Risk Management Paper

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markets, and its contributors are mainly people who practice or study such markets. This limited scope undermines the book’s claim to be concerned with risk and risk management in business as a whole and negates attempts to produce a multidisci- plinary discussion. The reader is left with the impression that the editors should have been more ruthless in deciding which conference papers to include (those specifically on risk and credit markets, for example) and which to omit.

RMPE 352—Risk Management for Public Entities, edited by George Head and Kwok- Sze Richard Wong, 1999, Malvern, Penn.: AICPCU/IIA

Reviewers: James Kallman and James Barrese, The School of Risk Management, St. John’s University

One of the latest texts offered by the AICPCU/IIA is RMPE 352—Risk Management for Public Entities. The book is designed to prepare students for one of the exams in the sequence leading to the AICPCU’s ARM-P designation. The focus of the book is the practice rather than the theory of risk management in the public sector.

The government sector in the United States accounts for approximately 16 percent of the reported GDP.1 State and local governments account for more than 65 percent of this governmental spending. Studying the theories of the motivations and spend- ing decisions of government organizations involves both the economic and political science literature. The editors may have felt that a summary of this literature might distract the reader from the book’s focus on the current practice of risk management in government. However, we feel the limited philosophical discussion to be one of the few flaws in an otherwise ambitious book. Head and Kwok-Sze focus on the practice of risk management, and the volume they have produced is an encyclopedia of public sector risk management issues and practice.

The general topics covered include public sector risk management administration, exposure identification and analysis, managing distinctive liability exposures, risk control, claims and litigation, risk financing, pooling for risk financing, establishing risk management programs, and disaster planning and emergency response. The fiscal federalism literature discusses the economic rationale for various levels of government and for the provision of different services by these different levels (see, for example, Oates, W. C., 1972, Fiscal Federalism [New York: Harcourt Brace Jovanovich]).

For example, grade-school exposures are most common at the local government levels but rare at the state and national government levels. In contrast, public universities are more common at state government levels. The existence of these different exposures by different levels of government leaves the readers hoping for a discussion of the strategic and philosophical justifications for risk management at the various levels of government. Instead, the book provides a very broad discussion of governments more fitting for a civics course.

Chapter Two contains little material unique to risk management administration. Chap- ter Six, “Claim and Litigation Management for Public Entities,” is an excellent dis- cussion of claims management, but we fail to find anything unique to a public entity.

1 The Economic Report of the President, January 2001, lists ”total government consumption expenditure and gross investment” at a rate of $1,748.8 billion in the third quarter of 2000, while the corresponding rate for GDP is listed at $10,429 billion.

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Chapter Seven’s risk financing sources likewise contain details on retention and insur- ance that most intended readers would already understand. For example, discussing the differences in the various insurance policies (for instance, the property cause-of- loss forms) is hardly unique to public entities (pp. 323–336). Consequently, much of this material could be edited out of the text. This would allow the reader to focus on material that is special for public entities, such as public officials’ liability coverages (p. 336).

The book’s preface states, “This text aims to highlight the distinctive aspects of public entity risk management.” In that goal, the book falls short; the tools of risk manage- ment presented are not significantly different from those presented in an approach to corporate risk management. The reviewers posit that the readers of the text will be practicing risk managers who are already familiar with the basic tenets of risk management. We suggest that readers will already either possess an Associate in Risk Management (ARM) designation or have studied this material. In fact, the text’s pre- face suggests that this material is intended for such students. Consequently, the book might better serve its audience if it focused on the distinctions between corporate and public entity risk management. This would overcome a common complaint by readers of AICPCU/IIA that those texts attempt to include too much material for the topic and consequently fail to arouse interest and curiosity in otherwise fascinating topics.

This book is not an easy read. However, as a volume that attempts to enumerate public sector exposures and the current risk management practice of governments, it is a very useful reference. The book would be even better if it included citations for the reader who wishes to pursue the material in greater depth or research the findings of the editors. For example, the text says, “Research suggests that international symbols are not universally understood...” but fails to provide a citation (p. 236). Another example demonstrates the need for citations: “In many states public entities are not responsible for the natural conditions of their parks and recreational areas. In other states they are” (p. 236).

A third general improvement to the book might be to greatly reduce the general risk management material. The overly broad scope of the text tends to repeat material covered in the ARM series and known by the experienced risk manager. For exam- ple, Chapter Five suggests “distinctive risk control” for public entity exposures, but most of the content pertains to any corporate entity. Consequently, this material could be greatly reduced in scope and enhanced in depth for those uniquely public entity exposures. Another example is found in Chapter Seven, where the discussion of in- surance and surety products is too simple and general to be insightful to the public entity risk manager. Chapter Nine discusses establishing a risk management program. This is an excellent extension of the material found in ARM 54—but once again, it is not unique for a public entity risk management program. In contrast, Chapters Eight (pooling) and Ten (disaster planning) provide specific discussions of public entity risk management concerns.

A fourth objection of the reviewers is the unacknowledged bias of the authors. While many texts display preferences, good authors will usually readily admit their biases. For example, the text provides an analysis on pages 258–259 of using TPAs (Third Party Administrator) rather than internal claim administration (ICA). Only the advantages of TPAs and the disadvantages of ICAs are provided. Another example is found in

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the discussion of subcontracting and leased employees. The book fails to provide a complete analysis (the advantages and disadvantages) of each risk control program. Likewise, the book fails to recognize the total value and services of insurance (actuarial, underwriting, brokerage, loss control engineering, claims adjusting, and legal) when it states, “Insurance, after all, is simply a funding device—an advance funding device” (p. 313). This directly contradicts other IIA material.

In summary, although we would prefer more theoretical material, citations for research, more specific material to a public entity, and freedom from biases, we find that the text is a welcome addition to the literature on advance risk management education. As it is, the book serves as a review of material in the three ARM texts and provides much useful information to the beginning public entity risk manager.