Nature has taught us that climate and environment dictate ecology. When the right set of conditions come along, nature presents the opportunity for something unique to appear and take root in the world. Consider the platypus, a semiaquatic egg-laying, duck-billed mammal with the tail of a beaver. Its mere existence defied all conventional scientific wisdom concerning mammals when it was discovered in the 18th century. Yet, the platypus was a perfect adaptation for its climate and environment, where it had quietly thrived for thousands of years.
Thanks to a confluence of circumstances back in the 1970s, the insurance industry experienced its own change in climate and environment: a hard insurance market characterized by higher costs and limited availability of coverages. Governmental agencies were hit particularly hard by the loss of available insurance markets. As insurance options shrunk, so did the public services that relied on them, forcing public entities to reconsider their risk management strategies to survive and evolve. The Darwinian outcome was something that looked and felt familiar in the world of insurance risk, but on closer inspection is found to be quite inimitable, and perfectly adapted to the new climate and environment. This was the dawn of the public risk-sharing pools.
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Since that time, public risk-sharing pools (aka joint power authorities, or JPAs, and joint insurance funds, or JIFs) have been growing in their breadth and scope of operations. As a full-fledged risk management community unto themselves, these groups operate in unorthodox ways, combining multi-peril commercial lines insurance options for constituents across a variety of public entities, such as police, fire, transportation, city, special districts, county and state agencies.
The variety and types of public risk pools are as numerous as are their distinctions in risk-sharing approaches, lines of coverage, underwriting methodologies and types of risks. This national network of public risk-sharing pools has emerged to create a unique ecosystem all their own. Today, more than 85% of the 87,000-plus government entities in the U.S. belong to a public risk-sharing pool. By their nature, this unusual self-insurance arrangement is under scrutiny by regulatory bodies, and, while they are not known to become insolvent, JPAs face constant actuarial challenges tied to pricing risk accurately and efficiently for their public entity members. This underserved group of non-policy insurers is challenged with budget pressures, legislative initiatives, staffing issues, changes in elected or appointed leadership and outdated systems that restrict efficiency of operations. Consequently, the average JPA struggles to deal with the layers of complexities inherent in the make-up of their particular realm.
While many public risk pools labor to keep up with an ever-changing world of risk and politics, others are finding ease and opportunity in their operation by embracing new technologies and new methods of managing risk that work within the limited resource environment of their world. Public risk pools, such as Golden State Risk Management Authority (GSRMA), Beta Fund, the Montana Association of Counties (MACo) and the Texas Political Subdivision Joint Self-Insured Insurance Fund, are recognized leaders in their respective domains. They all have figured out the secret of how to deliver value to their individual members while working within their limitations.
One clue to their success becomes apparent when talking with them. They all seem to share a growth-mindset, meaning that they tend to focus on the possibilities rather than the obstacles. Phrases like, “We can't,” “I wish I could,” “I don't have the resources,” or “It's never be done before” don’t tend to show up in their conversations. The people in these organizations are forward thinkers, innovators and early adopters of new ideas.
For example, GSRMA, which has more than 258 member public agencies, such as cemetery districts, special districts (water, sewer and lighting), fire and school districts, counties and cities throughout the California, offers a full line of programs to cover the many exposures of its public entity members. During the Great Recession of the late 2000s, GSRMA recognized the need to create an internal infrastructure that can withstand the uncertainty of national or global events and protect its membership.
As a result, GSRMA became an early adopter of cloud-based technology that was agile, robust in its enterprise offerings and easy on the budget. Not only did the investment in technology give them a workforce multiplier, it also gave them a process accelerator that saved them thousands of labor hours in the completion of seasonal and annual work-tasks.
And because GSRMA retains a large amount of risk, it requires the ability to scale, underwrite with precision and respond quickly to members’ varied requirements. Equally important, like many JPAs, GSRMA must focus on budgeting/funding, so affordable technology that supports staff in all these endeavors is the highest priority for their executive team. It’s no mystery that GSRMA is experiencing success and has been “Accredited with Excellence” through the California Association of Joint Powers Authorities.
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Against the backdrop of an uncertain economic climate, while living in the most political of environments, I believe the continuing success of public risk-sharing pools will largely be determined by their leadership’s mindset to embrace change, cultivate a smart staff and add supportive technology that serves that staff. Like GSRMA, MACo, Beta Fund and the Texas Political Subdivision, those with a future-proof plan will thrive in this complex climate and environment. Operating a public risk pool is no easy job by a long shot, and we should all take the time to thank them for their service.