The economic downturn may have begun two years ago, but OneBeacon’s Jeff Richardson said when it comes to insurance costs, municipal budgets are only now reflecting the meltdown in earnest.

That’s something Richardson, as president of the Canton-based insurer’s Government Risks division, is in good position to notice. Local governments were well into planning their 2009 budgets when the major crash happened in 2008, he said, so 2010 is the first year these municipalities’ insurance budgets fully reflect their attempts to rein in spending after the initial crash.

"There has been a bit of a lag there," he said.

OneBeacon has mostly experienced that lag in through municipalities’ increased enthusiasm for negotiating all options. Choices include ridding themselves of nonessential services, buildings or equipment – which in turn lowers the amount they have to pay in insurance premiums – or by directly reducing coverage.

Banding Together

Insurance professionals have had to accommodate municipalities’ keen desire to slash expenses.

"They’re looking to reduce costs, either through taking more risks for themselves or outsourcing something they used to insure," Richardson said. In response, OneBeacon has tried to be flexible and work with cities and towns to shift coverage, and by stepping in with offers to help manage risks and reduce the odds of a claim.

Insurance for municipalities is a mixed picture nationwide. Giant property/casualty companies often have municipal insurance offerings as part of their "specialty lines" packages, but plenty of cities and towns reject – or can’t afford – those products, and choose to insure themselves.

Jim Whittle, assistant general counsel to the American Insurance Association, a trade group, said some municipalities are self-insured, or just go without coverage, although Whittle said this was not advisable. Others do go to traditional companies, including OneBeacon, Travelers or The Hartford, to cover specialized risks such as liability for police officers or property coverage for city-owned vehicles and other equipment.

A few states, including New Jersey, have authorized municipalities to form collectives that can pool together to self-insure, said Frank Covelli, public entities manager with New Jersey-based brokerage Professional Insurance Assoc.

The state has a number of different joint insurance funds (JIFs), which are public entities in their own right, he said, and only deal with traditional insurance companies to buy reinsurance. Professional Insurance Assoc. handles risk management advising for the groups. As self-insured institutions, they don’t need to shop around for new insurance companies – but they, like everyone else, are in cost-cutting mode.

"There’s a whole mindset with seeing what can be done to streamline [costs]," Covelli said. Like OneBeacon, his company emphasizes training and resources that help cities avoid accidents in the first place, thereby reducing claims and keeping costs down across the board.

Silver Lining?

Budgets are getting slashed everywhere. Massachusetts faces a $295 million shortfall this year, which will add to the already-slashed local aid to its cities and towns. That story is repeated, to varying degrees, throughout the country.

For OneBeacon’s three-year-old government business, the onslaught of budget trouble might have spelled doom for the fledgling division. But Richardson said it was actually somewhat helpful: Cities and towns were looking to revise their insurance budgets, and were more willing to shop around than previously, Richardson said – and that probably brought OneBeacon to their attention more quickly.

It’s possible that other insurance companies sense an opening. Covelli said a lot of municipalities self-insure because in the 1980s, many insurance companies found municipal insurance to be a losing proposition and either stopped offering the coverage or prohibitively raised prices.

Covelli said while some insurance companies deserted the market decades ago, he’s noticed that more companies, such as Travelers and Chicago-based CNA, founded government risk divisions of their own in the past several years.

Carriers once shunned the public business, but have been making overtures toward municipalities to get back in their good graces.

"Maybe they realized it wasn’t as unprofitable as they feared," he said.