claims related to sexual abuse or molestation. In fact, these claims often result in nuclear verdicts, with settlements reaching seven figures.  

As many traditional insurers reduce coverage capacity, it becomes increasingly difficult for public sector entities to secure adequate and affordable protection. Carriers that provide municipal insurance protection to public sector entities may vary significantly in their responses. Some may choose not to offer coverage, while others might only offer a “sub-limit” of coverage. Additionally, some carriers may include the coverage within their Umbrella Liability policies.  

Providing specialized employee training, along with documented policies and procedures, is critical for strengthening your position when applying for this coverage. Leading carriers and brokers offer tailored risk management programs designed to address the challenges of working with vulnerable populations. This will help you and your broker maximize your insurance protection for this highly sensitive type of claim.  

If your organization does not offer children’s programs, make sure underwriters are aware of this.  

Tip 3 ― Secure adequate Law Enforcement Liability limits.  

Law Enforcement Liability Insurance, as defined by Travelers Insurance, “provides coverage for bodily injury, personal injury or property damage caused by a wrongful act committed by or on behalf of a public entity while conducting law enforcement activities or operations.” 

Maintaining appropriate law enforcement liability limits is increasingly challenging, as many insurers are reducing coverage limits while raising premiums and deductibles. For example, an organization that previously had a $5 million limit may see a renewal offer of $3 million at a higher premium.  

One large insurance carrier made national news earlier this year when it refused to renew Law Enforcement Liability coverage for the Sheriff’s Office in Rockingham County, NC, after multiple deaths in the county jail, criminal charges against an employee and allegations that a since-fired employee had sexual relations with inmates outside the jail. Rockingham County subsequently secured coverage through another carrier, but at more than double its prior premium and with a deductible increase from $10,000 to $200,000 per incident. 

Municipalities are encouraged to work with a specialized public sector broker to ensure appropriate risk management policies and procedures, and to explore alternative approaches, such as adding a stand-alone policy or using the surplus lines market.  

Tip 4 ― Request contract reviews from your broker.  

An often overlooked yet highly effective risk management strategy is requesting a contract review from your broker before signing agreements. Public sector organizations frequently sign contracts with vendors, which may contain clauses that expose the organization to unnecessary contractual liability exposures.  

For example, a school district hiring a sports company to install portable bleachers might inadvertently agree to a clause requiring district employees to assist with installation, exposing the school to Workers’ Compensation claims. By reviewing contracts beforehand, brokers can identify problematic clauses and help prevent future liabilities.  

Tip 5 ― Secure adequate social engineering limits.  

Public sector entities often handle sensitive personal data using outdated IT infrastructure and systems, making them particularly vulnerable to social engineering schemes in which cyber criminals manipulate employees into revealing confidential information or transferring funds.  

As noted by the Institute of Defense & Business (IDB), “The public sector is primarily funded by taxpayer dollars and these government agencies operate on limited budgets where IT department allocations may be scant. This means less software updates and security, leaving many of these organizations operating on outdated technology.” 

The top five cyber threats facing public entities, according to IDB, are: state-sponsored cyberattacks, ransomware, phishing, hacktivists and improper usage/internal attacks. 

Social engineering schemes account for 68% of breaches, and they are challenging to prevent due to their reliance on one human error. Security awareness advocate Erich Kron from KnowBe4 suggests that organizations mitigate these risks by focusing on key strategies to influence and control human behavior:  

• Implement phishing policies and require documentation, such as an annually signed acceptable use policy (AUP) for all employees; 
• Strengthen technology defenses, such as adopting global phishing protection standards; 
• Conduct user awareness training, including business email compromise (BEC) simulations; 
• Simplify processes and communication to improve training effectiveness and employee engagement.   

 While many insurers have reduced social engineering coverage limits on Cyber Liability Insurance policies, higher limits — up to $1 million in some instances — are increasingly available. To secure broader protection, explore alternative options with your broker.  

Next steps 

In preparing for your next renewal, being proactive is key. Work closely with an experienced broker specializing in the public sector, alongside your legal team and insurance carrier, to ensure that your property and casualty insurance program provides robust risk management and protects your operations. Treat your renewal submission as a pitch to underwriters, demonstrating how your organization manages risks and fosters a culture of safety.  

To enhance your knowledge of current market conditions for the insurance coverages most important to you, we advise reviewing Alera Group’s 2024 Property and Casualty Market Outlook, which includes industry-by-industry analysis, and our 2024 Property and Casualty Market Update, a coverage-by-coverage analysis report based on Q2 and July 2024 policy renewals. In addition to details on individual coverages, you’ll also find both reports provide further guidance on strategies for getting the best from what the P&C market has to offer. 

GET THE MARKET UPDATE 

About the authors  

R.J. Impastato, ARM 
Executive Vice President, Director of Public Entities 
Foa & Son, An Alera Group Company   

James A. Stoddard 
Senior Vice President 
Haylor Freyer & Coon, An Alera Group Company   

In early 2023, R.J. Impastato and James Stoddard launched a specialized municipality vertical to serve as a key resource for Alera Group offices nationwide. Their goal is to provide clients —whether in small counties or large cities — with access to expert guidance and resources tailored to the unique needs of public entities. With tenured experience in working with schools, municipalities and other public institutions, R.J. and James have developed a niche in risk management and specialized programs. Their team offers deep expertise in navigating the complex regulatory landscape, ensuring clients receive cutting-edge solutions to manage risk and prevent loss in an ever-evolving environment.  

Contact information:    

• richard.impastato@aleragroup.com 
• Connect with R.J. on LinkedIn 
   
• james.stoddardjr@aleragroup.com 
• Connect with Jim on LinkedIn