For public entities, such as cities, counties and school districts, risk-sharing pools have provided a viable alternative to commercial insurance plans. Created in the 1970’s and revived in the 1980’s, public entity pools offer the means to stabilize taxpayer funds for public employee insurance plans.
Public entity risk-sharing pools differ from commercial insurance plans in several ways including funding sources, goals and administration. Commercial insurance carriers, whether large or small, are set up to make a profit and utilize insurance underwriting software to assess risk and keep profits up and losses low. Risk-sharing pools are often set up by the governing authority of the entity being served with the single goal of serving the membership. These pools work to lessen the financial risk that would be borne by taxpayers from unexpected, routine, or catastrophic occurrences. Members of each pool work in collaboration to reduce risks and costs associated with these occurrences.
Interestingly, risk-sharing pools have become objects of interest to commercial insurance companies. The effective manner in which these pools manage risk offers an attractive alternative to risk assessment through insurance underwriting software. The public entity pools are already set up to manage risks associated with their programs, allowing commercial insurance companies to offer additional coverages to supplement the existing plans.
These pools are characterized by their customization in design for serving the unique needs of each pool’s membership. Most are authorized by state legislatures and some only offer certain types of coverage such as health, liability or workers compensation. Some pools are exclusive to a particular type of public entity such as school districts.
Pools are owned by their members, and membership includes an agreement to share the costs incurred in the administration of the pools and payment of claims. This provides a valuable return in that members have a direct interest in managing loss while processing and paying claims. This also benefits the governing entities as they become less likely to incur a financial burden from any issues of insolvency with the pools.
The success of risk-sharing pools has helped to spur successful partnerships with companies in the private sector to address other issues such as the breach and recovery of sensitive data in the event of a disaster or providing specialized coverage such as student accident insurance. As pools continue to grow and become more commonplace in the public sector, commercial insurers may wish to look for additional ways to participate in the unique opportunities that will likely emerge in the future.