STORM STORM ©©

strategic risk management

Zurich Municipal

Management Services

Risk based consultancy

13th October 2004

David Forster

Hampshire Health, Safety and Environmental Group-

an insurers perspective

• Zurich Municipal’s risk based consultancy

• Focusing on high level business risk

• ISO 9001 accredited

• Approved contractors for Office of the Deputy Prime Minister's capacity building programme

• Background in Treasury, Local Government and Education

Who are we?

The ‘state’ of the insurance market in the publicservices

The role of business risk management in the publicservices

Where is it all going?

Two current big business risk issues:

The ‘compensation culture’

The Civil Contingencies Act

Questions please

AgendaAgenda

The state of the insurance market in the public services

• Insurance in the public services is in a state of intense flux

•A market worth several (8?) billion pounds is having to deal with spiralling claims costs ( in some areas costs doubling in less than 10 years)

•In Local Authorities alone, claims costs are in excess of £1 billion

•Public expenditure by Local Authorities is circa. £60 billion

•Estimates in the NHS are as much as £4 billion

•This does not include central government

Public services reaction to this problem

• Recognition that this cannot go on in this way

•The ‘death’ of ‘ground-up’ insurance

•Higher and higher ‘deductibles (£100,000-£250,000)

•Some organisations fully self insure-not always a good idea.

•Attempts to set up pools and mutuals-not always successful

•Some government schemes e.g. N.H.S.L.A.

Public services reaction to this problem

• Recognition that this cannot go on in this way

•The ‘death’ of ‘ground-up’ insurance

•Higher and higher ‘deductibles (£100,000-£250,000)

•Some organisations fully self insure-not always a good idea.

•Attempts to set up pools and mutuals-not always successful

•Some government schemes e.g. N.H.S.L.A.

Insurance organisations’ reaction to this problem

• Better management of contingency fees (no win no fee)

•Recognising the role of risk management

•Managing the causes as well as the symptoms (community impact)

Quick history of risk management in the public services

• Ground up cover until 1993

•Death of Municipal Mutual- failure of public services mutual

•Growth of operational and physical risk management- management of insurable risk

•The emergence of corporate governance and the recognition of the wider role of risk management/controls assurance

Recent evolution

• Recognition that only 20% of risks are insurable

•Government demands on the role of risk management, in particular from the Treasury

All organisations exist to achieve their objectives.

The purpose of risk management is to manage the barriers to achieving these objectives.

Treasury ‘Orange book’ 2001

There are two types of risks:

•direct threats (damaging events) which could lead to a failure to achieve objectives.

•opportunities (constructive events) which if exploited could offer an improved way of achieving objectives , but which are surrounded by threats.

Treasury ‘orange book’ January 2001

Physical

Risks

Risk Management?

Fire

Security H&S

Liability

Financial

Political

Economic Social

Legislative/ Regulatory

Environmental Competitive Customer/

Citizen

Managerial/

ProfessionalFinancial Legal

Partnership/ Contractual

Physical

Techno-

logical

Up to date

Openness & inclusivety

Integrity

Effectiveness

Accountability

Community Focus

Service Delivery

Arrangements

Structures and

Processes

Standards of

Conduct

Risk Management and Internal

Control

CORPORATE GOVERNANCE FRAMEWORK

Members role:Who Their Role Their Responsibility

Cabinet

(Reporting Annually)

To formally approveXXXXX City Council’sRisk ManagementStrategy. IssueStatements ofAssurance annually tostakeholders afterreceivingreports/declarations fromthe Chief Executive /Heads of Service.

Ultimately responsiblefor risk management andto hold Chief Executiveaccountable for theeffective management ofrisk by officers of XXXXXCity Council

Employees andCouncillors

To manage riskeffectively in their job andreport hazards/risks totheir Service Managers.To undertake their jobwithin risk managementguidelines.

Report to ServiceManagers incidents andissues that place thecouncil at risk.

Examples of some common ‘big picture’ risks

Vulnerability Trigger Consequence

The Decent HomeStandard and rentrestructuring in linewith national levelswill drive up the costof the Council’s socialhousing provision

Housing budget putunder pressure andfails to meet needs

Lack of money for maintenance ofCouncil homes

The condition of the housing stockdeteriorates

Tenants complain Possible health and safety

issues arise Resources diverted from other

services Services suffer Council has to consider LSVT Uncertainty of outcome

RISK SCENARIO

Vulnerability Trigger Consequence

Council provideshigh profile andhigh risk services

High profile incidentleading to sustainedmedia and legalattention

Service is frozen Negative impact on rest of

organisation Loss of confidence in management Criticism of officers Reputation of council damaged Recruitment is inhibited Loss of quality staff Loss of confidence in council

©Zurich

RISK SCENARIO

Vulnerability Trigger Consequence

The CivilContingencies Billrequires the Council toreassess therobustness of itsbusiness continuityplanning process.

A major incidentoccurs in theBorough/Councilfor which there isno effectivebusiness continuityplan

Effective procedures not implemented Disruption to services Key information lost Local community at risk Resources used trying to rectify

situation Community loses confidence in the

Council Council seen to be failing to meet

requirements of Civil ContingenciesBill

Adverse publicity

RISK SCENARIO

RISK SCENARIO

Vulnerability Trigger Consequence

The Council has astatutory obligationto meet recyclingtargets set by theGovernment

Recycling is notseen as a votewinner and hasa low profilewithin thecouncil

Statutory targets missed Censure by audit/inspection Central government confidence in Council

undermined Disillusionment of staff, councillors and

partners Adverse publicity Image of Council damaged

©Zurich

RISK SCENARIO

Vulnerability Trigger Consequence

Council has limited resourcecapacity – at a time when it isundergoing restructuring andtaking on major projects.

Council is dependant on a fewkey officers, some identify thisas between 15 and 20individuals (the ‘usualsuspects’) to take projects /initiatives forward.

Desire exists to takeon new initiativesbut resources(including key staff)not available for ahigh profile project

or

Individuals aredrawn off day job todeal with keyproject

Strategies and projects notdeveloped or delivered

Key services put at risk Council doesn’t move forward Staff frustrated Long hours culture Staff under pressure leading to

stress and absenteeism Key staff leave Day-to-day jobs don’t get done Failure to deliver objectives Authority criticised Adverse publicity

Where next?

• Creating a culture of risk management within public bodies

•Becoming part of the way things get done

•Recognising risk sits at all levels and needs to be managed

•Now part of Government formal inspections e.g. C.P.A.

RISK MANAGEMENT

IN ORGANISATIONS

Strategic Business

Directorate / Programme

Operation / Project

Strategic and cross cutting issues affecting the achievement of business objectives

Issues affecting the achievement of directorate objectives

Man

agem

ent c

o-or

dina

tion

Issues affecting the achievement of operational/ project

objectives

FIVE STAGE PROCESS

Stage 1

Engaging hearts & minds at the top

Stage 2

Corporate & cross-cutting risks

Stage 3

Directorate risks

Stage 4

Service and project risks

Stage 5

Transfer of skills - support and review

b

Strategic

Broad - Corporate

Operational

Specific - SpecialistsMembersDirectorsHeads of ServiceLegalFinancialPersonnelITStrategyPolicy

Specialists (including IT,operation managers,technical staff)Health and SafetyPersonnelITEmergency PlannersFacilities ManagerProperty Manager

The ‘state’ of the insurance market in the publicservices

The role of business risk management in the publicservices

Where it is all going

Two example current big business risk issues:

The ‘compensation culture’ The Civil Contingencies Act

AgendaAgenda

Compensation Culture

‘ Perception of Compensation Culture is damaging’ Task force report says

•‘The Compensation Culture is a myth’

•Is it???

Some figures

• Figures from FOIL (Forum of Insurance Lawyers)during period 1992 - 2000

cost of injury claims rose by 117%claims frequency rose by 3% per annumclaims severity rose by 6.7% per annum

Backed up by IUA report which shows over last 10 years claims cost risen on average 9.9% per annum

The experience

• Highways

•Employers Liability

•Public Liability

•Housing

•Stress

•One City Council at one point was experiencing over £1 million worth of pavement trip claims per annum

Compensation Culture

Tackling this issue is one of the greatest challenges facing many public bodies if claims costs are to be brought under control

Civil Contingencies Act

• New Civil Contingencies Bill has been drafted

•Likely to be en-acted Winter 2004/Spring 2005

•New duties placed on public bodies

•It will become a top item on the agenda

Civil Contingencies Act

• Existing legislation out of date

•Foot and Mouth, Fuel Shortage and September 11th

•Need for modernisation of emergency powers to reflect today’s world

Civil Contingencies Act

Category 1 Responders

- All local authorities

- Emergency services

- NHS Trust/Foundation Trust/PCT

- Port/ Health Authorities

- Environmental Agency

Civil Contingencies Act

An event or situation that threatens serious damage to:

- Human welfare- The environment- Security of the UK or a ‘place’ in the

UK

Covers events including flooding, a terrorist attack (dirty bomb), an oil spill and an epidemic

Therefore the bill’s range is much broader:

It is more than just an extension of emergency planning

It is about maintaining the services provided

Civil Contingencies Act Duty to Assess:

Assess the risk of an emergency occurring (New meaning of emergency)

Consider what are the risks - Think externally as well as internally

2. Duty to Plan:

Maintain Plans necessary to deal with an emergencyArrange for the publication of assessment and plans

3. Duty to provide advice:

Assistance to the public in making arrangements for the continuance of commercial activities.

Civil Contingencies Act

Driving home the importance of effective business continuity planning

Questions , please