From The Iowa County magazine August 2019 issue

History of Pooling

Alan Kemp, Iowa League of Cities Executive Director

As current chair of the National League of Cities Risk Information Sharing Consortium (NLC-RISC), my experience with risk pools mainly involves those insurance pools closely affiliated with state municipal leagues and providing protection to cities, towns, special districts, and sometimes counties and schools. However, the history surrounding the emergence of pooling is similar regardless of the governmental entities they cover.

Public entity risk pools have been operating for over 40 years. Municipal risk pools began emerging in the 1970’s when many commercial insurers abandoned the public entity market, as they felt it was not profitable given the unique risks that governmental entities face. As a result, state municipal leagues became instrumental in the formation of these pools in order to address and meet the needs of their membership. Those pioneers of pooling brought little insurance expertise, but understood the needs of local governments and were driven to help their members.

According to the book, “State Municipal Leagues: The First Hundred Years”, pools initially attracted cities with populations less than 50,000 who did not feel they could self-insure. While addressing the lack of competition and availability of insurance in the market, risk pools also placed a heavy emphasis on loss control as it relates to the special risk that governments face. This continues to be the focus of pools – a commitment to provide training, education and resources to help ensure that the city is a safe place to live and work. The best claim is the one that never occurs.

The Texas Municipal League formed the first city-specific risk pool that provided workers’ compensation coverage in 1973. By the end of the 70’s, five more state municipal leagues had formed pools. Growth exploded in the 80’s. Only nine state pools existed at the beginning of the decade. By 1989, just eight of the 49 state municipal leagues did not have some type of risk pool.

Pooling Today

According to the Association of Governmental Risk Pools (AGRiP), there are an estimated 450 risk-sharing pools serving municipalities, school districts, and other public entities in the U.S. and Canada. While private insurers have returned to the market and write city and other governmental entity business, public entity risk pools remain the dominant source of insurance coverage and risk management for cities, towns, and villages, with many pools reporting a 90% or more retention rate annually.

If risk pools were born of necessity, they remain successful due to the affinity of members coming together to solve common issues, as well as the oversight by well-trained and dedicated governing boards and staff. One historic criticism of pools is whether they have the ability to weather bad experience. Nothing is further from the truth. The stability of public entity risk pools has allowed them to accumulate healthy fund balances to ensure the members of the pools can weather multiple catastrophic claims should they occur.

While pools were originally formed to address the lack of available coverage, they have thrived for a number of other reasons. First, pools offer stability in pricing. While they may not be the least expensive every year, pools price coverage fairly and don’t undercut or “buy the business” which provides more stable and consistent rates in the long-term. Second, the pools are member owned, member governed, and member driven. As such, members have a financial stake in ensuring the success of not just their own organization but of the entire pool. Since pools are member owned, they are also more willing to work together with their members who may be struggling with temporary high losses, rather than simply denying a claim. Finally, pools place an emphasis and high value on loss control and understand the unique risks associated with government services, such as public safety operations, employment relating to civil service, and planning and zoning.

The Future of Pooling

Pooling serves as a successful example of intergovernmental cooperation – cities coming together to solve a common issue or need – and the future of pooling is bright. However, there are several trends that pose potential risks or rewards for the future of our organizations and the members we serve, such as digitization of society, advances in technology, leveraging data, environment and climate change, recruitment and retention of employees in public entity pooling, and political and regulatory changes. Not all of these trends may impact each pool in the same way or at the same time, but it is important to acknowledge and to be aware of the trends so we can be proactive in addressing them when they arise in our organization.

In addition, cities and other local governments face their own challenges and trends. The National League of Cities (NLC, NLCRISC and NLC Mutual) and the National Association of Counties (NACo) are great resources to learn about and better understand the important issues facing cities and counties across the country. As leaders and staff within our pooling organizations, we have a responsibility to think about how all of these trends impact our organizations and the members we serve.