Public entities, such as state agencies, municipalities and school districts, share a common bond in that their revenue comes from public funds or taxpayer dollars. In order to effectively manage risk with public funds, many public entities are forming public entity risk pools with immense success. For public entities considering joining or forming a risk pool, below are eight facts that may help to answer pertinent questions about public entity risk pools:
Fact 1: Public Entity Risk Pools Are Not New
Public entity risk pools began forming in the 1970’s when economic pressures caused commercial insurance companies to cease covering municipalities.
Fact 2: Risk Pools Have an Organizational Structure
Each entity belonging in a pool is a “member” and the members of each pool elect a board of directors to oversee and direct the operation of the pool.
Fact 3: Risk Pools are Not Insurance Companies
While risk pools behave in a similar manner as insurance companies, they are vastly different. They do not sell and issue insurance policies and they are not formed with the intent of making a profit.
Fact 4: Risk Pools are Often Underwritten by Insurance Companies
While public entities such as municipalities and school districts know their businesses and have first-hand knowledge of potential risk factors, they are not professional insurers.
For this reason, there are insurance companies and insurance software providers that understand the unique needs of public entity risk pools. Using specially designed underwriting software, these companies essentially operate in the background as a support system.
Fact 5: Pools Stress Shared Accountability
Each member of each pool brings a unique risk profile with it. Some municipalities may carry a higher risk in some areas while others may have higher risks elsewhere. For instance, a school district campus may include a building situated in a flood plain while another may have a higher incidence of work-related injuries.
Fact 6: Pools Can Generate Flexibility in Coverage Options
Few commercial insurance companies offer coverages for the unique needs of government agencies and other municipalities. Risk pools can generate coverage for these needs including cyber-bullying, wellness initiatives, hazardous chemicals and underground storage tanks.
Fact 7: Risk Pools Professional Associations Can Help
As risk pools have gained in number, professional associations have formed to help support them and provide a forum to keep members and boards educated in maintaining professional standards.
Fact 8: Risk Pools Have Saved Billions of Dollars in Tax Funds
Because pools add no profit margin to premiums, members have enjoyed savings of 10% to 15% in costs. Pools also cost less to operate than commercial insurance companies.