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POOLING RESOURCES FOR LIFE

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SAN FRANCISCO-One of California's largest excess liability self-insurance pools may be adding a new line of coverage: life insurance.

The Schools Excess Liability Fund is exploring the feasibility of pooling the term life insurance of its 1,100 member school districts. The group is currently launching a study to investigate how much its members spend on term life coverage and how much could be saved by self-insuring.

If the program gets off the ground, SELF will be the first California fund-and one of only a handful of self-insurance pools throughout the country-to use its joint powers authority to pool life insurance benefits, said John C. Wilson, executive director of Sacramento, Calif.-based organization.

Generally, joint powers authorities-California public entities that by statute can pool the risks of their members-are used for liability and workers compensation coverage, he explained.

But life insurance is "fairly low risk by comparison," he said. With the actuarial tables now available, "it's probably the most predictable line of coverage."

"And there's no tail," pointed out Rollen Maski, senior vp of San Francisco-based Aaron Richardson Insurance Services Corp., one of two consultants working on the project.

SELF hired ARISCO and Menlo Park, Calif.-based Shepherd & Associates to conduct the feasibility study because of their experience in developing self-insurance programs, including the Southern California Physicians' Insurance Exchange and Program BETA, one of the nation's largest self-insurance pools in the health care field.

The first part of the project will include a survey to determine the scope of life insurance coverage SELF members currently provide to their 600,000 employees statewide. SELF members include public school districts, community colleges and the California State University campuses.

"We need to survey the school districts to see how much life cover they're buying and who's covered," explained Ronald W. Shepherd, president of Shepherd & Associates. "We need to assess the scope of the risk."

Based on preliminary estimates, "most of the schools don't provide a high degree of life insurance," Mr. Wilson said. "That's why this is a fairly low-risk" venture.

For example, most SELF member employees have less than $50,000 in employer-paid term life insurance.

The consultants will also examine loss runs from SELF members' current term life insurers to develop rates and to determine reserves and the amount of aggregate excess coverage to buy, as well as to gauge appropriate administrative costs, Mr. Shepherd said.

Initially, a commercial life insurer will likely be contracted to provide the administrative services and excess coverage for the program. But the ultimate goal is to move to a totally self-funded and self-administered arrangement, he said.

"In designing the program, our objective is to minimize the overhead and expense loads associated with the commercial life insurance marketplace and tailor products to meet the particular needs of participating school districts," Mr. Shepherd said.

Other aspects of the feasibility study will look at possible tax consequences, Mr. Wilson said.

For example, current U.S. Treasury regulations leave in doubt whether group term life insurance must be fully insured to enjoy full tax advantages, according to the International Foundation of Employee Benefit Plans in Brookfield, Wis.

The SELF feasibility study is expected to conclude by April, but there is no deadline for a decision on when the program will start if its feasibility is determined.

"July 1 is the start of the government fiscal year, but I don't want the pressure of a deadline," said SELF's Mr. Wilson. "If we do it, we want to do it right."

SELF, established in 1986 to pool excess liability and workers compensation for participating California public educational agencies, is one of California's largest JPAs, with $114 million in assets.