March 9th, 2016

Reconciling Corporate Culture and Government Bureaucracy

Posted at 1:00 AM ET

Differing approaches between the accountability and transparency required of public entities and near term profit expectations of the private sector can result in culture clashes. (Re)insurance support is a function of profit potential over time. The following factors should be considered to align the competing interests of public and private sector entities:

  • Sustainable partnerships with the private sector should provide adequate potential for risk return. Private business models do not provide for unlimited risk bearing and are cautious about accepting major risks beyond their control. “Public-private partnerships are not about funneling dollars to development projects; it’s about creating win-win business models” (1).
  • Governmental entities that go down the path of public-private-partnerships must also recognize that private sector (re)insurance may not be positioned to address every need. The handling of terrorism insurance in the United States is a good example. Under the terms of the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), the insurance sector, through the program’s deductibles and triggers, carries much of the conceivable exposure that is presented by a potential conventional attack. However, the capital of the entire industry could certainly be threatened by an attack that involved nuclear devices. By providing a governmental back-stop a balance has been achieved between the public and private sectors whereby the insurance industry has continued to provide coverage to its customers. Regardless of the arrangements reached through such programs, the supporting roles of government and the private sector should be defined so that all stakeholders have an understanding of roles and responsibilities (2).

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Notes:

1. KPMG: Demystifying The Public Private Partnership Paradigm, 2015.

2. Guy Carpenter: Uncertain Future: Evolving Terrorism Risk, 2014.

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