Authorities left "exposed and vulnerable" because of risk management approach, warns leading insurer

Local authorities are failing to keep pace with the changing nature of risk in the era of “more for less” government, a leading insurer has warned.

In a report, Building resilience, Zurich Municipal said this era was “creating many and varied risks, from those related to downsizing or increased outsourcing, to data protection risks”.

“The changing risk landscape associated with climate change and the threat of reputational damage, heightened by the modern media environment, only adds to the challenge,” the insurer claimed.

Zurich called on local authorities to “professionalise” their approach to risk management by adopting an integrated approach known as “resilience”, which brings together various risk practices to focus on an organisation’s critical strategic objectives, assets and challenges.

“Relying solely on superficial risk readiness and failing to build true resilience into the organisation could see local authorities paying more – reputationally and financially – in the long term,” it said.

The insurer cited a poll it conducted of 48 senior managers at the CIPFA annual conference in June, which found that 74% felt that they did not have the relevant expertise required to manage successfully the fall-out from budget cuts.

The most feared downsizing risks identified by the respondents were a potential failure to maintain service delivery (23%), loss of good staff (21%) and a drop in morale (21%).

The Building resilience report suggested that “too often” risk management remains in silos in local authorities, managed outside of the executive board, or is seen as part of a box-ticking exercise.

“This failure means that local authorities are currently exposed and potentially vulnerable,” it said. “The dangers of this disjointed approach to risk management were evidenced in the commercial sector during the recent credit crunch crisis, where many risks were poorly anticipated and others were completely unexpected, causing in some cases huge costs, reputational damage and even bankruptcy, the ultimate organisational failure.”

The report added that ultimate responsibility for a “whole risk approach, with resilience at its core” rests at executive board level and “cannot be outsourced either to partner organisations or particular silos within the organisation”.

Andrew Jepp, head of local government at Zurich Municipal, argued that local authorities needed to learn from the harsh experience of the private sector.

He said: “Having suffered first hand the consequences of widespread risk complacency, private sector organisations are now developing best practice risk management that could – and should – be appropriated by local authorities.

“It is no longer enough to be ready for risk – organisations now need an in-built and ongoing risk programme that focuses on resilience. That means having an appreciation of the ‘whole risk’ – then entire risk spectrum – faced by an authority, as well as the total cost of those risks, from the tangible to the intangible.”

Jepp warned that a failure to do so could see councils in danger of “fatally undermining the very efficiencies they seek”.