Programs & Services

What is Risk Management?

Risk Management (at its simplest) is a “process for managing the risks that you can identify—and insuring those you can not manage.” It uses accepted managerial techniques in order to preserve the assets of the organization or entity. The Risk Management process is comprised of two separate but equally important components: risk control and risk financing.

Risk control involves identifying the organization’s risk exposures, examining the various alternatives available to either eliminate them or to mitigate the effects of those that can not be eliminated, selecting the best alternative or combination of alternatives to deal with each risk exposure, implementing the chosen techniques, and monitoring the program for the purpose of altering or improving the program based on the observed results. Risk financing is the method or methods by which an organization chooses to pay for those losses that result from the various risk exposures the organization faces.

Because your municipality’s elected officials usually decide how to finance losses, you will have little control or influence on this aspect of the risk management function. The area where your efforts will have the greatest influence and control is in the risk control arena. For this reason, the remainder of this chapter will focus on the risk control aspects of your municipality’s overall risk management program.


Before proceeding, it is important that we all know and understand the terms that professional risk managers frequently use.

EXPOSURE: An exposure is any circumstance, item or situation that has the potential to cause a loss.

LOSS: An actual expenditure as a result of an incident. An expenditure does not necessarily require a monetary outlay. The lost service of an employee is a loss.

RISK: The degree of likelihood that a loss will occur.

HAZARD: A condition or situation that has a high probability of causing a loss.

INCIDENT: An occurrence with a potential for a resulting loss.

CLAIM: A formal notification that an incident has occurred.

LIABILITY LOSS: A loss arising when an individual or organization files suit alleging wrongdoing. A loss occurs whenever funds are expended to investigate or defend the suit, whether the suit has merit or not. A loss results regardless of any judgment or award.


All too often, people mistakenly believe that risk management is something created by, and for the benefit of, insurance companies. Nothing is further from the truth. Controlling risk is a management function, created by management to reduce its need for, or reliance on, traditional commercial insurance companies as the sole means of paying for losses.

In fact, most professional risk managers judge the success of their risk control efforts by the amount of insurance they must still purchase after implementing their program. The less insurance they need, the more successful their efforts. The theory is that although risk cannot be entirely eliminated, the frequency and severity of those losses that do occur can be minimized. This, in turn, allows the organization to finance losses by alternative methods such as retaining them rather than by paying the seemingly exorbitant premiums that traditional commercial insurers charge. The entity can invest the monies saved or use them to grow and expand the organization. This philosophy is completely compatible with the needs of municipal governments. With more tax dollars available, the municipality can more efficiently, with increased cost effectiveness, provide the services the community has come to expect. The increased savings can be used to purchase patrol cars, increase manpower, pay for sidewalk reconstruction, or finance any other priority item.

Because the Michigan Municipal League Liability and Property Pool and Michigan Municipal League Workers’ Compensation Fund are unlike traditional commercial insurers, risk management and the League Pool and League Fund have complementary objectives. The League Pool and League Fund are tax exempt, non-profit, quasi-governmental organizations that provide insurance type coverage and services by way of pooling arrangements. Participating municipalities “pool” their funds to cover each other’s losses, thereby avoiding the prohibitive premium prices that commercial insurers charge. For these reasons, it is to everyone’s benefit to contain and control losses. For risk control practices to provide maximum benefit to all League Pool and League Fund members, all members must aggressively participate in the risk control process.

As a police administrator, you are a risk manager. You manage the hundreds, or thousands, of interactions between your officers and the public, and you do this on a daily basis. These interactions all carry the potential for litigation, but more importantly they create the possibility of injury to your officers or citizens. It is your responsibility to manage the daily activities of the personnel under your direction in such a manner so as to maintain the lowest possible chance of loss. That is the bad news. The good news is you’re not in this alone.

In past years, police executives in member municipalities had nowhere to turn for advice, input or direction on ways to manage their departments’ unique exposures. However, the commitment of the League Pool and League Fund to providing the best possible coverage at the lowest possible price and their belief that the risk control function will assist in achieving these goals, has led to the creation and funding of the Law Enforcement Risk Control unit (LERC). Now, through the development of a strong, long-term relationship with LERC staffers, the law enforcement administrator has a resource available through which information and recommendations can be obtained. Through this relationship many benefits and advantages can be achieved. Primary among these benefits is the opportunity to provide input that will affect the decisions made concerning the type and nature of services provided, specially tailored to your department’s needs. Through a cooperative effort, by everyone working toward the same objective, we will greatly impact the amount of losses incurred by the League Pool and League Fund, and thus each member municipality.


Before you can take positive steps to reduce your risk exposures, you have to know what risks you face. You must analyze and identify the areas within your department’s daily operations that hold the potential for causing losses. You can do this in a variety of ways, many of which LERC staffers are ready and able to assist with. You can identify exposures by examining past loss experience and histories, by conducting on-site surveys, by using questionnaires, and by consulting with experts both from inside and outside the department. The identification process is the most important step in any concerted risk control program.

Of the various identification techniques available, on-site risk assessment surveys conducted by LERC staff members and a review of loss “runs” or histories provide the greatest amount of insight into those exposures unique to the delivery of police services, and identify trends or patterns within your department that may be cause for concern. Loss histories, which LERC staffers can provide, document not only the severity (cost) of past losses, but also the frequency with which they occurred. If your agency or department does not have a significant history of losses, you can glean much valuable information by examining loss histories of comparable agencies or municipalities.


By looking to the past, we frequently can predict the future. By looking at how frequently a loss causing situation has occurred in the past, we can predict with a certain degree of accuracy how often it will occur in the future. By looking at the cost, or severity, of prior losses we can make an informed decision as to which conditions deserve priority attention and how best to finance the larger losses.
When reviewing loss histories you will quickly discover that, fortunately, there is usually an inverse relationship between frequency and severity. Those events that occur most frequently tend to be less severe in nature. Conversely, the most severe incidents occur much less frequently. With enough experience, or history, an analysis will further show that, based on the frequency with which events occur, a reasonably accurate forecast as to the severity of future losses can be made. That is the good news. The bad news is this creates another problem with which the police executive must deal.

Statistically we know that frequency “predicts” severity. The issue, then, becomes one of foreseeability. If an event is predictable, is its future occurrence foreseeable, in a legal sense? If it is foreseeable, do we have a duty to act? If we fail to act, are we behaving in a negligent manner? The answer to all of these questions is Yes!

The courts often refer to this as being on “notice”. You knew, or should have known, that a particular event or occurrence would take place. Courts have further ruled that if the need to take action is obvious, failure to act demonstrates a “deliberate indifference” towards the civil rights of community members. Not only do sound risk control practices assure a higher level of officer safety and result in cost savings to the municipality, but also they are, in some instances, required by contemporary court decisions, from the U.S. Supreme Court on down.


Once you have identified your risk exposures, the next step is to choose the technique, or combination of techniques, best suited to effectively eliminate or control the exposure. There are five basic risk control techniques. Some can produce the desired results in and of themselves; others work best when used in combination, dependent on the particular exposure being handled. These five basic techniques are:

RISK AVOIDANCE: Voluntarily choosing to no longer participate in the activity that creates or causes the loss. If you no longer provide the service or perform the function that created the loss exposure in the first place, you are no longer faced with the exposure. Examples of risk avoidance would include disbanding a SWAT team or canine unit, refusing to allow civilian ride-alongs in patrol cars, prohibiting misdemeanor pursuits, or prohibiting the carrying of blackjacks or sap gloves. For law enforcement, risk avoidance is not always an option. There are some things we just have to do, but it is nonetheless a desirable technique where its implementation does not significantly interfere with the safe delivery of vital and necessary police services.

PREVENTION OF LOSSES: Prevention involves measures or activities undertaken before a loss occurs, in an attempt to prevent the loss causing event from happening, or to render its impact less significant. One example of a preventive measure is the creation and implementation of sound policies that provide appropriate guidance to line level officers. Others are continuous and on going in-service training, patrol cars equipped with prisoner screens, and the issuance of latex gloves for the prevention of infection. The primary objective of loss prevention is to reduce the frequency with which the loss-causing event occurs.

REDUCTION OF LOSSES: Reduction techniques can be implemented either before or after a particular loss occurs, in an attempt to reduce the amount of the loss or damages that may result. Sprinkler systems, fire extinguishers, soft body armor, and vehicle safety belts are examples of reduction measures. Their purpose is to minimize the potential severity of loss. They do not prevent the loss-causing event from occurring.

SEGREGATION OF RESOURCES: This technique actually consists of two separate elements, duplication and separation, both having substantially the same goal: to segregate the agency’s resources so that no one event can significantly impair the overall operation of the organization. Segregation involves not placing all your eggs in one basket.

Duplication involves the use or creation of spares or backups, for use only if the primary or original item is damaged or destroyed. Examples of duplication are tape backups of computerized data, spare patrol cars left in reserve, or an Emergency Operations Center (EOC) in another location that the department uses only if a power failure or natural disaster renders the primary communications facility inoperable. Duplicated items or services for the most part sit, unused, until after a loss occurs. Duplication efforts are intended to reduce the severity of potential losses because the department can still function, although possibly with less efficiency.

Separation is similar to duplication in that facilities, operations or items are duplicated in other locations. The difference is that these facilities or items are used on a daily basis. Examples of separation would be the creation of precincts or mini-stations that provide full service daily, and can serve to take up the slack in the event the primary location becomes disabled or inoperable. Separation also targets potential severity, but because of its daily usage, can actually increase the frequency of losses.

TRANSFER OF RISK: Transfer techniques are used to transfer, or move, the risk from one party to another. The most common examples of transfer strategies are the use of waiver forms, hold harmless agreements, insurance policies, and subcontracting for services such as prisoner transports or lodging. Ideally, to receive maximum benefit from transfer arrangements, the organization strives to transfer both legal and financial responsibilities for an incurred loss, although this is not always possible.


With an understanding of risk control fundamentals it is now possible for you, the law enforcement executive, to begin to design and implement a risk control program tailored to the needs of your individual department or agency. When planning how best to implement your program, it is important that you never lose sight of the fact that effective risk control practices involve more than just litigation avoidance. Of primary importance is officer safety and survival. A program that is founded on this premise will not only encourage officers to work safer and smarter, but will also, because of an obvious overlap in the issues that create both injury and liability, significantly impact liability concerns.

While researching the losses incurred by the League Pool and League Fund since inception, the LERC staff discovered that officers are getting hurt in the process of creating liability. The same things that cause officers to get hurt cause many of the civil suits we are forced to defend. Police officers are routinely involved in inherently dangerous situations. They carry a variety of weapons that can injure or kill, they drive cars at high speeds, and they have to take violent or resistive subjects into custody. All of these activities can result in litigation or officer injury. We believe that a concerted effort to reduce the potential for officer injury will positively influence liability exposures. The law enforcement profession has, however, routinely placed a greater emphasis on avoiding liability. Not only has this failed to work, but it has also resulted in the loss of the valuable service of some of our best and brightest officers. We must, therefore, shift our emphasis, and implement a risk control program based on a top-down initiative. All levels within the agency, beginning with the chief executive, must be sold on the need and value of such a program, and encouraged to implement and practice sound risk control measures in all of their daily encounters with the public.

Police executives, supervisors, and line officers must feel a sense of ownership in the program. They must all feel they have participated in, or been allowed the opportunity to provide input in, the decision making process that led to the development and implementation of the program. At the executive level, managers must willingly take responsibility for oversight and control of the program by developing sound procedural documents and by providing crucial in-service training in critical skills areas, and supervisory training to the agency’s middle level managers.

At the supervisory level, employees must accept responsibility for oversight of line officers’ daily activities to ensure that they conform to department policy, and are performing in a manner consistent with the agency’s approved training. Supervisors must also communicate with police executives concerning the effectiveness, or continued feasibility, of the chosen techniques, policies, training, or programs.

Finally, if risk control techniques are to be effective, line level officers need to believe in the principles on which they are founded so that the basic concepts are appropriately implemented in the streets. They must understand the need for and comply with the requirements to report all relevant and important data, so that the activity can be monitored and measured against the intended goals of the risk control program. Without the line officer’s feedback, it is impossible to monitor the risk control program and make necessary and appropriate adjustments to enhance and improve it.


Armed with an solid understanding of risk control fundamentals, you are now ready to plan and implement your department’s risk control program. The chapters that follow are intended to streamline and simplify much of the process. Sound policy documents are an essential part of the risk control process, but they are also the program elements that frequently demand the greatest amount of time from a police executive. Without strong policy documents officers have no guidelines from which to work in order to assure their own safety and survival, and the agency has no mechanism in place with which to defend itself during litigation.

All of the policy documents in this manual were written by (and for) police administrators. These dedicated members of the Law Enforcement Action Forum (LEAF) labored, argued, and struggled over many of the same issues with which you would have to wrestle should you try to develop policies from scratch, on your own. We invite you to benefit from the fruits of their labor and creativity, and thank and acknowledge the invaluable contributions they have made. They have been instrumental in moving the Risk Reduction Manual from concept to reality. Because of the close working relationship between the Loss Control Services staff and LEAF members, and the strong bonds created as a result, these documents represent a perfect blend of law enforcement operational needs and administrative requirements and risk control concerns.

We wish you the best of luck on your journey, and remind you once more that you are not alone. Loss Control Services staffers are available to assist you by conducting on-site risk assessments and policy manual reviews, by answering questions on training or operational issues that impact on safety or liability, and by providing information or resources from our large and ever growing resource library. We are your allies, and it is our sincere desire that you will view us as such.

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