Public Risk Pools—Ownership in the Process

Merelise O’Connor

Across the country, local governments join public risk pools to underwrite both expected and unexpected losses. Coverage offered through risk pools is specifically designed to meet the needs of participating groups, and local governments have a vested interest in the performance of the pool. Most importantly, schools, municipalities and counties that participate in risk pools have ownership in the process.

Public Risk Pools: A Brief History
Public entity pooling has been a force nationally for more than 25 years. Pooling first began in the late 1970s to provide workers’ compensation coverage, and by the mid-1980s pools were the favored choice of local governments for the funding of property and liability risks and medical coverage. Today, pools are the preferred market for local government “insurance” coverage across the United States.

Property and liability risk pools were first formed in response to a crisis in the traditional insurance market. Insuring public entities has never been the primary focus of the insurance industry, and the insurance market has always been cyclical. Every time there is a hard market (that is, high prices and a scarcity of available coverage), the public sector is one of the first markets abandoned by the insurance industry.

In the mid-1980s, the private insurance market abandoned local governments, leaving cities and towns with nowhere to turn for property and liability coverage. Public associations across the country responded to this crisis by forming risk pools to provide coverage for their members. In 1984, the New Hampshire Municipal Association (NHMA) formed the HealthTrust to provide medical coverage for municipalities and soon added schools. Two years later, in 1986, NHMA formed the Property-Liability Trust (PLT) to provide coverage for member cities and towns. Today, the New Hampshire Local Government Center (LGC) HealthTrust and PLT risk pools provide stable and reliable coverage for New Hampshire cities, towns, counties, school districts and other local government entities. Since the establishment of public risk pools, local governments have been assured of coverage they can count on.

Pools Are Governed by Members
Unlike the private insurance market, where companies make decisions designed to increase profits with an eye toward pleasing shareholders, public risk pools are governed by members, all of whom have a stake in the process. As owners of the pool, participants are guided by choices that will create rate stability and ensure reliable coverage availability. Pools are focused exclusively on protecting the needs of pool members—regardless of economic cycles.

Entities that belong to a risk pool govern the pool through the elected board of directors. These directors hold either elected or appointed positions within local government and, as pool participants, the directors have a vested interest in the stability of the pool. The directors bring first-hand knowledge of, and experience with, changing public sector needs, which serves to guide the development of new programs and coverage selections.

The local government entities that participate in New Hampshire Local Government Center Risk Pools annually elect new members to the LGC Board of Directors. This election occurs at the annual membership meeting, which coincides with the LGC Annual Conference held in November. The LGC Board of Directors elects the chair and vice chair, and the chair appoints board members to serve on committees. LGC’s Board of Directors consists of locally elected and appointed municipal, school and county officials as well as public employees from municipalities and schools. Board members are responsible for setting pool policy, selecting outside service providers, such as independent auditors and actuaries, determining surplus return and approving lines of coverage. The Board appoints an executive director to carry out their policy decisions.

Pools hire competent and experienced staff with knowledge of industry trends. LGC’s Risk Pools employ talented professionals familiar with the New Hampshire public sector and expertise in the areas of health and safety, claims, underwriting, finance and benefits and coverage. LGC staff, and the staff of most public risk pools, have learned what is, and what is not, important when it comes to rating, loss prevention and claims investigation.

Stable, Specialized Coverage
Pooling is designed to provide coverage availability and stability to an otherwise unpredictable market. Even though some pools purchase excess insurance from the insurance industry, they normally do so with a very high retention (that is, the amount of  self-insured coverage) so price fluctuations in the commercial marketplace are muted. Because local governments join together as a pool, the pool is able to take a much higher retention level (if any) than most local governments would risk individually. Pools are also better equipped to make decisions on deductibles and levels of coverage because they employ professional staff who are familiar with the market and the potential for loss.

In the commercial market, each entity would have to purchase its own insurance, typically from a selection of standardized coverages. These coverages may not be what the members want and need. Pools have the flexibility to adapt the protection offered, and typically review these needs on an annual basis.

LGC Risk Pool Groups are part of a managed pooled risk program that can self-direct more easily than traditional insurance. One example of a novel line of coverage is PLT’s no-fault sewer back-up coverage. This coverage authorizes the payment of sewer losses even where the local government is not legally liable. PLT offers coverage to address unique local government needs, providing protection for fire trucks, covered bridges and other property, and PLT coverage is continually evolving to meet the needs of pool participants.

Focus on Prevention
In recent years, many traditional insurance carriers have eliminated their loss control programs. Pools normally emphasize risk control and prevention. Many governmental pools, including LGC’s Risk Pools, offer a variety of risk prevention programs designed to educate staff and employees in order to decrease the risk of accidents, injuries and other losses. Prevention programs are valuable cost containment strategies, which benefit organizations beyond the avoidance of claims.

Integrated health and safety training is a key component of a successful risk management program. LGC Risk Pool Groups have access to a Health and Safety Advisor dedicated to providing guidance and support to address specific needs. LGC Risk Pools offer more than 80 educational and informational programs covering topics such as safe driving, supervisory skills, safety inspections, nutrition, wellness, workplace harassment and discrimination and much more. Pool participants also have access to free online training through the LGC Academy and through webinars on topics ranging from “How to Avoid Police Liability” to “HealthCare Cost Containment Strategies.” In addition, LGC Risk Pool Groups benefit from the wide array of programs presented at the LGC Annual Conference.

Research has shown that healthy individuals are more productive employees. LGC HealthTrust’s Slice of Life health management program supports enrollees in taking positive steps to improve their health, and these improvements in turn benefit the employer through avoided costs for sick days and overtime. Healthy enrollees file fewer claims—which benefits the entire pool.

Additionally, LGC Risk Pool Groups benefit from the institutional knowledge resources available throughout the organization. For example, the LGC Legal Services staff closely follows changing laws to keep local officials informed of important legal issues. The Legal Services staff publishes numerous articles throughout the year and provides annual updates to LGC’s resource guides, including Knowing the Territory: A Survey of Municipal Law for New Hampshire Local Officials, The Basic Law of Budgeting and others. Legal Services staff members collaborate with risk management staff to educate pool participants on topics of importance to raise awareness of liability concerns and reduce potential for claims.

LGC’s Commitment to Local Governments
LGC’s mission is to strengthen the quality of its member governments and the ability of their officials and employees to serve the public. LGC staff members are dedicated to providing exceptional service and to fostering strong collaborations with member governments, professional associations and other organizations to develop innovative programs that meet the changing needs of local governments. Today, 90 percent of eligible local government groups are with LGC for one or more lines of coverage. We are at the forefront of pooling in New Hampshire, and we’ll continue to collaborate, to innovate, and, above all, to serve our members with integrity.

Merelise O’Connor is deputy director for member services for the New Hampshire Local Government Center. To learn more about LGC’s Risk Pools, contact LGC Member Relations staff at 800.852.3358 or