Risky Risk Pools Plague Texas School Districts

“How can a superintendent or school board, as fiduciaries of taxpayer funds, jeopardize a district’s assets by participating in a risk pool, when they have no idea as to the pool’s financial ability to pay losses?” – Robert Reim

The following is part of Robert Reim’s article on school district risk pools. (Go here – Risk-Pools for full article).

Risk Pool Managers Bear NO Risk

Risk pools are nothing more than mutual insurance companies; at one time public entities were not allowed to purchase from mutual companies. If a risk pool is profitable, the members get the advantage of reduced rates. But if the pool is unprofitable, the MEMBER DISTRICTS may be faced with assessments (additional contributions) regardless of what they tell you. No insurance company or stock stands behind these pools except reinsurance above high retentions (deductibles). The managers and the agents bear no risk – only the members.

Many Formed to Circumvent the Bid Laws (44.031)

Additionally, some risk pools are using interlocal agreements in an effort to “beat” the bid laws. There is a lot of work and some risk for a school to prepare an RFP for insurance. Entities try to avoid it, and they can do so by participating in an Interlocal Agreement. Interlocals were designed to take advantage of group purchasing, but the advantages of group purchasing are diminished when purchasing insurance. Sure, the coverage may be better designed for the members of the group, but the price is not necessarily lower. Every district should have a bidding procedure in place.

No Oversight

Interlocal risk pools are not subject to oversight by Texas Department of Insurance or any other state department, and are not required to submit financial reports. Hence, some risk pools provide no financial data to its members, its owners, even though the funds belong to the members. Who would invest in a company without seeing financials? There is no A.M. Best rating, no S & P rating. Risk pools are not subject to the Texas Insurance Guaranty Fund ($300,000). The funds at risk belong to the taxpayers of the State of Texas. We currently are doing nothing to protect those funds

No Professional Liability insurance

Local independent agents typically purchase their Professional Liability (Errors & Omissions) insurance through the Independent Insurance Agents of Texas. The insurer for that program does not provide coverage if the insurance companies that the agents represent become insolvent and have an A.M. Best rating lower than B+. This includes non-rated insurance companies and risk pools.

“A favorite theory of mine is that no occurrence is sole and solitary, but is merely a repetition of a thing which has happened before, and perhaps often” – Mark Twain

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