Municipalities, Insurance, and Law Enforcement Risk Management

A new era of police reform has brought with it increased public attention to the liability costs of law enforcement, specifically in cases of misconduct settlements and risk management policy. Though the overall number of claims brought against law enforcement agencies has been relatively flat in the previous decade, the cost of misconduct settlements has increased dramatically. As a part of the broad continuum of reform efforts currently underway throughout the country, departments and municipalities are taking a close look at their risk management strategies to control liability costs.

Risk Management Basics

Risk management in law enforcement entered a new stage with the Supreme Court’s decision in Monroe v. Pape (1961). This decision, stemming from a high-profile misconduct claim, allowed individuals to sue law enforcement officers for damages in cases related to the deprivation of constitutional rights. The ruling opened a new area of risk for departments and municipalities, making it necessary for them to address legal costs and potential settlements arising from misconduct-related litigation.

Commercial insurance companies were the first to offer policies specifically designed to help municipalities and law enforcement agencies mitigate their exposure to the financial risk of litigation. These policies worked on the basic principles of commercial insurance: grouping and limiting risk factors. Insurance market disruptions of the late 1970s and early 1980s led some municipalities and agencies to turn to risk pools and self-insurance. Now the vast majority of agencies and municipalities use at least one of these strategies.

“These insurers influence law enforcement agencies in various ways. They shape the content of departmental policies on things like high-speed pursuits and the use of force. They have a hand in how officers are trained, and how much training they receive.” John Rappaport, Professor of Law, University of Chicago Research Matters Blog

There is no one “right” strategy for a municipality. The complexity of local and state laws and the unique circumstances confronting leaders in different cities and departments make it difficult to make overly broad characterizations about any one strategy, let alone assess its efficacy in a general way. Though all of these insurance strategies have the same goal – managing risk in law enforcement – they take decidedly different approaches. Here are some of the critical points in each risk management strategy:

Municipal Risk Pools

In the law enforcement arena, risk pools are the most common kind of risk protection employed by municipalities, with a significant number of small- to medium-sized cities participating in these organizations. They came into prominence in the early 1980s to mitigate the cost fluctuations that many municipalities were experiencing due to disruptions in the commercial insurance market. Practically, they serve a similar function to commercial insurance companies. Cities, counties, or other government entities group together to pool their risk to diversify it and to control costs.

Risk pools are specialized “non-profit, mission-driven” entities that, optimally, mean cost savings for municipalities compared to the fees and need for profit in commercial insurance. They often employ retired police officers and administrators as consultants to help guide member municipalities’ risk management policies. Additionally, many risk pools engage with third-party data analysis providers to understand risk from a research-based perspective. While the recommendations provided by in-house staff and third-party firms aren’t always binding, this fluency in the language of law enforcement, coupled with an understanding of the nature of the profession in general offered by risk pool officials, helps engender a spirit of buy-in from member agencies.

Commercial Insurance

Today, commercial insurance is most often utilized by midsized cities with populations around 100,000 residents. This insurance works much like other types of commercial insurance, with insurance providers assessing risk, charging a premium, and providing coverage based on the terms of the agreement. In terms of overall costs, they can be seen as more stable than alternative forms of municipal insurance, though sometimes more costly. Commercial insurance companies typically offer many different types of insurance, leading to a much more diverse portfolio of risk than other means of municipal insurance. After insurance pricing and supply fluctuations of the late-1970s and early-1980s disrupted coverage for some municipalities, the industry is now well-regulated and better-capitalized, offering another layer of financial stability to cities.

Insurance companies use loss prevention analysts to study an agency’s policies to understand better what’s working or where they can offer specific procedures or policy suggestions. The companies also utilize underwriting and price setting to incentivize adopting policies they believe will reduce risk. The relationship between insurers and municipalities is a business relationship — meaning that while these recommendations and pricing structures do create an incentive, they typically are not binding.

Self-Insurance

Self-insurance as a practice is most frequently, though not exclusively, seen in larger cities with extensive tax bases and substantial budgets. It rarely means “going without” an insurance structure but instead carefully assessing risk and planning a budget to cover litigation costs. This type of risk management gives municipalities the greatest autonomy in setting policy and, potentially, if not managed effectively, more risk exposure.

Risk management practices are generally at the municipality’s discretion. Consent decrees and state mandates can also play a significant role in setting policies related to risk management. The robust budgets of many larger cities can help them absorb the costs of litigation and more easily put practical new risk management tools into places like body-worn cameras, smart car technology, or early intervention systems.

Risk Solutions

In response to an urgent need for more effective risk management strategies in law enforcement, Benchmark Analytics is launching Benchmark Risk Solutions™ a first-of-its-kind product suite using evidence-based risk analytics, advanced predictive modeling, and proven loss-control interventions to mitigate law enforcement liability. By proactively assessing risk, the product suite identifies loss-prevention actions and proven interventions to manage these underlying risk drivers while continually measuring its effectiveness.  This suite of products is designed to meet the needs of every insurance strategy, enabling public risk pool professionals, municipal risk managers, law enforcement command staff to better control costs and achieve greater financial stability. See our press release for more information.

Look for future posts where we will be exploring other aspects of law enforcement and municipal risk management.

 

 

Reference

Rappaport, John. “How Private Insurers Regulate Public Police.” Harvard Law Review. 130.6 (2017). 1541-1613. Web. 25 September 2021.