8 Key Public Entity Risks and Tactics to Mitigate Them

Municipal leaders are operating in an environment where risk is both more visible and more complex than ever before. Traditional exposures, like infrastructure maintenance, public safety, and community services, are now intersecting with emerging challenges, such as artificial intelligence, cybersecurity threats, and evolving legal standards.

“For municipal leaders and risk management professionals, this convergence creates a pressing need to rethink how risks are identified, evaluated, and managed,” said Susan Thomson, Director – Public Entity Underwriting at Safety National. “It is no longer sufficient to address issues in isolation. Today’s environment requires a more integrated and proactive risk management approach that connects governance, operations, and accountability.”

The following insights highlight where key vulnerabilities exist and how they can be mitigated to help reduce exposure, strengthen resilience, and better serve communities.

1. Artificial Intelligence and Data Governance Risks

As municipalities adopt artificial intelligence (AI) tools to improve efficiency, they may do so in a decentralized manner without clear oversight. This can result in inconsistent usage, lack of accountability, and increased exposure to bias in decision-making – particularly in areas like hiring, policing, and permitting. AI systems may unintentionally discriminate, creating civil rights violations that can scale quickly across large populations.

Additionally, reliance on third-party AI vendors potentially introduces risks related to data privacy, confidentiality, and regulatory compliance. Risks of sensitive information possibly being mishandled, improperly shared, or used without consent, could expose municipalities to litigation, regulatory penalties, and reputational damage.

Municipalities can help mitigate this risk by establishing centralized AI governance frameworks that clearly help to define acceptable use, oversight responsibilities, and accountability structures. This includes implementing formal policies for AI procurement and deployment, conducting regular audits to evaluate bias, accuracy, and compliance, and requiring transparency from vendors regarding how data is used and stored. It also involves training staff on responsible AI use and data privacy obligations as well as aligning organizational practices with evolving state-level privacy regulations. A strong governance model helps to ensure AI is leveraged as a tool for efficiency rather than becoming a source of unmanaged liability.

2. Social Inflation and Expanding Liability

Increased public scrutiny and shifting litigation dynamics are driving higher claim severity for public entities, which is often referred to as “social inflation.” At the same time, legal interpretations of liability are broadening and expanding the scope of liability. Claims that were once framed as negligence are now often pursued as civil rights violations, which can significantly increase potential damages.

Responsibility is also becoming more widespread, with municipalities potentially becoming liable for the actions of third-party vendors, contractors, and partners. This creates complexity in determining accountability and increases the likelihood of costly, multi-party litigation.

To address these trends, municipalities can conduct regular legal and risk assessments to stay informed of evolving liability standards, strengthen contract language, and maintain thorough documentation of decisions, policies, and incident responses. Investment in early intervention and dispute resolution strategies can help to prevent issues from escalating into costly litigation. Proactive legal awareness, combined with consistent documentation, is essential in helping to mitigate liability exposures.

3. Critical Infrastructure and Cybersecurity Vulnerabilities

Municipal infrastructure is increasingly connected to digital networks, including water systems, traffic controls, and power distribution. However, many of these systems were not designed with cybersecurity in mind and may lack adequate safeguards. Budget constraints often limit the ability of local governments to implement robust cybersecurity measures, making them attractive targets for cyberattacks. A successful attack can disrupt essential services, compromise sensitive data, and result in significant financial and operational consequences.

Municipalities may reduce exposure by conducting cybersecurity risk assessments of operational technology systems, prioritizing updates and segmentation of legacy infrastructure, and implementing multi-factor authentication along with strong access controls. They may also consider partnering with external cybersecurity experts when internal resources are limited to develop comprehensive incident response and business continuity plans. Even incremental improvements in cybersecurity posture may reduce risk.

4. Road Design and Infrastructure Liability

Claims related to unsafe road design are increasing, particularly in high-traffic or high-accident areas. Plaintiffs often argue that municipalities were aware (or should have been aware) and failed to act on hazardous conditions such as poor signage, dangerous intersections, or inadequate drainage. Aging infrastructure and changing environmental conditions further exacerbate these risks.

Effective risk management in this area includes conducting regular engineering assessments and traffic studies, prioritizing repairs and upgrades based on risk severity, and maintaining detailed records of inspections, complaints, and corrective actions. Municipalities should also engage qualified engineers and contractors with proven expertise and incorporate climate resilience into infrastructure planning. Demonstrating a proactive approach to roadway safety can be a critical defense in litigation.

5. Tree and Environmental Liability

Municipalities are responsible for maintaining trees on public property. Falling limbs, obstructed views, or root damage can lead to injuries, property damage, and subsequent claims. Similar to roads and infrastructure, liability may hinge on whether the municipality knew (or should have known) about the hazardous condition.

To manage this exposure, municipalities should consider implementing routine inspection programs conducted by certified arborists, using geospatial tools to track tree conditions and maintenance schedules, and responding promptly to public complaints and identified hazards. They should also document all inspections and corrective actions. Proactive maintenance and thorough documentation can be key to reducing both incidents and liability.

6. Law Enforcement Liability

Law enforcement agencies face growing pressure to balance operational readiness with accountability. Police-related claims, including use-of-force incidents and high-speed pursuits, remain among the most severe and costly for public entities. A vehicle pursuit gone wrong, a high-profile use-of-force case, a tragic series of deaths in custody that trigger a class action lawsuit – incidents such as these can lead to millions in settlement costs. They can also create a sobering understanding of the stakes for law enforcement agencies, including potential damage to morale, public trust, and operational credibility.

Municipalities can help mitigate these risks by establishing clear and consistently enforced policies on pursuits and use of force, providing regular training and scenario-based exercises for officers, and conducting comprehensive incident reviews to identify opportunities for improvement. Use of force, accident, and injury assessments following an incident can provide crucial observations. Reoccurring trends uncovered during these evaluations can be effective to build into department training. In addition, specific instances related to individual officers can be useful in their performance evaluations. Body cameras and other transparency measures can further support risk control efforts. Ultimately, fostering a culture of accountability and continuous improvement is essential in helping to reduce law enforcement exposures.

7. School Sexual Abuse and Molestation Risks

Sexual abuse and molestation (SAM) incidents are not restricted only to staff-on-student. In recent years, there has been an increase in student-on-student SAM incidents, which has expanded the threat to student safety and school liability. SAM claims remain a top loss leader in both severity and reputational impact. Legacy claims, gaps in supervision, and insufficient reporting have kept this issue under intense focus. Additionally, several states have reviver statutes that allow adult abuse survivors to file civil lawsuits even if the statute of limitations for those claims has expired. For public entities that already have limited budgets, these claims can be devastating. Prevention can include a multi-layered approach that incorporates establishing clear policies on acceptable behavior, conducting thorough background checks during hiring, and providing ongoing detection and reporting training to staff. Municipalities should also create accessible and anonymous reporting mechanisms and ensure prompt, thorough investigations of any allegations. Since schools may lack the bandwidth to explore these risk solutions independently, their insurance carrier can often act as a knowledgeable guide, vetting tools and connecting clients to potential effective, practical options. Strong safeguarding practices are critical to protecting vulnerable populations and helping to limit liability.

8. Jail and Correctional Facility Risks

Public entities have a heightened duty of care for individuals in custody. Claims involving inmate suicide, medical neglect, or unsafe conditions can result in significant liability, particularly when there is evidence of known risk factors that were not addressed prior to an incident.

Risk reduction strategies include comprehensive staff training on monitoring and intervention protocols, detailed documentation of medical requests, grievances, and incidents, and the use of risk-based inmate classification systems. Municipalities should also ensure access to appropriate medical and mental healthcare and implement surveillance systems in high-risk areas. Consistency in procedures and documentation is essential in demonstrating compliance with duty-of-care obligations.