Proposal would set reserve rules for local governments sharing risk

Pools would have to keep contingency reserves and a separate back-up fund. Health pools would keep reserves of 12 to 20 percent of current-year member contributions; workers’ compensation and other property and casualty pools would keep 30 to 40 percent. The back-up fund would be at least one-third of the minimum reserve. The Department of State could authorize different initial funding or replenishment amounts. The reserve ranges are based on current-year member contributions. Pools would replenish the funds annually toward their required minimums.

The secretary of state would oversee certain reserve shortfalls, and members could be assessed to cover a program’s deficiency. These provisions apply to pooled risk management programs and their participating political subdivisions. If reserves remain below one-third of the minimum after available back-up funds are transferred, the secretary of state would order the pool to address the shortfall. The secretary could ask a court to order a fix or appoint a receiver if the pool does not comply within 30 days after notice. If a pool is insolvent, financially impaired, or otherwise unable to meet its obligations, members would be assessed in proportion to their annual contributions to cover the deficiency. A pool would have 30 days after notice to comply with an order before the secretary of state could seek a court order.

Pools would have to give members written disclosures about possible extra contributions and the nature of the coverage. The disclosures would go to prospective and current political subdivision members of a pooled risk management program. The disclosures would explain that a pool is not an insurer, self-insured coverage has no guaranteed or fixed cost, and members may owe assessments or reserve replenishments in specified shortfall circumstances. The disclosures would appear in member agreements, contracts, bylaws, contribution quotes, and renewals.