Before joining a pool, there are many things to evaluate. Knowing the right questions to ask is a great way to start. This article is intended to help you make an informed decision.
There are many reasons to consider joining a pool, but such a big decision requires careful consideration. Only by comparing the advantages and disadvantages of pooling with those of your current, individual program can you make an informed decision.
Just like comparing quotes from various carriers, you need to compare a quote from a soliciting pool to the consolidated cost of your individual risk options. Cost is always an important consideration, but rate alone is not a valid reason to pool.
Some pools provide coverage with an insurance contract purchased from an excess carrier. Other pools provide coverage with a proprietary coverage document and purchase reinsurance in excess of their retention.
Consider this as well:
First, you need to look at the coverage document. Is it a manuscript form or ISO form? Of course you need to compare the coverages offered, including limits, sub-limits, deductibles or retentions, terms and conditions, as well as exclusions – the most typically reviewed items. If the policy is a manuscript form, the comparison may require legal or contractual expertise to help interpret it.
What services are offered by the pool? How do those services compare to the ones offered by your carrier? Is there a charge? Do you need those services? Are they optional? Very specifically, what kinds of claim services are provided, and what is the reporting protocol? Where does the insurer or reinsurer fit in? Which option best fits your needs?
How is the pool’s financial health? It is relatively easy to review a carrier’s financial position; those records are available for public consumption since standards are established and ratings are published. A pool’s financials, however, are not always made publicly available. The first thing to check is how the pool’s financials compare with its stated philosophy. Some pools wish to build surplus that can be used in different ways. Pools may increase their retentions and provide members with additional coverages, or member services can be added. The surplus can be used to supplement rates when the market is particularly hard. Some pools prefer to operate with a lean surplus, choosing to charge membership lower rates each year and returning excess in the form of dividends. These pools are able to assess members’ additional premiums if rates are not adequate to cover losses. Still others remain somewhere in the middle. Therefore, it’s important to understand the operating philosophy of any pool you are considering. It is also prudent to review a pool’s actuarial study to learn how rates are determined as well as loss reserving practices, and how often such a study is conducted.
Just as you look at a primary carrier’s reinsurers, do not overlook the financials of the pool’s (re)insurer. It is important to determine how the combination of the pool’s financial position and that of the (re)insurer compare with those of your current carrier and their reinsurer.
Operations and Claims Handling
Considering an insurance company means you consider how that company operates. How hands-on is management? How do they involve themselves in your claims? How would they respond to a large claim or a poor aggregate year? Is it a stock company or a mutual? Similar questions are appropriate for a pool as well and can be found in the by-laws, where much can be found including whether or not the pool is assessable and, if it is, how the assessability feature works. How are dividends distributed? What happens to your outstanding claims when you leave, and is there a penalty to leave or a penalty to re-join? How does the pool handle a chronically poor performing member? Are there rewards for good performance? You should know how board members are elected and the extent of their function.
Size of Operation
How does your entity compare in size to the other entities in the pool? What about risk type? You can ask if your carrier’s expertise is in accounts similar in size to your accounts, or if its appetite is more varied in terms of size and exposure. You should also ask the prospective pool that question. Are all members about the same size, with a similar exposure base, or will you be much larger or smaller than the other members? Being a different size than most other members is not good or bad, but you should understand how your entity fits in.
What about the lines of coverage you are shopping? Do your carrier and the proposed pool offer multiple lines of coverage – Casualty, Property, Workers' Compensation, Disability? Which of these might you need, and is there an advantage to buying several lines in one place?
Have your rates been relatively steady, or have they been volatile? Compare that to the rate history of the prospective pool. The selling point of many pools, indeed the very reason they were formed, is to provide consistent, predictable and therefore budgetable premiums in the face of a volatile insurance market. Has the prospective pool levied any assessments in the past?
Suggested Next Steps
All this information should be readily available for your consideration, but you may wish to take a few other prudent steps. Reach out directly to a current pool member or two and ask about their experience with the pool. That’s information that cannot be gleaned from forms and reports. Several organizations can be very helpful as well. The Association of Governmental Risk Pools (AGRIP) and the Public Risk Management Association (PRIMA) are two of the biggest and include a cross section of public entities. There are also associations with more focus on specific market segments, such as University Risk Management and Insurance Association (URMIA).
The point of all of this is that choosing a pool is a complicated decision, far deeper than price, coverage and limits. The information to make such a decision is available, as are experienced, professional people to guide you along the way.
The material contained in this publication has been prepared solely for informational purposes by Genesis Management and Insurance Services Corporation.
Genesis Insurance Company is licensed in the District of Columbia, Puerto Rico and all states. Genesis Insurance Company has its principal business in Stamford, CT and operates under NAIC Number 0031-38962.
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