Like some insurance professionals, I first learned the finer points of risk management in school–but not as a college student. Rather, you could say I took a crash course while employed by the Pasadena Unified School District. I was in administration, working on the district's bargaining team responsible for school district finances. One of the many issues we dealt with was insurance. After going through a period in which it had to retain a significant part of its risk, the district had an opportunity to get back into a guaranteed-cost workers compensation program. The insurer, however, required the district to have someone in charge of risk management, who could follow up on a laundry list of things it wanted done.

The superintendent asked me if I could take this on. I replied, "Sure, why not?"–not knowing, of course, what I was getting into. But after attending several seminars and otherwise immersing myself in the field, I found I developed a real liking for insurance and risk management–so much so that I left the education field about six years ago and joined Aon Risk Services. A little less than two years ago, I was appointed director of public entities for the Western region, which includes more or less everything between the Rocky Mountains and the Pacific Ocean.Along with other people in my department, I work on public-entity business from our Los Angeles office. We all are producers and also serve as a resource for perhaps another 25 people who work in this specialty throughout the region. About 50% of our public-entity business comes from cities and counties. Another 25% is written for school districts, and the rest is for various other governmental authorities.Insurance and risk management for public entities is an enormous field. In this article, I'll touch on a few of its aspects, including responding to requests for proposals, using service as a competitive advantage and preparing submissions.Looking for businessWe look for accounts with which we can develop good partnerships, regardless of their size. We don't do well with an account that's interested solely in price and whose idea of risk management extends no further than to insurance. Rather, we do best with public entities that need and appreciate value-added service.We're involved with a number of organizations in which public entities hold membership. They include the Public Agency Risk Management Association and the Public Risk Insurance Management Association, as well as RIMS. Many of our clients attend these organizations' national conventions, so we do, too. At the meetings, we may introduce our clients to other people in our organization or to vendors that could be of help. For instance, we recently acquired Valley Oak Systems, which offers an online claims-management system for property, liability and workers compensation claims. Many TPAs use it. We had several clients interested in the program and so introduced them to key people from the vendor at the recent annual PARMA convention. We do a lot of such "facilitating" at these meetings. We don't exhibit at them, however, in an effort to obtain new-business leads; we've never found that productive.Responding to RFPsMuch of our new business comes from word of mouth. We pride ourselves on the relationships we've developed with clients, and they often refer opportunities to us. We also respond to a limited number of requests for proposals. Municipalities and other public entities post RFPs in newspaper classified-ad sections and on certain Web sites, including Onvia (www.onvia.com). Our staff monitors this media; sometimes our clients spot RFP notices and forward them to us as well. We weigh all such opportunities carefully. We talk to people who are familiar with a given risk, including other public entities. We may talk directly to the governmental authority that is seeking proposals, if that's permitted. We may ask: "Who is your current broker and how long have they represented you? Is there a particular reason you're going out for bids? Have there been service-related issues? Are there pricing issues?" Often public entities announce RFPs simply because they are required to do so, but they may have no compelling reason to change brokers. Therefore, we must be selective. Last year, we responded to just four RFPs–but we obtained two of the accounts.The purpose of an RFP is to give a public entity information to use in selecting a broker, which then will approach the insurance markets on the public entity's behalf. The RFPs typically are lengthy, and responding takes considerable time and effort. Among other things, public entities want to know how many employees and local offices we have, what markets we deal with and our premium volume with each, and a description of the services we can provide. They also want resum?s of the people who would be responsible for their account and references from several clients who are similar to them.Often RFPs require brokers to meet specific targets in regard to using women- or minority-owned businesses when selecting vendors for claims adjusting, training, loss control, appraisals, etc. For instance, one of our clients, the Los Angeles Metropolitan Transit Authority, required us in their RFP to allocate 20% of our total compensation on the account to minority businesses.In their RFPs, public entities typic-ally expect a broker to state how much compensation it expects and whether it will take the form of fees or commissions. In their proposals, brokers will specify that their fees will not exceed $X. Or, if compensation is to be based on commissions, brokers will agree to a commission of no greater than X% on this line of business, Y% on that line, etc. Larger accounts tend to prefer fees, only because commissions on $5 million and $10 million premiums can add up quickly. Except for a few accounts, we are compensated via commissions, although we're happy to work either way. As premiums rise in a hard market, obviously a flat fee may be the better approach. But as premiums fall in a soft market, as they are doing now, commissions may cost a public entity less.After soliciting proposals, a public entity may simply review them all and then select a broker. Or it may pick two or three brokers after evaluating all the RFPs, ask them to make formal presentations and then pick the winner. Any broker submitting a serious RFP can place insurance, so broker selection tends to be based on two things. First, a broker must "connect" with the public entity; after all, this is an intensely people-oriented niche. The second factor is the quality and number of services a broker can provide.Competing on serviceOf course, that's the basis on which we want to compete. Good service starts with responsiveness. If I receive a call from a client and I'm not available, he or she will hear back from me within the hour. We also provide extensive risk-management services. We conduct safety inspections for clients and arrange for any necessary training, whether for individuals or groups. Such training can include defensive driving techniques, proper lifting techniques, the use of safety equipment, etc. Many public entities handle and store chemicals and other potentially hazardous materials. Consequently, we help our clients obtain and manage material safety data sheets, in compliance with regulations issued by the U.S. Environmental Protection Agency, the Occupational Safety & Health Administration and other governmental authorities. We help municipalities maintain injury and illness prevention programs. We attend their safety committee meetings.One of our most important services is to link exposures to current policies. For example, we inspect sites to ensure that property listed on policies is actually there–and is covered. After conducting a policy audit for a client we took over from another broker, we discovered it had about $10 million in bridges and tunnels on its statement of values. But for the previous five years, the public entity's policy had excluded coverage for such property. We worked with the carrier to obtain a premium refund and then arranged coverage for the formerly excluded properties.We want to be involved with claims from the first step, so there are no surprises. If there are questions about how much an insurer is reserving a particular loss, or how it has come up with the business interruption amount or replacement value, we make it a priority to resolve them. Large property or liability losses tend to be the most difficult claims to settle. They take a lot of negotiation, and we take an active part to maximize our clients' recovery.In regard to workers compensation claims, we attend claim review meetings with clients and act as their advocates with doctors, nurses, case managers and insurance companies. We can help with settlement issues. For clients who require it, we can provide full claims-auditing service.Approaching the marketsOften there aren't bid specs within an RFP. Rather, the public entity provides them only to the selected broker. If the specs aren't comprehensive, we work with the public entity to expand them before approaching the markets. Occasionally, we develop the bid specs from scratch. We also provide plenty of supporting material for the submissions. The more a carrier knows about a public entity, the better the terms and pricing it likely will receive.For the property line, we need a statement of values, a description of the public entity's larger facilities and loss information. We include COPE (construction, occupancy, protection and exposure) reports and engineering reports on any building valued in excess of a certain amount; e.g. $5 million or $10 million. We help clients establish insurable values for contents, including computers and software. We include business interruption worksheets. For workers comp, a great deal of information is required, including payrolls, loss history, safety-program details, employee job classifications, and the number of autos and drivers.Workers compensation for police and firefighters is one of the toughest lines to place because of the high loss potential. In California, such public servants are "presumed" to have developed certain ailments in the line of duty. For example, when a firefighter is diagnosed with lung cancer, the presumption is that it was caused by work-related factors–even if he or she was a chain smoker. This can make first-dollar coverage quite expensive. Consequently, some of our clients self-insure from $100,000 to $500,000 of this exposure and then purchase excess workers compensation above their retention.Self-insured retentions and deductibles are much more common on workers comp than liability or property. For property, public entities often select deductibles as low as $5,000. In general, they tend to be quite risk-averse and therefore prefer comprehensive coverage and minimal retentions. Indeed, many of our clients, particularly school districts, actually opt for first-dollar programs. One reason is because large deductibles and retentions are harder to budget for.Public entities are concerned about premium audits for the same reason. After they get board approval for, say, $100,000 in insurance and go through those funds, it's hard to go back for another $10,000. General liability, workers comp and property insurance written for public entities are all subject to audit. But because of the budget issues, we try to persuade carriers to agree not to charge an audit premium unless the actual exposure exceeds what was projected by more than 10%.Liability policies for municipalities typically cover general liability, auto liability, employment practices, errors and omissions, and police professional liability all in one form. When that's not the case, we buy individual policies for special coverages–for example, sexual misconduct liability or educators professional liability for school districts. We may need to obtain coverage for difficult or unusual risks–like transportation risks and terrorism insurance–from the E&S marketplace. We place most coverage, however, with standard carriers.We periodically work with an insurer or program administrator to develop proprietary programs for municipalities. Several years ago, for example, we developed an auto physical damage program that had a low deductible–$2,500–for comp and collision. Even better, it provided guaranteed replacement cost for any type of vehicle and its equipment-everything from sedans to dump trucks and police cruisers. We have also worked closely with Professional Underwriters, a program administrator, to create comprehensive programs for both public and private school districts.The public-entity field is a fascinating niche, one that requires brokers to use every risk management tool at their disposal to serve. One also must be extremely people-oriented and, above all, have an outstanding attitude toward service. Those who have such characteristics can develop professionally rewarding careers in public-entity insurance and move to the head of the class. Billy Deeb is the director of public-entity business for the western region of Aon Risk Services. Dr. Deeb joined the insurance broker about six years ago. Prior to that time, he worked for nearly 12 years in the Pasadena (Calif.) Unified School District, where his last position before leaving was assistant superintendent of business services. He holds a doctorate in education degree in governmental policy and administration.