two_cops_carIPEP is an alternative risk management mechanism known as an "intergovernmental pool." Intergovernmental pooling is utilized throughout the nation by many public entities. The participating public employers pay contributions (called premiums in a traditional insurance policy) to a joint fund from which claims and the operational expenses of running the pool are paid. Participants in pools include cities, counties, school districts, townships, utility districts, as well as other types of public entities.

Although pools function much like insurance companies, pool members do not shift the risk of loss to the pool but share the risk of losses with the other pool members. The pool and its members are protected from extraordinary losses through the acquisition of an excess insurance policy. The following are some common characteristics of risk pools.

Homogenous Membership: The pool participants are homogenous in that they are similar in their interests, work force and demographics.

Risk Management Requirements: Most pools believe it is essential to impose risk management standards in order to control losses for the group through education. Their efforts are focused on the specific activities, exposures and losses of their members, reinforced by continuous monitoring and evaluation of the effectiveness of those efforts. IPEP attributes education of its members as an essential element of its continued success.

Nonprofit Status: Since pools operate on a not-for-profit basis, they can operate more efficiently than insurance companies which need to generate profits for owners and shareholders.

Commitment of Participants: Pools depend on the long-term commitment of their members. This stabilizes rate fluctuation by ensuring a continuous flow of revenue into the pool.

Accountability: Most pools, including IPEP, base their contribution calculation on their members' loss experience, giving credits for good performers and debits for poor performers.

Claims Philosophy: Because pools are not concerned with profit objectives, they can establish an aggressive claims approach, taking cases all the way to court to avoid setting precedents, which would be unfavorable to their members.

Shared Information: Knowledge gained from a claim against one member can be shared with others so that they can take measures to reduce the likelihood of a similar occurrence.

Public entity pools have flourished because they meet the risk financing needs of the public entities better than commercial insurers. Those needs include:

  • Strong claims management
  • Proper coverage
  • Lower cost
  • Quality risk management service
  • Administrative services designed for public entities