Many public entity risk pools are specialized to a certain sector, such as school districts or local governments. This niche focus is often why those organizations choose to work with a homogeneous risk pool — a pool consisting of only one type of entity. On the surface, it seems like the obvious choice to get the specialized attention and services you need for your organization.
However, a niche focus doesn’t always translate into more stability. You want a risk pool with reliable rates and consistent scopes of service so you’re never surprised when it’s time to renew, especially if your organization is a small or rural entity.
Diverse risk pools often provide more stability to their members while offering some of the same specialized perks as homogeneous risk pools. Diverse pools can offer a greater distribution of risk, shared accountability, diverse risk management solutions, more reliable rates, and additional services beyond those focused on a particular niche.
1.) Distribution of Risk
Different types of entities are exposed to different types of risks. For example, law enforcement agencies might need special workers’ compensation coverage and counties and cities could require advanced cybersecurity measures. In a homogeneous risk pool, these risks would be compounded for the group because everyone is exposed.
With a diverse risk-sharing pool, the distribution of risk is greater because there are multiple entity types all with different primary exposures. You have more organizations with which to share risk, which can help mitigate claim costs and frequency.
For example, a risk pool with 30 fire departments might face significant exposure to workers’ compensation claims. However, a group with 10 fire departments, 10 cemetery districts and 10 other special districts would reduce their exposure to that particular claim type because the non-fire districts are subject to less risk.
Having multiple entity types in your risk pool dilutes the group’s exposure to specific risks because each member is exposed to different types of risk.
2.) Shared Accountability
Certain claims can be incredibly costly, especially if incurred by a large organization. Unlike commercial insurance companies, risk pools pay these costs from a central fund to which all pool members contribute. This helps to streamline claims management, but also creates shared accountability among the group.
In a homogeneous risk pool, many of the members have similar budgets and the costs of claims can quickly diminish the central fund. Additionally, because everyone is subject to similar risks, there might be little motivation to take extra measures to manage those risks.
The benefit of choosing a diverse risk pool is that you’re in a group with entities of all different sizes and budgets. This means it’s often easier for the pool to cover the cost of claims, but also that people are more motivated to mitigate risk. Each entity is more susceptible to certain risks, which can then affect the aggregate. Members have increased accountability to manage risk in their organization so it doesn’t negatively impact the entire group.
3.) Risk Management Solutions
Diverse risk pools need diverse solutions, which is why they often offer risk management services to help group members mitigate risk in their organization. In order to cater to the different entities in the group, diverse risk pools often have a variety of risk management options to choose from.
This means you not only have access to management solutions for your most significant risks, but also other areas of your business that face unique exposures. This creates more protection for your organization, which decreases the likelihood of an adverse event occurring. The fewer claims made, the less your pool has to pay during the year.
4.) Reliable Rates
One of the core issues with traditional insurance coverage for public entities and special districts is that premiums can soar when they renew their policies. These unpredictable rates can feel impossible to plan for and put a significant strain on budgets.
Each of the three topics we’ve discussed so far contributes to a diverse risk pool’s ability to maintain reliable rates. When a risk pool works together to mitigate its primary risks and reduce claims, it pays out for the entire group. Plus, with expanded risk management solutions, each entity can better protect itself.
Unlike traditional insurance programs that keep your unused premiums at the end of the year, a risk pool turns those excess funds over to the pool members as dividends. The group can decide if they want to take the funds as such or use them on other measures to help keep rates stable year-over-year.
5.) Membership in Professional Associations
There are many perceived benefits of choosing a homogeneous risk pool: services catered to unique insurance risks, knowledge of regulatory laws and requirements, and maybe even a streamlined underwriting process. The biggest factor that sways many entities, however, is that homogeneous risk pools tout their association with professional organizations in their sector.
What many people don’t know is that diverse risk pools can, and do, join those same groups and organizations to represent their group members. For example, GSRMA belongs to SELF for school districts — an excess insurance pool that advocates for schools to the legislature — and supports the Public Cemetery Alliance (PCA).
We encourage our members to get involved in the professional associations relevant to their sector so they can take advantage of the representation and employee benefits that often come with membership.
You Deserve More Stability in Your Risk Pool
Diverse risk pools offer unique benefits over homogeneous pools that can create more stability for your entity. From a greater distribution of risk to risk management services to more reliable rates, a diversified pool has distinct advantages for all its members.
GSRMA is a diverse risk pool, serving a variety of entity types and sizes. We offer a range of services to help our group members protect what matters most. If you’re interested in what a diverse risk pool can do for you, give us a call. We’d love to help you assess your organization and find the right risk management solution.