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Gia Snape of Insurance Business America sat down with Lauren Tredinnick, president of public entity risk solutions at Munich Re Specialty, to discuss the impact of legal system abuse and litigious environments on public entities and how insurers are adapting to the trend.
Public entities, including government agencies, municipalities, and educational institutions, face an ever-growing wave of liability risks.
The rise of legal system abuse (also known as social inflation) and the increasing costs associated with litigation stemming from larger jury awards leave public entities vulnerable due to their visibility, and unlike private corporations, they often operate with significantly fewer financial resources.
As jury awards escalate, public entities must grapple with tighter insurance coverage terms or increased premiums for liability coverage, exacerbating their financial burden.
"It's a really interesting time for public entities," said Lauren Tredinnick, president of public entity risk solutions at Munich Re Specialty. "The challenges that public entities face today are some of the same we've seen; they've just gotten worse.”
Public entities must look for new ways to address these worsening challenges.
Curbing escalating liability risks in "judicial hellholes"
Location plays a crucial role in a public entity’s exposure, with so-called "judicial hellholes" experiencing higher claims severity.
"Settlements that in the past would have been under $500,000 are now $3 million or $4 million," according to Tredinnick. "If you are an account located in one of those higher litigious areas, that's going to drive your claim values up.”
It's a grim reality check for entities contending with mounting liabilities and shrinking budgets.
Rising litigation costs, including legal fees and settlement payments, strain public entities' financial resources and divert funds from essential services and infrastructure projects. Moreover, prolonged legal battles can erode public trust in government institutions, affecting their credibility and reputation.
While tort caps and immunities can help mitigate risks, the overall environment still poses a concern for insurers and public entities.
Forming partnerships vital to building resilience to liability risks
Amidst the challenges, Tredinnick stressed that public entities can thrive with a proactive approach to risk management that includes documentation, staff training, and standards enforcement.
"Public entities have to have the fundamentals buttoned up," she said, highlighting the value of robust risk management programs and strategic partnerships.
Picking the right legal counsel and insurance providers is essential, given organizations’ limited resources.
“Public entities often have to get board approval for funds and have strict rules to follow while operating within limited budgets,” Tredinnick said. “As unique exposures come up, public entities must be creative and flexible with their options and coverage opportunities to fit the constraints they are working within.
“That goes both ways; it's also on their broker and insurance partners to provide flexible options so that public entities can react when exposures come up.”
Understanding their exposure and regulatory environment
Public entities must stay abreast of evolving laws and statutes, such as qualified immunity laws for law enforcement and statutes of limitations for sexual abuse claims, to stay compliant in a dynamic regulatory environment.
“A municipality needs to understand what their law enforcement can and cannot do, and what their policies and procedures need to be updated to in the context of today's legal reform,” said Tredinnick.
“Schools or similar public entities need to understand their exposure to sexual abuse claims. They need to be aware of reviver statutes and statutes of limitations, and how these should impact their documentation, hiring, and claims practices.”
Choosing the right insurance solution
It's not a simple insurance product for public entities anymore. You want to look for additional services in the form of education, whether it's webinars, in-person conferences, training, white papers, or access to loss control services.
“A good risk management program needs partnerships to help you navigate some of the more challenging risks.”
This article was produced in partnership between Insurance Business America and Munich Re Specialty.
