Understanding Total Cost of Risk for Public Entities

At this year’s Texas PRIMA conference, Carleen Patterson, Alliant Public Entity, delivered an insightful discussion on Total Cost of Risk and how public entities can use this framework to strengthen financial performance and improve long-term decision-making.

As Carleen explained, Total Cost of Risk “is a great way to help risk managers measure the success of their program” and understand the full financial impact of their decisions.

Explore the key takeaways from Carleen’s presentation to learn more about the value of Total Cost of Risk and how your organization can use this metric to improve your efficiency and impact.

Why Total Cost of Risk Matters for Public Entities

Total Cost of Risk accounts for every expense tied to an organization’s exposure, including premiums, retained losses, claims costs and administrative expenses and fees for brokers, third-party administrators (TPAs) and other partners. Although many entities mostly focus on premiums, claims often have the greatest influence on overall cost.

“If you can control your claims by reducing frequency or severity, that in turn impacts the success we have in the insurance market,” Carleen noted. Strong claim performance directly supports:

• Better underwriting results.
• More favorable renewals.
• Improved long-term budgeting.

Retention analysis is another critical component. Organizations frequently weigh multiple deductible or retention options during renewal, and the lowest retention is not always the most cost-effective choice.

“These decisions can’t be made in a vacuum,” Carleen emphasized. “You have to weigh everything, because you might take on more risk and not get enough credit in premium. You have to put both pieces together.”
This balanced approach helps public entities select retentions that align with their risk tolerance and financial goals.

Using Total Cost of Risk to Evaluate Public Entity Investments and Partnerships

Total Cost of Risk also supports more effective evaluation of risk control investments. Whether assessing telematics, driver training or facility improvements, the model allows entities to compare the cost of an investment with the expected reduction in claims.

Assessing the Value of External Partnerships

Vendor partnerships play a major role in a public entity’s risk costs. Brokers and TPAs directly influence program design, claims management and market strategy. As Carleen stated, “We’re not buying pencils. It’s a service, and who will have the best impact on your program is really important.” Selecting based on price alone can lead to higher overall costs if a provider lacks the resources or technical expertise to support long-term performance.

Building Internal Alignment for Long-Term Success

It is equally important to focus on your organization’s internal relationships when finding new ways to manage costs. Carleen stressed the importance of internal collaboration in her presentation, stating “You can’t set goals in a vacuum, sitting in your office. You need to know your true exposures and develop relationships with the heads of different departments.”

Strong relationships help risk managers to better:

• Understand operational changes.
• Respond early to emerging issues.
• Build risk strategies that align across the organization.

For entities new to Total Cost of Risk, the first step is breaking down your current risk management program into its core components. Understanding premiums, retentions, partner fees and internal administrative costs creates a clear picture of cost drivers. Many public entities discover they already have unused or underused resources available through current partners.

Real Applications of Total Cost of Risk in the Public Sector

Carleen reviewed two key examples during the session that demonstrate how Total Cost of Risk leads to more strategic decisions and reduces cost drivers:

• Example #1: A public entity selected a higher retention because it produced a lower total cost than a lower-deductible option.
• Example #2: Investing in updated property valuations prevented a multimillion-dollar coverage penalty.

Carleen also highlighted the impact of eliminating unnecessary wholesale layers, which reduced frictional costs and improved market competitiveness.

As the risk landscape grows in complexity, a central focus of Texas PRIMA was breaking down emerging issues such as Texas House Bill 4144, which affects cancer-related expenses for retired first responders. The bill has created new financial pressures, making Total Cost of Risk analysis even more important.

How Alliant Public Entity Helps Organizations Mitigate Total Cost of Risk

At Texas PRIMA and beyond, the Alliant Public Entity team is committed to helping entities understand long-term claims implications and evaluate strategies to manage future costs.

Total Cost of Risk gives public entities a clear and comprehensive framework for evaluating financial decisions, strengthening claims performance and building sustainable programs. By understanding cost drivers, choosing retentions strategically, investing in the right controls and selecting partners who provide meaningful value, organizations can create more resilient and predictable risk programs.

Contact a representative from Alliant Public Entity today to learn how Total Cost of Risk can support your long-term strategy and help drive stronger financial outcomes.