Deloitte & Touche/PRIMA Survey Highlights Continued Dominance Of Workers' Comp In Public Sector Risk

Workers' compensation costs continue to account for more than half of public entity risk expenses, according to the latest Cost of Risk Evaluation in State and Local Government survey results, released today by Deloitte & Touche LLP and the Public Risk Management Association (PRIMA) at the 19th Annual PRIMA Conference in Minneapolis.

The Deloitte & Touche/PRIMA survey's primary objective is to measure the total Cost of Risk, which comprises workers' compensation, liability costs and property costs. The survey defined workers' compensation as the sum of workers' compensation premiums, pool entry fees, retained losses, and safety and loss control expenses; liability costs as the sum of liability insurance premiums, pool entry fees and retained losses; and property costs as the sum of property insurance premiums and retained losses.

Although workers' compensation costs decreased slightly to 56 percent—down from 58 percent two years ago, this remains the largest percentage of the total cost of risk for public entities, the survey reports. Liability costs, as compared to the total cost of public sector risk management expenses, also decreased to 31 percent—down slightly from 34 percent. Property costs, on the other hand, increased to 13 percent of the total average cost of risk for all respondents—up from 8 percent reported two years ago.

"Even though workers' compensation costs continue to make up more than half of the risk expenses reported, the decrease is an encouraging sign that public sector risk managers are achieving some success in cutting costs," said Edward Pouzar, senior manager with Deloitte & Touche's Risk Assessment and Management Services Group. "We expect this trend to continue as risk managers implement and utilize more innovative risk reduction techniques such as managed care organizations, self insurance, and other safety and loss control programs."

The survey results also reveal that public sector risk managers have adopted some of the same sophisticated risk and insurance techniques once utilized only by corporate risk managers—mostly in the areas of insurance procurement. For example, public sector risk managers are increasingly using broker fee-for-service agreements in lieu of commissions. The percentage of respondents who paid commissions to brokers dropped to 41 percent—a figure that is significantly lower than the 75 percent reported in the previous survey.

According to the survey results, legal concerns are the primary issues affecting a public entity's future cost of risk. Of all respondents, 57 percent indicated that court decisions and legislation would have the greatest impact on future risk costs. Fifty-six percent cited liability settlements for employment practices and tort reform as primary concerns, while 54 percent indicated that environmental regulations are expected to have the most influence on future risk expenditures.

The Deloitte & Touche/PRIMA survey is a biennial survey designed to gather information about the extent and ways in which risk management is being practiced in the public sector. The report identifies trends and practices that have occurred or evolved during the past two years.