comparison of pool organizational models agrip governance and leadership conference october 2002...
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Comparison of Pool Organizational Models
Comparison of Pool Organizational Models
AGRIP Governance and Leadership ConferenceOctober 2002
Michael L. Rhyner
AGRIP Governance and Leadership ConferenceOctober 2002
Michael L. Rhyner
Paths to Pool ManagementPaths to Pool Management
• 1st Generation – 1975 ––1985– Association Employee– Service Provider or Consultant– Insurance Industry– Other
• 2nd Generation – Mature Pools– Promoted from Within– Moved from Other Pools– From a Pool Member
• Finance• Administration• Member Relations
Pool Management
Association Management
Skill SetSkill Set
• Program Development• Governance – Boards, Committees etc.• Intergovernmental – Political
Pooling/Insurance Skills Pooling/Insurance Skills
PRIMA Pooling Section
AGRIP
Designations ARM, CPCU
Industry Programs Factory Mutual
Executive Director or Chief Operating OfficerFor Three Pools
Executive Director or Chief Operating OfficerFor Three Pools
Minnesota Counties Insurance Trust
1988 - 1999 1999 - 2001
Michigan Municipal Risk Management
Authority
RISK
2001 - Present
Pool Organizational ModelsPool Organizational Models
Association Sponsored Pool MCIT
Association Managed Pool CIRMA
Independent Pool MMRMA
Purpose of PresentationPurpose of Presentation
• Describe Each Model– Key Features
• Provide a Historical Perspective– Formative Years– Transition Years– Mature Years
• Compare and Contrast Each Model• Evaluate Strengths and Weaknesses
Key Areas of AnalysisKey Areas of Analysis
• Business Model
• Programs and Services
• Governance Structure
• Organizational – Reporting Structure
• Management Approach
Association Sponsored PoolAssociation Sponsored Pool
Minnesota Counties Insurance Trust
Minnesota Counties Insurance Trust
• Business Relationship Between Pool and Association
• Association Promotes and Endorses Pool Products and Programs Exclusively
• Sponsorship Fee Paid to the Association
Key FeaturesKey Features
• Executive Director Reports to the Board
• Separate Pool Employees• Separate Budget, Financial
Statements, and Audit• Shared Infrastructure & Central
Services• Coordination of Meetings, Training
Sessions, and Conventions
Key FeaturesKey Features
Formative YearsFormative Years
1979 - 19851979 - 1985
• Workers’ Compensation Crisis – Association Members Look for Solution
• Association Partners with a Risk Management Consultant to Create Workers’ Compensation Program– Consultant Dominated– Passive Board – Little Internal Staff Expertise
• Cash Flow Workers’ Compensation– Members SIR: $50,000
– Excess Losses Pooled
– Unused Contributions Returned Each Year
• Property & Casualty Pool Created in 1985
Formative YearsFormative Years
1979 - 19851979 - 1985
Transition YearsTransition Years
1987 - 19901987 - 1990
• Cash Flow Projections Go Negative• Consultant Out of Favor with Board
– Quality of Work– Primacy of Relationship with Members
• Association Executive Director Resigns• Association Board Rethinking Risk
Management Effort
• Pool Board Names Rhyner First Executive Director
• New Staff and Service Provider Model Developed
• Staff and Service Providers Hired• Relationship with Association Redefined
Transition YearsTransition Years
1987 - 19901987 - 1990
Transition Years
1987 - 1990
Transition Years
1987 - 1990
Actuary and Independent Consultant Hired
Identified Over $20 Million in Unfunded Liabilities from Cash Flow Program
Called for Debt Retirement Through Phased Member Assessments
Recommended New Loss Funding Using a Traditional Fully Funded Pooling Approach Going Forward
Recommended Complete Overhaul of Program Management
Actuary and Independent Consultant Hired
Identified Over $20 Million in Unfunded Liabilities from Cash Flow Program
Called for Debt Retirement Through Phased Member Assessments
Recommended New Loss Funding Using a Traditional Fully Funded Pooling Approach Going Forward
Recommended Complete Overhaul of Program Management
Mature Years
1990 – 1999
Mature Years
1990 – 1999
• “Fully Funded” Pool Established for WC• Prior-Year Debt Retired• New Team of Service Providers Hired• Pool Operations/Staff Separated from Association• Retained Members• Built Surplus & Initiated a Dividend Program
– Over $40 Million Returned in Dividends– $92 Million in Surplus
• AGRIP Recognized
• Enabling Legislation– Joint Powers– Pooling and Self Insurance
• Joint Powers Agreement
• Bylaws
• Policies and Procedures
• Board Resolution
• Directives of the Executive Director
Governance
Governing Documents
Governance
Governing Documents
Legal Assistant
Board of Directors
Mike RhynerExecutive Director
Senior Insurance Analyst Finance Manager
Program AnalystEducation & Communications
Administrative Assistant
Research Analyst
Audit Claims AdministrationUnderwriting/RatingActuary
Banking Cash Mgmt. Health Plan Admin.Loss ControlLegal Services
Reinsurance Placement Drug & Alcohol Services
Investments Disability Case Mgmt.Membership ServiceCustomer Services
Member ServiceField Support
Association
Sponsorship/Endorsement
Final Organization ChartFinal Organization Chart
Governance
Board of Directors
Governance
Board of Directors
• Nine Member Board
• Eight Must Be Elected Officials from the Membership – Commissioners or Auditors
• One County Administrator
• Nine Member Board
• Eight Must Be Elected Officials from the Membership – Commissioners or Auditors
• One County Administrator
• Six Elected By Membership – Four-Year Terms
• Two Appointed by Association – Two Year Terms
• Administrator Appointed by Board Chair –
Two Year Term
• Six Elected By Membership – Four-Year Terms
• Two Appointed by Association – Two Year Terms
• Administrator Appointed by Board Chair –
Two Year Term
Membership Membership
• Technically Open to Any Political Subdivision as Defined in Statute
• Actual Membership– Counties– Joint Powers Organizations– Soil & Water Conservation Districts
• Counties Must be Members of the Association or Pay a Surcharge
Association Managed PoolAssociation Managed Pool
• Created as a Service to League Members in Hard Market
• Serves as a Source of Non-Dues Income– Overhead – Spread Fixed Costs– Institutional Value Fees
• Pool is Subordinate to the League• Pool Board is “Sub-Set” of League Board• League Directors “Own” the Relationship
with the Board
Key FeaturesKey Features
• Pool Fully Integrated into League Operations
• Pool Considered League “Department”
• Pool Staff are League Employees
• Shared Staff Functions– Finance– Technology– Production
Key FeaturesKey Features
• League crafted legislation to form “Interlocal Risk Management Agencies”
• League creates Workers’ Compensation program in response to “insurance crisis”
• Outside services providers used for technical insurance functions:– Claims– Risk Control– Actuarial Analysis
Key FeaturesKey Features
• Pool hires consultant to assist in development of a Liability, Automobile and Property (LAP) Pool.
• League secures state loan to capitalize a LAP Pool
• LAP Pool created in 1985• Outside services providers used for
technical insurance functions:– Claims– Risk Control– Underwriting– Actuarial Analysis
Key FeaturesKey Features
• WC Pool Matures to $25 Million in Premium – Surplus grows to $40 Million
• LAP Pool Grows to $11 Million in Premium – Surplus $20 Million
• League Revenue Increases Sharply
• Pool Utilizes Consultant to Consider Moving Services In-House
Transition YearsTransition Years
• Services Moved In-house – Pool Staff Grows to Over 70.
• Major Capital Improvement Investment – Office Space & Technology
• Insurance Becomes the Largest Revenue and Expense Program of the League
Transition YearsTransition Years
• Market Goes Soft – Intense Competition Arrives
• Membership Decreases by 30%• Plan Implemented to Address Competition
LAP Risk Transferred to Commercial Carrier – St. Paul
LAP Surplus Protected – Pool Continues to Service Members
WC Rates Cut to Retain Membership WC Surplus Used to Temporarily Support
Rates
Transition YearsTransition Years
• Profitability in WC RestoredPhased Rate IncreaseEnhance Underwriting CapacityExpense Reduction
• Reenter LAP BusinessRelationship with Commercial Carrier Phased-OutEnhanced Underwriting Capacity
• New Technology/Service Enhancements Introduced
Mature YearsMature Years
• Mixture of Public Officials– Mayors– Selectmen– Town Managers
• Sub-Set of League Board• League Board Members Participating in the
Pool Become Pool Board Members• Officers Elected by the Pool Board• Board Meets in Conjunction with League
Board Meetings
GovernanceGovernance
Pool Board
Policy & Advocacy
Division
Member Service
Division
Pool Staff
Risk Management
Division
Pool Director
League
Executive Director
League Board
Finance
Information
Technology
Human
Resources
Organizational ArrangementsOrganizational Arrangements
Independent PoolIndependent Pool
MANAGEMENTRISKMichigan Municipal
AUTHORITY
• Created as “Business Venture”• Founded by a Risk
Management Service Provider • “Free-Standing” Legal Entity• Not Affiliated with Association,
League or Sponsor• Board is Independent
Key FeaturesRISK
• Born of Necessity• Mid-80’s Hard Market• Municipal Tort Liability Explosion• Business Venture of a Private Risk
Management Firm• Assembled a Team of Service Providers
– Sales & Marketing– Claims– Legal Services– Finance
Formative YearsFormative YearsRISK
• Executive Director Reports to the Board
• Staff Employed by the Pool
• All Infrastructure Owned by the Pool
Key FeaturesRISK
• Initially Organized Under Joint Powers Statute - Board as Governing Body
• Service Providers Report to Board – No Executive Director or Staff
• State Insurance Bureau Challenges Pool Authority to Operate – Litigation Followed - Pool Prevailed
• Comprehensive Pooling Legislation Enacted
RISK
Formative YearsFormative Years
• Liability and Property Lines Only• Organized as an Excess Pool
– Members Carry at Least $50,000 SIR for Liability
• Reinsurance Placed by the Risk Manager• Rapid Growth – Membership and Premium
Volume• Board Involved in Day-to-Day Management
Functions
RISK
Formative YearsFormative Years
• Board Unable to Handle Pool Management Due to Growth
• Recognized Management Needs– Supervise Service Providers– Single Chief Executive
Accountable to the Pool Needed
• Executive Director Hired
Transition YearsRISK
• Pool Reorganized– JPA, Rules, Coverage Document Revised– Headquarters Facility Purchased– Services Moved In-House – Pool Employees
• Underwriting• Risk Management• Claims• Loss Control
– Strategic Planning Process Initiated
• Independent Actuary Engaged• Independent Reins Intermediary Engaged
RISK
Mature YearsMature Years
• Membership Stable
• Favorable Underwriting Results
• Favorable Investment Results
• Enhanced Surplus Position
Mature YearsRISK
• Recent Issues– Large Basement Flooding Claims– Hardening Reinsurance Market– Investment Results Deteriorate
• Pool Extremely Well-Positioned to Meet Challenges
RISK Mature Years
GovernanceBoard of DirectorsGovernance
Board of Directors
• Ten-Member Board
• Nine Elected by the Membership – Must be Representatives of Individual Members with an SIR of $75,000 or More
• Eligibility– Elected Official– Appointed Official– Full -Time Employee at
Department Head Level
• Ten-Member Board
• Nine Elected by the Membership – Must be Representatives of Individual Members with an SIR of $75,000 or More
• Eligibility– Elected Official– Appointed Official– Full -Time Employee at
Department Head Level
• Staggered Four-Year Terms
• One Board Member Appointed to Represent the State Pool – A Consortium of Smaller Members with a “Pooled” SIR.
• Staggered Four-Year Terms
• One Board Member Appointed to Represent the State Pool – A Consortium of Smaller Members with a “Pooled” SIR.
RISK
MMRMA ORGANIZATIONAL CHARTMMRMA ORGANIZATIONAL CHART
State Pool
Governmental Unit Members
ExecutiveDirector
Committees
ReinsuranceRiskManagement
ClaimsServices
GeneralCounsel
Accounting & Auditing
DefenseCounsel
InvestmentManagers
RiskManagers
RiskControl
Underwriting
Board of Directors
All MembersAll Members
Counties18%
Health Related
17%
Colleges6%
Other22%
Cities/Villages/Twp
37%
RISK
By Type
MMRMA Earned Contributions(In Millions)
MMRMA Earned Contributions(In Millions)
2.93
23.0832.18
37.46 39.6 42.052.6
0
10
20
30
40
50
60
FY84 FY87 FY90 FY93 FY96 FY99 FY02
GoverningDocuments
Public Act 138 Joint Powers Agreement Coverage Document Authority Rules
RISK
Evolved over many years – Guided by Key Board Members and Staff
Business Relationship Between Two Entities
Exclusive endorsement
Active Promotion
Sponsorship Fee Provided
Sponsorship Relationship
Each created under separate statutory authority
Pool and Association are Separate Entities
Association appoints two members of the Pool Board
Pool and Association have separate Boards
Summary of CharacteristicsSummary of Characteristics
Association Sponsored Pool
Conferences & Conventions
Education & Training
Intergovernmental Affairs
Coordination of Programs
Budget
Financial Reporting
Audit
Separate Financial Systems
Position Descriptions
Salary Structure
Separate Staff
Building and Central Services
Pooling recently moved into a separate location.
Shared Infrastructure
Summary of CharacteristicsSummary of Characteristics
Association Sponsored Pool
Overhead Allocations
Institutional Value Fees
Pool Serves as a Revenue Source for the League
Pool is part of the League’s Internal Organizational Structure
Pool Operates as a “Division” of the League
Pool Board is a Subset of the League Board. Only League Board Members can sit on the Pool Board
Pool and League have separate Boards
While the Pool is technically created under separate statutory authority – it is clearly a creature of the League
Pool Created as a League Service
Summary of CharacteristicsSummary of Characteristics
Association Managed Pool
League and Pool Operate in a Common Facility
Common Infrastructure
Pool Staff are subordinate to the League Director. League Director “owns” the staff relationship with the Board
Pool Director Reports to League Director
Personnel policies, procedures, salary structure and benefits are determined by the League.
Pool Staff are League Employees
The Pool is serviced by the League’s finance, information technology and human resources departments.
Common Functionality
Summary of CharacteristicsSummary of Characteristics
Association Managed Pool
NCL-RISC provides a forum for information, education and training programs.
NLC-MIC provides a reinsurance facility for league-sponsored pools.
National League of Cities (NLC)
New England League Directors and Pool Directors meet regularly to share information. Preliminary studies conducted for joint operational capabilities.
Strong Inter-League Coord.
Summary of CharacteristicsSummary of Characteristics
Association Managed Pool
Started as a business venture. Founders had a profit motive. Business principles incorporated.
Not Affiliated - Independent
Unlike League and Association sponsored pools, MMRMA is not involved in other non-insurance service programs.
Sole Focus is Risk Management
Since the pool is not affiliated with a city, county or school board organization, membership is encouraged from any eligible Municipal Corporation
Diverse Membership
Agents and Attorneys are major stakeholders.
Historically Strong Role of Service Providers
Summary of CharacteristicsSummary of Characteristics
Independent Pool
Reports directly to Board.Independent Executive Director
Lacking the NLC or Inter Association Network, MMRMA relies on PRIMA and AGRIP for inter-pool information exchanges, related services and programs.
Strong Relationship with
PRIMA & AGRIP
Free-standing human resources procedures, rules and compensation schedule.
Staff are Pool Employees
Summary of CharacteristicsSummary of Characteristics
Independent Pool
Comparison of Pool Organizational Models
Comparison of Pool Organizational Models
AGRIP Governance and Leadership ConferenceOctober 2002
Michael L. Rhyner
AGRIP Governance and Leadership ConferenceOctober 2002
Michael L. Rhyner