Public Sector Insurance Dilemma: Bite the Bullet With Carriers or Take the Plunge Into a Pool?

February 11, 2021

Within the public sector is a vast array of entities – entire governments, infrastructure such as roads and electrical grids, law enforcement and schools – so it stands to reason that how public entities are insured varies widely.

Where is the entity located? Whom does it serve? Who are its employees? How large is it? How safe is it? These are the basic questions that must be considered when determining what insurance solutions are required.

As 2020 began, a hard market for Property and Casualty Insurance – driven largely by social inflation and catastrophic weather-related events – further complicated an already complex challenge for those making decisions about how to insure public entities. The COVID-19 pandemic – combined with additional nuclear verdicts in liability lawsuits, a new round of weather-related disasters, civil unrest and increased public scrutiny of law enforcement – has only made matters worse.

Under such circumstances, where is the public sector to turn? As is so often the case with insurance, the answer is: That depends.

Alternatives to Traditional Carriers

For many public entities in Michigan, the answer is the same as it has been for more than 30 years: Turn to the MMRMA – the Michigan Municipal Risk Management Authority, a “self-insurance pool that provides liability and property coverage to municipal governmental entities across Michigan.” Public risk pools have also succeeded in other states, such as New Jersey, while Connecticut  has struggled to create a good municipal solution.

In areas especially prone to natural disasters, Parametric Insurance is gaining traction.

But for the majority, traditional insurance carriers remain the option of choice. Town and city leaders tend to be risk-averse. Such decision-makers prefer the “known” – a carrier with an established ability to pay claims -- to an alternative with a limited track record in markets such as theirs.

That may change in the not-too-distant future, as the P&C public sector market shows no signs of softening while less expensive, less restrictive alternatives gain added appeal.

Outlook Heading into 2021

Here’s the landscape for the public sector as outlined in Alera Group’s Property & Casualty 2021 Market Outlook whitepaper, released in December 2020:

Public entities face far greater risks than ever before: Insurance companies that serve this sector are struggling with an assortment of adverse loss trends, including the increased severity of weather events, COVID-19, venue changes, civil unrest and public scrutiny of law enforcement. In the past several years, social inflation has caused the frequency and severity of losses to climb and has substantially altered the landscape .

Higher rates, shrinking capacity: Public entities need to plan for challenging renewals through 2021. Restriction in capacity by the large standard insurance companies is forcing more buyers into the Excess and Surplus market for capacity that was once offered by the standard marketplace.

Not all public entities are experiencing the same level of losses: Clients with favorable loss experience need to work closely with their agent/broker to differentiate themselves in the eyes of the underwriting community.

COVID-19 exclusions are becoming the norm: Insurers are adding a communicable disease exclusion to almost all public entities’ programs. Many underwriters are willing to walk away from an account if they cannot have this exclusion on their policy.

Parametric coverages are gaining traction: Throughout 2020, particularly in the wake of heavy COVID-19-related losses, parametric coverages have grown in popularity as a tool to increase catastrophe coverage. Parametric insurance solutions offer a means to guarantee direct payout after a qualifying event and protect against unpredictable but potentially devastating risks in ways traditional insurance packages cannot.

Among lines of coverage, General Liability, Property and Umbrella/Excess continued to trend unfavorably for insurance buyers, with rising rates, limited availability, restricted capacity (reduced limits, additional exclusions) and increased underwriter scrutiny and selectivity.

Due largely to distracted and impaired driving, Commercial Auto claims were escalating, with more expensive auto repairs also contributing to increased rates and greater underwriter scrutiny/selectivity. Outdated technology and subpar security in the public sector were fueling unfavorable trends for Cyber Liability Insurance, while Employment Practices Liability remained problematic, including for school systems.

While the outlook for public sector Workers’ Compensation Insurance showed signs of continued stability, accounts that included police and fire departments showed limited markets while COVID-19 claims were increasing. The outlook for Workers’ Comp also varied from state to state, depending largely on whether the state allowed a “presumption of compensability” to essential workers.

To obtain the entire Property & Casualty 2021 Market Outlook whitepaper, click the link below.


What You Can Do

To secure the best available coverage and rates, start early and, if necessary, participate in the application and underwriting process to assist your broker.

  • Use the resources available to you, including your agent/broker. An experienced, knowledgeable broker can:
    • provide you with the tools necessary to implement a strong risk management program, including employment practices training;

    • help you leverage your strengths and communicate them during the underwriting process;

    • match you with the carrier whose strengths in the public sector are best-suited to your needs; or

    • assist with your participation in a public risk pool.

  • Gain a better understanding of your municipal property’s insurance rating. Alera Group’s brief guide to commercial property ratings provides insight on contributing factors such as construction, occupancy, protection and exposure.


Contributors to This Article          

John Beauregard, CIC, LIA

Senior Partner
Sylvia Group, an Alera Group Company

Contact information:


Steve Copley

Vice President of Business Development and Innovation
Todd Associates, an Alera Group Company

Contact information:


David Hildenbrand

Senior Vice President
Lighthouse Group, an Alera Group Company
Contact information: