Author: Shannon Gunderman
Public entities operate in an environment influenced by legislative change, advancing technology, workforce adjustments and rising community expectations. As operational challenges become increasingly complex, leaders must understand and proactively manage the risks that affect their organizational goals. Here are five key trends currently affecting the public sector, along with practical strategies to control their impact.
AI's promises and perils
Artificial Intelligence (AI) is improving the insurance industry by streamlining underwriting, automating claims processing and enhancing risk assessment. Time-consuming tasks formerly assigned to humans are now increasingly being handled by AI. This shift has allowed underwriters to focus on strategic decision-making and enabled brokers to dedicate more time to collaborating with their public entity clients on unique or emerging risks.
However, AI can also create significant issues. Automation is restructuring the workforce. This transformation raises important questions about the future of traditional risk management and insurance roles, as well as the skills needed to support them. At the same time, the lack of established governance frameworks and the growing threat of cyberattacks have created new vulnerabilities. Public entities must therefore balance the benefits of AI with the responsibility of protecting sensitive data and maintaining operations.
Key risks
- Skill and technology alignment. AI misalignment between public entities, insurance brokers, and insurers can produce disparities in data understanding and interpretation, reducing the effectiveness of risk management programs.
- Governance gaps. Without clear policies and oversight, AI deployment may introduce bias, cause regulatory problems and deliver inconsistent outcomes.
- Cyber exposure. Greater dependency on AI systems expands the attack surface, providing greater opportunities for cybercriminals to compromise data systems and disrupt operations.
- Misuse or over-use. Deferring too readily to AI outputs can result in dissemination of incorrect or misleading information when those outputs are tainted by hallucination. This overreliance can also weaken professional judgment and erode critical job skills. Additionally, abuse of AI can expose an organization to legal and reputational harm.
- Implementation and training. The goal of AI should be to elevate the human skills of underwriters, brokers and public entity employees while strengthening their partnerships. Making risk-informed investments in AI and employee training and coordinating AI use across all parties will enhance efficiency and improve outcomes.
- Robust AI governance. Develop guidelines for AI use that include transparency, accountability and regular audits.
- Cybersecurity protocols. Implement advanced security measures and incident response plans customized to AI-driven environments. Maintain a balanced approach by integrating human oversight into AI-powered processes.
- Guard against overreliance. Reinforce the expectation that AI supports, rather than replaces, human judgment. Require human review and verification of AI results before they are shared or acted upon and provide regular training that preserves and improves core professional skills.
Beyond schools: The evolving risk of sexual abuse
Sexual abuse and molestation (SAM) have long been recognized in educational institutions as a serious risk. However, abuse can occur in any organization that provides programs, offers facilities or otherwise serves children or vulnerable adults.
In 2025, the public sector paid billions of dollars in SAM claim settlements. Against this backdrop, legislative changes are expanding statutes of limitation for survivors and increasing expectations around organizational prevention and response. In some cases, new laws have introduced limited personal liability for administrators and modified the balance between governmental immunity and tort liability.
The greater visibility of SAM cases in governmental and educational organizations has led to increased scrutiny from the public, media and legislators. This has amplified the potential for claims and litigation, highlighting the need for all public entities to proactively recognize and manage this risk.
Key Risks
- Risk awareness and understanding. Counties and municipalities have sometimes underestimated their exposure to SAM due to perceived lower risk and fewer reported incidents. This has resulted in an inconsistent awareness of abuse risk and a lower prioritization of mitigation.
- Youth sexual behavior. Sexual abuse includes more than adults who cross boundaries with minors or other vulnerable individuals. It can also include interactions between youths. Claims involving this type of sexual behavior are rising in frequency and severity.
- Reputation, operations and funding. Abuse risk can disrupt public entity programs and operations, particularly those involving third‑party relationships and hybrid service delivery models. Even when contractual agreements are in place, claims can still damage an organization's reputation and negatively affect funding and community support.
- Assess and prioritize the risk. Public entities should evaluate the nature and scope of programs they provide to youth or vulnerable adults, which may involve relationships with third-party providers. An enterprise-wide safeguarding framework should then be built, using the program evaluation as a guide.
- Strengthen prevention and response. Implement rigorous background screening for employees and high access volunteers. Screening should be comprehensive, such as checking multi-state and county criminal histories and national sex offender registries. It should also gather information on past behavior through applications, professional and personal references and interviews. Adopt clear, enforceable policies to detect, prevent, report, investigate and respond to SAM incidents. Provide employees with training that is consistently documented and updated.
- Create a supportive culture. Ensure that leadership and employees understand why policies have been put in place. They mustn't only comply with and support such policies, but also appreciate their value in protecting employees, volunteers, participants and the public. Encourage open communication and empower individuals to report concerns without fear of retaliation. Those who make reports should be confident that they'll be supported with compassion and that their concerns will be promptly and fairly investigated and addressed.
PFAS fallout: The lingering threat
Per- and polyfluoroalkyl substances (PFAS) are a recognized environmental and public health concern. These persistent chemicals are found in water supplies, soil and everyday products, and their resistance to degradation means they accumulate over time.
Exposure to PFAS can occur through drinking water, firefighting foam, building materials, food packaging and cleaning products. Liability arises because public entities are responsible for providing safe environments for students, staff and the community. If PFAS contamination is discovered, they may be held accountable for failing to prevent exposure, not properly managing hazardous materials or not remediating contamination in a timely manner.
Key risks
- Environmental liability. PFAS contamination can lead to costly remediation and legal action. Claims and contractor disputes may also arise if contamination is tied to operations or legacy conditions at owned or managed sites.
- Health concerns. Potential links to adverse health problems raise the stakes for public sector organizations responsible for public well-being, especially when children and other sensitive populations are impacted.
- Regulatory uncertainty. PFAS standards can change quickly and vary by jurisdiction. This may require unplanned testing, upgrades, and recordkeeping, which can complicate stakeholder communications.
- Evaluate PFAS risks. Conduct a baseline assessment of water sources, facilities and operations to determine the presence of PFAS. Conduct regular assessments thereafter to monitor contamination in high-risk locations or operations.
- Prepare response plans. Action plans should clearly define roles, escalation steps and decision criteria so that test results or notices can be addressed quickly and consistently.
- Engage stakeholders. Communicate proactively and transparently with the public, staff and regulators about risks and mitigation efforts.
Budget blows and building woes
Budget instability and aging infrastructure continue to have a detrimental effect on the public sector. Fluctuating revenues make future planning difficult, while deteriorating facilities create safety and operational hazards.
Key risks
- Funding uncertainty. Unpredictable revenues can hinder long-term planning. Additionally, short-term assumptions can prompt reactive cuts or deferrals, adding risk and undermining service levels.
- Deferred maintenance. Aging buildings and equipment are more likely to fail, resulting in property damage, service interruptions and emergency relocations. Maintenance deferrals can elevate the likelihood of failure and drive higher claim severity.
- Operational stress. Staffing shortages can overextend employees, making them more prone to errors and burnout, which often leads to an increase in the organization's claim burden.
- Risk-based budgeting. Use condition assessments and loss data to prioritize funding for the highest-impact hazards and mission-critical assets.
- Public-private partnerships. Explore alternative funding like energy performance contracting, bundled maintenance agreements, and shared services to address backlogs and stretch limited budgets.
- Contingency planning: Plan for budget changes and unplanned facility closures by setting decision criteria and reserves. Doing this can help leaders act quickly to limit disruption.
Headspace in the workplace
Mental health is gaining recognition as a crucial factor in organizational success. Modern-day pressures, combined with the lingering effects of the COVID-19 pandemic, have created mental health challenges among employees, teachers and students.
Key risks
- Mental health claims. Stress and trauma can contribute to absenteeism and productivity loss, while also increasing workers' compensation and disability-related claims.
- Student well-being. Unmet mental health needs can impair learning outcomes and trigger behavioral incidents that require additional staffing or outside support.
- Stigma and underreporting. Privacy concerns and cultural barriers may prevent individuals from seeking help, which worsens the risks. When issues stay hidden, organizations lose the chance to provide timely support and may face crisis-driven responses.
- Boundary and conduct issues. Employees struggling with stress or mental health disorders may have difficulty maintaining professionalism and appropriate boundaries in workplace interactions. Even when no harmful intent is present, these behaviors can increase the likelihood of complaints or allegations of improper conduct.
- Support programs. Offer Employee Assistance Programs, counseling referrals and crisis support so that employees and students can get help early. Ensuring access to resources is easy and confidential.
- Foster a supportive culture. Encourage open dialogue about mental health and reduce stigma through education and support.
- Monitor and measure. Regularly assess the effectiveness of well-being initiatives using indicators such as absenteeism, turnover, program utilization, incident reports and survey feedback. Adjust strategies as needed.
- Reinforce boundaries and de-escalation skills. Provide regular education on professional boundaries and de-escalation techniques, especially for employees in high-contact or high-stress roles. Equip supervisors with training that helps them identify conduct concerns early and then intervene with coaching and support.
Gallagher's Public Sector and K-12 Education practice continues to monitor the trends that affect our clients. Our goal is to provide actionable insights to help public entities manage their evolving exposures. With deep expertise in insurance and risk management, we deliver tailored solutions that help our clients make informed decisions with confidence.
