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Risk Pooling – How the Money Works for You

February 11, 2019 Fiscal Responsibility, Insider, Core Values

TMLIRP_Risk_Pooling

Fiscal Responsibility is one of TMLIRP’s four core values. This is critical since all funds managed by the Pool belong collectively to the Members; thus, the Pool serves in a fiduciary capacity. Leveraging these funds to Member advantage is an aspect of the Pool’s Fiscal Responsibility.

The primary purpose of risk pooling is to stabilize costs and save participating members money over the long term by efficiently managing the funds needed to operate the risk sharing program and pay its members’ losses. Because TMLIRP is a local government, it is able to benefit from cost saving governmental provisions that are not available to private insurance companies. As examples: the Pool is not profit motivated and does not pay dividends to private shareholders; is not required to pay income tax as a local government entity; does not have expenses normally associated with regulated entities; does not pay commissions for providing coverages; purchases equipment and supplies through governmental purchasing cooperatives; and enjoys many of the same immunities and tort caps as other local governments in Texas.  As a result, operating costs are lower than for private insurance companies and savings from those lower costs are passed directly on to the Pool’s members through lower rates, broad coverage terms and comprehensive loss prevention services.

Throughout the year, the Pool has a number of independent studies conducted to assist in determining the appropriate rates it should set for the coverages it provides, how much it should hold in reserve for current and future losses, and how much Members’ equity it should maintain to provide stability such that the Pool has enough funds to continually operate should its members experience a series of catastrophic events. To manage the operational costs, over the past several years, the Pool has made a significant investment in new software applications that are improving processing time, providing more precise information for rate development and loss analysis, are reducing manually performed functions, and making it easier for members to interact with the Pool. 

In the current year, the Pool is expected to generate about $221 million in contributions and investment income, incur losses and expenses of approximately $209 million, and produce approximately $12 million in revenues over expenses. Since the equity in the Pool collectively belongs to the members, revenue over expenses can be viewed as a return on members’ equity (approximately 3.4%)  that enables the Pool to ensure continued rate stability and provide protection against severe losses, such as the recent $114 million in Hurricane Harvey losses. 

In the first quarter of the fiscal year, the Pool’s asset base is about $700 million. About half of this amount is reserved for known and projected losses, with the remainder in Members’ equity. The Pool invests its assets in fixed income securities in compliance with the Texas Public Funds Investment Act.  Half of the Pool’s assets are invested in-house by a Charted Financial Analyst (CFA/CPA) and the remainder is managed by two internationally renowned investment firms.  To maximize investment income, securities are purchased based on projected long-term cash flows and pay out requirements.  The investment program produces about 10% of the Pool’s total annual income.

The Pool utilizes a blend of independent adjusters and experienced in-house adjusters to determine the appropriate amount of funds needed to pay its property and liability claims, and then manages those claims to resolution. Workers’ Compensation claims are managed 100% by Pool staff.  Medical treatment for Workers’ Compensation claims is provided through the highly-rated Political Subdivision Workers’ Compensation Alliance network. This network continuously receives high marks from the State of Texas Division of Workers’ Compensation in identifying medical providers who treat and help injured employees return back to work quickly, all of which ultimately reduces the cost of losses for the Pool’s members.

The Pool has an extensive legal department that utilizes over 60 of the best legal firms from across the state to represent members on all kinds of legal matters related to their claims.  The Pool’s subrogation operation routinely recovers over $4 million a year on behalf of its members.

The Pool’s mission is to provide a stable and economic source of risk financing and loss prevention services.  To accomplish this goal and to ensure that your money is always working for you, the Pool utilizes these and other best available resources, practices, and local government provisions and benefits, it is part and parcel of being “fiscally responsible” with the Members’ money.

The Texas Municipal League Intergovernmental Risk Pool is the leading provider of workers’ compensation, liability, and property coverage for local governments in Texas. Founded in 1974, we are the oldest and largest pool of its type in the United States, serving over 2800 governments and political subdivisions. We are driven to continue the mission that began over 40 years ago, providing our members with a tailored risk financing system through reliable partnership, performance, and service. To contact us, please visit www.tmlirp.org

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