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Shared-Risk Insurance Pools for Transit Agencies: A Guide (2023)

Chapter: Appendix C - Fundamental Factors That Contribute to Shared-Risk Pool Success

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Suggested Citation:"Appendix C - Fundamental Factors That Contribute to Shared-Risk Pool Success." National Research Council. 2023. Shared-Risk Insurance Pools for Transit Agencies: A Guide. Washington, DC: The National Academies Press. doi: 10.17226/27419.
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Page 49
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Suggested Citation:"Appendix C - Fundamental Factors That Contribute to Shared-Risk Pool Success." National Research Council. 2023. Shared-Risk Insurance Pools for Transit Agencies: A Guide. Washington, DC: The National Academies Press. doi: 10.17226/27419.
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Page 50

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C-1   A Sense of Urgency. A coverage restriction is an endorsement that restricts the scope of coverage under an insurance policy to only those individuals or activities specifically listed on the policy. Is there a sense that something must be done? Are organizations repeatedly unable to obtain needed coverage? Are organizations continually being offered inadequate limits? Are organizations continually being offered restrictive coverage? Are organiza- tions paying higher premiums even though their claims costs are flat or trending lower? Are commercial insurance premiums too high or increasing at an unsustainable rate? Are organizations philosophically committed to finding alternatives to commercial insurance? Find out what it is about your agency’s current situation that you’d like to change and start changing it. Cost-Effectiveness. Shop services pricing on an unbundled basis even if the selected pool management firm offers them; require them to price services on an unbundled basis. Unbundled services can include actuarial, legal, accounting, banking, pool management, pool service providers, stop-loss and excess commercial insurance, and brokerage services. Equitable Surplus Distribution. Formula determined up-front. Make assessments necessary for the continued viability of the group following a catastrophic or extremely rare loss or event. Homogeneity. An essential aspect of shared-risk coverage is a reasonable homogeneity of goals and objectives, the needed coverage, interest, and demographics. Long-Term Commitment. Employ mechanism to force long-term commitment. In a soft market, commercial insurers may undercut the pool’s premiums. This is often necessary to overcome the premium focus of members. Create hardship and hurdles for anyone wanting to cut short their commitment by establishing terms of commitment in the bylaws, such as financial limitations for not meeting commitments. Issue 3-year policies with annual renewal of premiums. Political Support. The board needs as much involvement as possible. Are they supportive when fully informed of the need for a shared-risk pool? Prudent Funding. There is sufficient economic power (ability-based financial capabilities and characteristics) to cover the projected loss with sustainable SIR at an acceptable confidence level. Professional actuarial services must be used for financial modeling. Unless sovereign immunity/tort liability limits the state’s liability, obtain excess or stop-loss insurance. Quality Underwriting. Conduct objective and consistent evaluations. Do not cover unaccept- able risks. Members must provide all requested loss and underwriting data requirements. Risk Management. Continuous monitoring of expenses. Enforcing risk management stan- dards is essential to reduce losses for the pool. This should be included in the pool’s operations plan. Risk Sharing. Are prospective members willing to share the risk of loss to overcome com- mercial insurance problems? The pool must practice equitable underwriting and pricing. A P P E N D I X C Fundamental Factors That Contribute to Shared-Risk Pool Success

Next: Appendix D - Pool Best Practices »
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Transit agencies are finding it increasingly difficult to find, purchase, and maintain adequate and affordable insurance coverage for public transit vehicles. The number of smaller insurance providers is decreasing due to the volatile nature and demands of the insurance industry and insurance coverage requirements in general.

NCHRP Research Report 1079: Shared-Risk Insurance Pools for Transit Agencies: A Guide, from TRB's National Cooperative Highway Research Program, explains how insurance pools function, how to evaluate the feasibility of a shared-risk insurance pool, and how to establish and manage this type of pool.

Supplemental to report is a presentation and NCHRP Web-Only Document 374: Developing a Guide to Shared-Risk Insurance Pools for Transit Agencies: Conduct of Research Report.

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