In a prior blog, we discussed some basic tenets of property and liability insurance. Developing an insurance program that properly covers your entity is paramount. However, great coverage at a great price will only go so far unless that provider also understands your unique needs and is committed to a long-term and stable relationship; stability in price, coverage, and risk management support. This blog is focused on how partnering with other local governments in a risk pool can provide both financial and coverage stability.
Financial stability requires a solid foundation of assets including protection for a catastrophic loss. As a purchaser of insurance, you need to know that the entity providing coverage has the financial wherewithal to weather the storms that inevitably come. Some entities, because of their size, “self-insure.” This can be a misnomer since these entities are most likely purchasing an excess policy should losses exceed a certain level. These entities are relying on their excess carriers to help provide the solid foundation that is needed.
Members of the Risk Pool are also self-insuring but doing so in the collective rather than individually. The sharing of risk among a larger group that have similar type exposures inherently breeds stability. In addition, the pool protects itself from volatility and catastrophic loss through the purchase of “reinsurance.” Reinsurers, like an excess carrier for a self-insured, provide a backstop for front line insurance providers when claims volume is high. This lessens volatility on their financial statements and allows for the smoothing of rates over the long term. Like commercial insurers, the Risk Pool also purchases reinsurance.
The value of having solid reinsurance partners was quite evident in the aftermath of Hurricane Harvey. The storm produced over $114 million in loss, by far the largest claim handled by the Pool, with 442 hurricane-related claims. $77 million of this loss has been covered by the Pool’s reinsurance partners (over 30 reinsurers support the Pool). Given the long-term partnerships the Pool has established with its reinsurers, the Pool has been able to retain support at competitive rates, despite the Harvey loss. What this has meant for the member is that the Pool remains stable allowing for moderate property rate increases. For example, the rates for buildings and contents (other than flood) have increased by 6.5% in the two years since the storm. Flood rates have increased by 5-15%. Without reinsurance support from long-term partners, the increases would have been much higher.
The TML Risk Pool provides each of these coverages based on member needs and has been serving members since 1974. The Pool’s mission is to provide “a stable and economic source of risk financing and loss prevention services.” The dual focus of stability and loss prevention has served the membership well. A significant strength of the Pool is a professional staff with both local government and insurance expertise. As such, the staff is uniquely qualified to serve as fiduciaries of the risk-sharing partnership that is TMLIRP.