From The Iowa County magazine August 2019 issue

Why Local Government Risk Pooling

Bill Peterson ISAC Executive Director

I don’t want to get too deep in the weeds in providing a definition of a risk pool, so I will offer this somewhat simplified definition. A risk pool is essentially an alternative way to finance the risks that exist as a result of governmental operations. Those risks exist because local governments own buildings and other property, such as machinery and equipment; provide services such as parks and recreation, construction and maintenance of roads, law enforcement, ambulance services, and multiple other services; and make and execute decisions that create potential liabilities. Risk pools provide various coverages such as property (including buildings and contents), liability (including general, auto, and public official liability), workers compensation and benefits (medical, dental, and vision). The concept of local government risk pooling began to develop nationally in the mid-1970s as cities and counties began to encounter escalating prices and diminishing coverage in the traditional insurance market for the risks related to their operations.

When I began employment with the Iowa State Association of Counties (ISAC) in July 1979, ISAC Executive Director Don Cleveland and members of the ISAC Board had begun to explore a risk financing alternative for Iowa counties. The association had been working with the Iowa Commissioner of Insurance to try to establish a mutual insurance company that could provide coverage for association members. Due to several factors and the untimely death of the commissioner, ISAC officials instead created a captive insurance pool known as the Government Indemnification Fund. The captive provided both general liability and workers compensation to Iowa counties. This operation ceased to exist in 1985, but it did provide substantial savings for participants in its five years of operation. The counties participating in this program transitioned back to traditional insurance or into other risk pools.

It was in this same time frame that the Iowa Municipalities Workers’ Compensation Association (IMWCA) and the Iowa Communities Assurance Pool (ICAP) came into existence and began risk pool operations. The history of these two organizations are covered elsewhere in this magazine, so I won’t go into the details. It was also during this time that the Heartland Risk Pool was established. All have developed into financially sound risk financing operations that provide excellent risk coverage to their members at a stable and reasonable price. ISAC has endorsed both IMWCA and ICAP as preferred pooling providers since 2001.

So back to the original question, why local government risk pooling? First, I would say that a major reason risk pools have been successful is the commonality of purpose among pool members. In the case of ICAP and IMWCA, cities and counties make up most members. While cities and counties are not 100% of the membership, all entities are pursuing a governmental purpose. And, because of that commonality of purpose and operations, the risks of those operations are more easily identified and mitigated. The members of the pool have a common goal – to obtain the maximum coverage at an affordable and stable cost.

Second, because the operations of pool participants are common to the members, strategies to mitigate the risk of those operations can be uniformly applied. These strategies are called loss control. While there are fixed costs of operation for every pool, it is the cost of paying claim losses that generally drives the overall cost for coverage. So, it should not be surprising that a critical component of reducing costs overall are the continuous efforts to identify those activities that are the greatest risks and develop methods to avoid or reduce those risks. This is done by providing entities and their employees with training and workshops that are specific to their operations and the related risks. Both ICAP and IMWCA devote significant resources to assisting their members in loss control. Those efforts clearly affect the bottom line of both pools and are ultimately reflected in the contributions required of members.

Third, both ICAP and IMWCA are non-profit entities. While each pool is structured organizationally in a slightly different way, they are both member-owned entities. And, because they operate as non-profit organizations, it should be obvious to the members the benefit of not having to pay shareholders. This fact reduces the cost of operation which accrues to the members The Iowa County August 2019 5 of the pool. Excess resources generated by the pools are returned as discounts to future contributions, dividend payments, or to fund new programs that directly benefit the members.

Fourth, the accountability to membership by the governing board of the risk pool is another benefit of the pool. Again, while the organizational structures of ICAP and IMWCA are different, the governing boards of both pools are accountable to membership and are made up of representatives from the pool membership. ICAP Chair Jody Smith and IMWCA Chair Jim Dowling have many years of experience in local government. And, there is a broad range of backgrounds in local government by the board members of the respective pools. What does this mean for members of the program? It means that the board members understand the risks and challenges facing the pool members in day-to-day governmental operations. It also means that governing board decisions are made with the best interests of members clearly in mind. Fifth, the Iowa pools have been successful because of professional management and administration. As mentioned earlier, ICAP and IMWCA are structured differently. One commonality though between the two pools has been the establishment of an experienced and professional team to manage the operations of the pools. While the governing boards of both pools make important decisions, it is the daily operations of the individuals managing and working for the pools that have also helped them be successful. IMWCA is managed in-house by the Iowa League of Cities. The ICAP Board has contracted with several entities to manage its program. Both models are common to the risk pooling world and offer various advantages. What you should know is that in both cases, there is a professional team that has proven over time that they can deliver; the coverages, the loss control, claims management, and other components necessary for a successful pool operation.

Finally, local government risk pooling has been an effective mechanism to finance the cost of risk for hundreds of cities, counties, and intergovernmental entities in Iowa. Ninety of the 99 counties in Iowa now participate in either ICAP, IMWCA, or the Heartland Pool. Since the early 1980s, risk pooling has shown that it can provide excellent coverage for local governments at an affordable price and can meet the specific needs of their Iowa members. We hope you enjoy this issue of The Iowa County magazine and have a better understanding of the role and benefits of risk pooling.