Pooling the Pools

County Officials Vote to Merge Three Pools / By Jennifer Hall

In an eff ort to save money for local taxpayers, three of the risk pools managed by the Texas Association of Counties will be merged into a single, consolidated pool as of Jan. 1, 2008. The TAC Workers’ Compensation Fund, the TAC Risk Management Pool and the TAC Property Casualty Fund will combine their membership into a streamlined new pool, named the TAC Risk Management Pool.

The boards of the three existing pools voted to merge and create the new entity during the TAC Annual Conference in Austin last month. The newly created TAC Risk Management Pool will issue all lines of property and casualty coverage offered to the Association’s members – workers’ compensation, property, auto physical damage, general liability, auto liability, law enforcement liability, public officials liability and crime.

The TAC Health and Employee Benefits Pool and the TAC Unemployment Fund will be not included in the merger.

The decision to merge the pools comes after a lengthy study by a nine-member Pool Consolidation Work Group, which included county representatives from each existing pool’s board, as well as representatives from TAC’s board of directors. Over a five-month period, the committee and TAC staff explored the possibility of merging the pools. The group’s efforts focused on the impact a merger would have on the current membership of the existing pools.

“All three of the boards and the committee worked many hours on this decision,” said Cooke County Judge Bill Freeman, chair of the TAC Workers Compensation Fund. “Each board also had independent legal counsel and the staff did tremendous work to research and answer every question we asked.”

In discussing the advantage of combining the pools, Freeman cited “the benefit it will provide to the members in services and pricing.” Lee County Judge Evan Gonzales, chair of the current TAC Risk Management Pool, pointed to the merger’s financial savings and the desire to remain competitive as the primary reasons for combining the pools.

“As a county official and board member, I can see all sorts of benefits for the counties and their employees,” Gonzales said, noting that “one pool can operate more efficiently than three.

“Today, we have three separate pools, with three separate boards meeting. We conduct three separate audits. By combining the pools into a more streamlined organization, we eliminate a lot of this unnecessary duplication,” he said.

The new consolidated Risk Management Pool is expected to operate more efficiently for several reasons. Because the three existing pools are combining their assets, they anticipate a 1-1.5 percent higher return on their investments.

“We can consolidate our investments to make more interest each year and in turn, hopefully pass those savings back to the members in the form of better rates,” Freeman explained. “This should also make the management of the pool a lot easier, and more economical than running three separate pools.

The new, combined pool will continue to maintain actuarially required reserves to ensure its ability to pay the various types of claims that may be incurred by its members. However, because the risk is spread over a larger, more diverse membership base, the required reserves could be reduced by as much as 3 percent over the present level. Over time, these savings should translate to more stable rates for members.

Market conditions are also a driving force behind the change. Over the last few years, the property and casualty insurance market has been evolving. Beginning with the terrorist attacks of Sept.11, 2001 and particularly after the heavy losses from hurricanes Katrina and Rita, commercial insurance carriers began to bind together their lines of coverage into “packaged” products as a way to diversify their risk. As a result, commercial carriers frequently offer discounts to customers that purchase the “packaged” product that include several different policies from them. As the market has changed, the trend nationally is for governmental risk pools to package together their lines of coverage as well.

“This gives us the ability to give the county better savings. We have more flexibility to respond to what’s happening in the market,” said Gonzales.

“For example, we’re all familiar with the way your personal insurer will give you a discount on your homeowners coverage if you also purchase auto (coverage) through them – that’s when the light bulb went off,” Gonzales continued. “Under our old structure of three separate pools, we could never do something like that. Now, it’s an option that the board can consider. It provides more stability, so we can always meet our members’ needs.”

The new TAC Risk Management Pool was created via interlocal agreement among the existing pool. New interlocal agreements will be sent to all existing members this fall for them to complete to participate in the newly formed pool.

“There will be no loss of coverage for our members. Once the county signs the interlocal agreement, all current coverage will simply transfer over to the new pool,” said Jim Jean, TAC’s Director of Program Administration. “As your policies renew, you’ll notice they are issued from the new TAC Risk Management Pool.”

The TAC Risk Management Pool is expected to cover a combined membership of 211 counties and another 168 county-related entities with at least one type of coverage. It will be governed during 2008 by a board comprised of all board members of the three existing pools. Beginning January 1, 2009, the new pool will be governed by an 11 member board appointed by the TAC president. “TAC is built by counties, for counties, so we understand the needs of county government better than anyone else out there,” said TAC Executive Director Karen Ann Norris. “This consolidation is a great move for Texas counties because it makes the coverage even more secure and stable, and that translates to security for the local taxpayers.”

Advantages of Combining TAC Pools

A brief history of the merging self-insurance pools

Back in the early 1970s, County Auditor Bill Rust was the “goto guy” for the Travis County Commissioners Court. When some new issue came up for the court to address, they frequently turned to Rust to investigate and develop some options for consideration.

One very big issue at the time was a new federal law that required local governments to provide insurance protection for employees who may be injured on the job. The “workmen’s compensation” mandate was obviously going to be an expensive one, Rust recalled recently.

“The insurance companies had no track record or experience to indicate how frequently county employees were likely to be injured. It was obviously a situation where they would have to charge a healthy amount that would cover their potential costs,” he said.

Among those Rust consulted with was Kenneth A. “Buck” Douglas, then-executive director of the Texas Association of Counties, which had been created six years earlier. Douglas asked Rust to present what he’d learned to the TAC Board of Directors at their November 15, 1973 meeting.

The minutes of that meeting reflect that Rust “gave a report on what he had found out regarding insurance just for Travis County and it seems the amount of money involved is enormous and if something could be set up to help the counties, it would be a great benefit.”

Also struggling with finding affordable coverage was then-Jackson County Judge Sam Seale, who later became TAC’s longtime executive director.

“We went out to find a carrier and no one – I mean, no one – wanted to cover county employees because there were a lot of accidents working on the roads or in law enforcement or the jails,” Seale said in a County magazine interview a few years ago. “If a county did find coverage, you couldn’t afford it.”

At a subsequent meeting in December 1973, Rust was appointed chair of a group of commissioners court members and county auditors to develop a way for counties to share their risk together through creation of a self-insurance pool.

A few months later, the TAC Workers’ Compensation Fund was created and by 1975, its membership had risen to 245 paid members. Today, the Fund’s membership includes 203 counties as well as 74 other entities, such as utility districts and probation departments. Key to the success of the new venture was the leadership of county officials who could tailor the pool’s operations to the unique structure of county government. “It was incumbent on each county to manage their own risk out in the field and we educated the counties about the importance of doing that,” Rust recalled.

“I think it ended up being a heck of a good deal for county government,” he added. “It was instrumental in showing that there could be some success in that sort of (pooling) effort across the state.”

That same model was replicated in 1986 in the area of liability insurance coverage, recalled Jim Jean, TAC’s Director of Program Administration. Companies that sold auto liability or general liability coverage were increasing rates or simply cancelling county policies “Counties were seeing their premiums increased several-fold, if they could get coverage at all,” Jean said. “This segment of the industry was going through its ‘hard market’ cycle and because they did not understand how counties operated, when times got hard, the counties were the first to go.”

The result was the formation of the TAC County Risk Management Fund, which was expanded two years later to include public officials liability coverage because of the broad array of human resources liabilities associated with hiring, firing, sexual harassment and age discrimination, among others.

Similarly, a couple of years later, county officials approached TAC about the wide variation in premiums charged to insure their buildings. “Because of the fluctuations in the commercial markets, counties were having trouble planning their expenses from year to year,” Jean said. “They needed some stability.”

In 1989, TAC responded by creating the TAC Property Casualty Fund.

A Glimpse at the New Risk Management Pool Coverages:

Workers’ Compensation: Applies to the bodily injury by accident or bodily injury by disease incurred by member employees while working for the member. Liability coverage is also provided with a policy limit of $1,000,000, and members can choose whether to purchase benefits for volunteer firefighters, police officers and emergency personnel as well.

General Liability: Covers a broad spectrum of exposures arising from county premises operations, personal injury/advertising injury and contractual liability.

Automobile Liability: Covers third-party bodily injury and property damage claims against the county arising from use of county vehicles. Counties can also purchase optional coverage for constables, deputy constables, sheriffs and deputy sheriffs who drive their personally owned vehicles while performing official duties on behalf of the member county.

Public Officials Professional Liability: Covers discrimination and employment related claims, such as those arising from hiring and firing practices. TAC can also provide prior acts coverage at a reasonable cost, and offers option coverages for punitive damages and back wages, as well as for clerks’ offices, hospitals, airports, district attorney offices, district judge offices.

Law Enforcement Professional Liability: Coverage specifically designed for sheriffs and their employees, constables, constables and juvenile probation officers. Property: Covers real property, such as buildings and other structures, and can optionally cover personal property, as well as road equipment and electronic data processing equipment. Equipment breakdown coverage is provided to members at no additional cost.

Automobile Physical Damage: Covers collisions and overturns for selected motor vehicles. Comprehensive coverage is provided to cover all perils or causes of loss, other than collision and overturn.

Crime Coverage: Covers public employee dishonesty, forgery, heft, disappearance, destruction, robbery, burglary, money orders and counterfeit money transactions.

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