Why You Need a Property Conservation Program

As many of you know, we are experiencing one of the hardest property insurance markets in decades. This market is characterized by a period of increased scrutiny and stricter underwriting standards by insurers and reinsurers.

Unfortunately, during these times, property premiums have risen significantly. According to Business Insurance magazine, property rates saw a double-digit average increase earlier this year, and North American property insurance buyers will see continued property insurance rate hikes in 2024.

Multiple factors affect property premiums, many of which are out of our control. However, property risk prevention and control efforts provide approaches that can have a positive effect on our property exposures and losses, and potentially ease the severity of premium increases. To achieve this, public entities should develop and implement a property conservation risk management program.

Beyond easing the severity of premium increases, the objectives of a property conservation program are to:

• Protect public property from loss;
• Manage the severity of losses that do occur; and
• Support the continuity of operations so that essential public service can be provided.

For public entities, property assets are important for providing essential public services. Unfortunately, a major property loss could jeopardize public entity operations and services. Therefore, public entities should establish a property conservation risk management program to improve their chances of achieving the objectives discussed above.

How can this be accomplished?

First, public entities should identify and analyze their property exposures:

• What do you own?
• Where is it located?
• What is it worth?
• Do we know its construction type?

o   How is the property currently being used and what activities are occurring on the property or within the facility?

o   Is the property protected? How?

o   What are the outside exposures that can cause a loss based on the property location?

• If you want the property location insured, is it on the property schedule?

The answers to these questions can provide valuable information regarding your property risks, and should be documented and used to assist your organization in making property conservation risk management decisions.

Second, public entities should examine property conservation risk management alternatives to protect the identified public properties that they own. The risk management alternatives are techniques and strategies for addressing risks. These alternatives fall within two broad categories: risk prevention and control and risk financing and retention.

Through risk prevention & control, public entities can implement property conservation best practices to reduce chances of loss and the severity of any losses that do occur.

Risk financing encompasses the methods of generating funds to finance the recovery from a loss that was not prevented by risk prevention and control alternatives. Through risk financing, public entities can recover from a property loss by transferring the risk. This is often accomplished through the purchase of property insurance, whereas with risk retention, an entity may choose to retain the costs of the loss through its budget practices, which is self-insuring the loss.

Third, based on the property conservation risk management alternatives discussed above, public entities should select and implement those alternatives that will allow the organization to meet the objectives mentioned earlier. What is interesting about the risk prevention and control and risk financing and retention alternatives is that, depending on the risk appetite of the public entity, any one or a combination thereof may be used to manage property risks, reduce loss severity or assist in the speedy recovery after a property loss.

Fourth, once the selected alternatives are implemented, the public entity should document the actions taken so that all selected alternatives, techniques, strategies, measures and best practices are implemented as intended. Once this has been completed, then the program should be continuously monitored and evaluated to determine what’s working and what needs to be changed to produce the desired program outcomes.

Finally, to improve the chances of program success, the property conservation risk management program should not operate in a vacuum. Leadership should make the program a priority and support it by:

• Communicating the importance of the program;
• Developing a written property conservation policy;
• Assigning a property conservation coordinator, and supporting this position;
• Ensuring that all supervisors, managers and directors know and understand their roles and responsibilities for managing and protecting public property within their department’s care and custody; and
• Training all employees on their daily roles and responsibilities for protecting and maintaining property owned by the public entity.

If public entities desire to ease premium increases, protect public property from loss, and ensure the continuity of operations and services, they should strongly consider developing and implementing a property conservation risk management program. As your risk management partner, PEP and our property conservation consultants stand ready to support your public entity’s property conservation efforts.