Public Sector Research Report

The downturn in the global economy raises important questions about how organisations conduct their business – and particularly about how they assess and manage risk. In March 2009 Marsh has conducted a survey in cooperation with Ipsos Mori to find out how organisations have responded to the downturn in the Economy. The survey examined attitudes to riskmanagement in the current economicdownturn for over 700 organisationsin seven different sectors and twelvedifferent countries in Europe. Of theseorganisations 101 were in publicentities. The results and the mostnotable reactions will be published ina Public Entities specific report. Thereport will be published septemberof this year, but let us elaborate on themain results in this article, and drawrecommendations.

 

Research Headlines

On the question if the economicdownturn has raised the importanceof risk management 56% of theparticipants respond positively. “We are anticipating that the greater incidenceof job losses, house repossessions andgreater indebtedness in the populationplace (will) increase strain on housingand social services. So we think therewill also be greater budget pressures.And we also think there is morelikelihood of contractors failing leadingto loss of supply. We think there mightbe a greater risk of fraud in benefits andgrants systems” says a Risk Adviserfrom the United Kingdom.

 

Asked to rate various risks, participants say the four most significant over the next 18 months will be environmental risk (73%), public liability (65%), business continuity (63%) and partnership risks (59%). In addition, almost as many participants are concerned about PPP and PFI associates or contractors (51%) as are concerned about citizens (54%). These two results illustrate how the downturn – combined with court rulings and regulations such as the EU Environmental Liability Directive2 – are adding to public entities’ long-term liabilities and making it increasingly difficult for them to genuinely share risks with the private sector. Over half the participants (56%) say that, because of the downturn, risk management is now seen as more important at senior levels in their organisation. A similar proportion says that the downturn has prompted their organisation to review its approach to risk management. And 22% say their board’s appetite for risk has grown. The proportion saying appetite has diminished (25%) is the smallest in any of the seven sectors in our survey. To the question if a sector-wide standard for risk management would benefit their organisation; Almost three-quarters (71%) of participants respond that a sectorwide standard for risk management either would or already does benefit their organisation. Of those already covered by a sector-wide standard, 89% say it benefits them. Currently, however, only 40% of participants say they have initiatives for evaluating their risk management practices against those of their peers.

 

Marsh recommandations:

Raise risk management to the position it deserves Public-sector organisations that havenot yet formally incorporated riskmanagement need to do so. Riskmanagement can be embedded bytraining senior executives. A dedicatedrisk manager will keep track ofrisks across the whole organisationand liaise with all the departmentsinvolved. The CEO should create arisk committee or a risk managementgroup. Optimize risk retention and risk transfer. This should be a significant help tolocal authorities in optimising theirinsurance programmes by meansof arbitrage between self-insuranceand risk transfer. There should bea direct return on investment in riskmanagement, in terms of reducing thetotal cost of risk, and hence the cost ofretained risks. Create a Europe wide public-sector risk management standard As an example, in conjunction withPRIMO France, Marsh is in the

Processof designing a Risk ManagementLabel for public Entities, which aims atevaluating risk management practicesof medium to large local authorities.Better risk management practiceshelps to protect citizens, improveattractiveness to stakeholders, improveaccess to public funding and alsohelps in reducing the total cost of riskby improving access to insurance.If you would like to receive a copy ofthe complete report, please send anemail to the following email address:Sabrina.boshuizen@marsh.com