Local Government | Thriving in a world of evolving risk.
Aon’s Local Government Risk Practice Group recently hosted our annual Local Government Risk Forum, specifically for local councils. The forum brings together a collaboration of local expertise to promote an understanding of New Zealand’s current risk environment, provide insightful risk management practices and practical solutions to ensure New Zealand councils not just survive, but thrive in a world of evolving risk.
This year, failure to attract and retain top talent was recognised as the fourth most critical business risk in Asia Pacific and globally, in Aon’s 2023 Global Risk Management Survey.
A resilient, skilled and engaged workforce will be able to better execute corporate strategy and create a tangible competitive advantage. The knock-on effect of getting workforce strategy wrong, is bigger than ever, and could ultimately prevent businesses from delivering on their goals.
Our forums aimed to help local government to protect and grow their organisations by identifying key areas of people risk, providing practical people risk management and opportunity to attract, retain, sustain and grow their workforce.
Below is a summary of key points:
• Global risks continue to escalate in frequency and focus from insurance underwriters is intensifying. Insurers are realising that reacting to risks may not be a good enough. As a result, they are undertaking transformative efforts aimed at preventing losses from occurring - moving from being the ambulance at the bottom of the cliff, to the fence at the top. Capacity is currently in 2 stages - well managed risks generally experience favourable conditions, whilst less-preferred or poor-performing risks experience a more challenging environment. On average rate increases are slowing down, however it’s important to continue inflationary uplift on assets of ~6% when budgeting for this year’s renewal.
• Global insured losses from natural disasters in 2023 are estimated at USD118bn. Many significant disasters across the globe generated significant uninsured damage, costs that had to covered by local or central governments. In 2023, New Zealand suffered 2 back-to-back billion dollar events and only 40% of weather and climate related losses were covered by insurance.
• Costs are increasing and understanding ‘fit-for-purpose’ Risk Funding is important. Only 30% of risks are insurable, consideration needs to be given to how the other 70% get treated. The cost of capital and the alternatives to risk transfer are varied, and the need to look at risk in new and creative ways is required. Understanding key risks your organisation faces, and what they means is imperative to good risk management, as is knowing what your organisations insured and uninsured exposures are, and understanding that there is no silver bullet.
• Cyber management requires an endless cycle of assessment, mitigation, transfer and recovery. According to Aon’s Global Risk Management Survey, cyber attacks are still the number one concern amongst the 2,800 businesses of 61 global countries (including NZ and Australia) that participated. Ransomware events are up 1,281% from Q1 2019 to Q4 2023. Public entities are one of the most affected industries of cyber attacks. Despite easing market conditions, insurers remain firmly focused on understand organisations cyber risk posture. Insurers still require a certain level of ongoing security measures, and continuous staff training is one of the most important.
• Berkshire Hathaway is Aon’s partner in providing specialist liability programmes to Local Government. They have been leading this space for 6 years and have a dedicated claims handlers for each council. Megan Howe, Head of Claims in NZ, spoke of the necessity for Local Government to have robust internal reporting structures, with a culture that supports this. Notification of any known circumstance that may give rise to a claim is imperative to provide earlier rather than later. Prioritising a risk management culture with open communication is strongly recommended.
• Staff retention is high on the priority list for employers. According to Aon’s Global Risk Management Survey, failure to attract or retain top talent is the forth biggest risk, however, depending on role, HR consider this to be a number one risk for organisations, number 2 for the C-suite, number 7 for Risk and number 9 for Governance. The knock on effect of getting workplace strategy wrong is bigger than ever and could ultimately prevent businesses from delivering on their goals. Building resilience within an organisation will provide for development of employee skills and ensure a productive and engaged workforce, leading to the ability to attract and retain talent. Utilising employee benefits as part of a salary package, can aid in attraction and retention of staff, and can be between 1-2% of renumeration.
• Climate change is a certainty. Although not specifically labelled as a concern in Aon’s Global Risk Management Survey, it’s included in every other risk by way of cause or consideration. Organisations face many pressures to act on climate issues and there is a direct relation to human health whether physical or mental. In New Zealand, 2023 was the 2nd hottest year on record behind 2023, and this leads to many challenges within the work place. Climate risks need to be prioritised in councils because from a risk management and risk mitigation perspective, there is a lot of work required if we as a nation are to achieve net-zero by 2050 as signed by our government as part of the Paris Agreement. Councils need to take a leadership role on this, and good practice including reflecting on lessons learnt. Councils can do climate assessments, understand hazard exposures and vulnerabilities, and build resilience into their networks. Council’s Long Term Plans should be future focused and provide a framework for strategy on current and future impacts, identify, process manage and communicate these, then monitor and report on metrics and targets.
• NZI partnered with Aon on the Local Government motor vehicle programme. Clients have access to a dedicated claims team, and specialist Fleet Risk Management options to meet councils requirements, as well as NZI’s own Repair Hubs throughout the country. These repair hubs reduce the average cost of claims, which in turn help to keep premiums down. NZI have specialist knowledge and can provide assistance on EV fleets, which help to achieve ESG goals. The biggest risk to your fleet is your drivers, so ensuring they are safe on the road from the time they leave the house, till the time they get home is imperative for a business. Driver awareness seminars are free for NZI customers and NZI have been working with Local Government for a number of years now in this space with positive outcomes for all concerned.
• Fine and historic collections within councils should be valued appropriately and insured correctly. They are a narrative of our history and our home, which are irreplaceable. Fine Arts specific policies provide for restoration of any damage and have specific nuances on collections such as lost value of the art piece through repair work. Councils often have bequeathed collections and pieces which are not always insured due to the unknown value. Valuations should be completed on a 3 yearly basis, with desktop reviews in the intervening years.
• Pre and post loss claims advocacy is provided through Aon’s Risk Management team. Guidance and advocacy by the team of actuaries in the event of a claim to prepare claim documentation to help with often unthought of areas that are claimable under the policy wording. Their services are included as part of the policy as claim preparation costs.
• NZ3910 has had some changes made during the latest edition. General Liability exposures have been capped from principal to contractor. Be aware of the implications of working on existing structures under a contract works policy, especially as hot works now has increased focus from insurers. Principals should check contractor procedures and conditions that they must comply with.
Aon’s Local Government Risk Practice
In New Zealand, Aon is the leading broker to the local government, corporate, public, primary, manufacturing, transport, and rural sectors. With over 15 years’ experience in the local government sector, working with over 70 New Zealand councils, we are well versed in providing innovative insurance and risk management solutions to meet the varied needs of councils, regardless of size.
If you would like to discuss any of the topics covered above, please contact Aon’s Local Government National
Client Relationship Manager
Deanna Macdonald | deanna.macdonald@aon.com
Or Aon’s Local Government National Manager
Matthew Wilson | matthew.wilson@aon.com