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The municipal insurance market continues to grow ever more competitive, with public entities enjoying lower prices, new coverage options and an expanded choice of insurers.

Insurance companies that have been serving the public sector are becoming more aggressive in seeking municipal business, and new players are entering the market. Low premiums are one of the chief ways insurers compete with municipal pools for business.

"Things are pretty happy in risk management these days," said Daniel J. Pliszka, risk manager for Charlotte/Mecklenburg County, N.C. As in other municipalities, recent renewals gave Charlotte-area officials much to be happy about, the risk manager said.

The city and county are largely self-insured, buying excess coverage above a $2 million retention on automobile liabil-ity/general liability. "We have just renewed our casualty coverage. . .and we just got a 7% reduction in premium, so you can't complain about that," Mr. Pliszka said.

Property coverage, meanwhile, was renewed at no increase in premium, Mr. Pliszka said.

Glenn K. Sugiyama, risk manager of Redmond, Wash., said: "The availability and the rates have been great. It's kind of nice to be able to negotiate."

Redmond self-insures its primary layers of coverages. The only difficulty Mr. Sugiyama has faced in placing Redmond's coverages is in finding catastrophe insurance, a problem shared by his private sector counterparts in Seattle and elsewhere along the West Coast.

"The excess cover on the earthquake and flood, the catastrophe, is pretty difficult," he said. To obtain the $16 million coverage the city sought for one site, it needed to structure coverage in two layers, a $10 million layer and an excess $6 million layer.

"But everything else, the general liability, auto, errors and omissions, has been pretty easy," Mr. Sugiyama said. "The basic property rates aren't bad either."

"That's the impression I get from the pools, too," he said. "I haven't heard anybody complain at any of the meetings I've been to."

According to Dennis Crosby, vp of public sector services at the St. Paul Fire & Marine Insurance Co., this year's municipal market is even more competitive than last year's, with the roots of that competition much the same as in the insurance market overall.

"It's the same thing," Mr. Crosby said. "There is additional capacity through additional competition chasing the same book of business."

Some characteristics of the government market make it a target for insurers looking for new business opportunities.

"As people look for a potential niche focus, public entities sort of separate themselves out a little bit," Mr. Crosby said. "It's easy to identify. Governments aren't going away."

Said Lisa Chanzit, a principal at Tillinghast-Towers Perrin in Boston: "If anything, the competition (in the municipal market) has just gotten more intense and probably more widespread. Even a lot of what you think of as the traditional insurers have gotten into the alternative market business or the niche business in a big way."

In part, insurers see aggressive marketing to the government niche as "a way to regain some of the business they lost to alternative entities in the 1980s."

"I think governmental entities are seen as more attractive risks than they were 10 years ago or 20 years ago," Ms. Chanzit said. They're perceived as more sophisticated about risk management. Also, some tort reforms enacted over the past 10 years, such as caps on awards against public entities, are proving effective at keeping down the size of municipal losses, providing an additional attraction to insurers.

Those sorts of caps are in place in more than 75% of the states, Ms. Chanzit said, "and you don't have any equivalent of that in the private sector, or at least not to the same degree."

Favorable rates are a key component of insurers' competition for municipal business. "They're doing it mostly through pricing, but they have some other ways of doing it, too," Ms. Chanzit said. "Price isn't the only tool they're using to compete, but it's the main one."

"It's not clear that there's any rational basis for insurers' pricing," she said. "It just looks like they're buying back business."

Remarked Dick Thomas, president of the Public Entities Division of American International Group Inc.: "Quite frankly, I've had some public sector people tell me that because the market's so competitive, they can buy insurance at lower rates than it would cost them to self-insure it."

The savings those low rates afford can be a significant factor in choosing insurance over a pool, given the budget pressures public entities face.

"Government is still getting squeezed," said the St. Paul's Mr. Crosby. "They're always looking for places to cut budgets. Insurance is one."

Another factor, Mr. Thomas said, is the opportunity to budget a set premium rather than facing the uncertainty that can be associated with self-insuring losses.

"What we're offering to our customers today is price certainty," he said. The public entity can budget that premium, "and whatever happens over the course of the year, that's all they have to pay." By comparison, from a financial standpoint, self-insurance is "more volatile than many of them really want to cope with."

Not only are governments seeing favorable rates, the competitive market also is providing them unaccustomed choice in crafting their risk financing programs.

"I think the customer now is seeing more alternatives than they have in the last 15 years," said Mr. Thomas.

Those alternatives include "some new approaches to product," Mr. Thomas said, but more significantly, different ways to approach their overall risk financing.

"With a lot of the new alternative funding arrangements that have been developed over the past four or five years, some of that is starting to appeal to public entities," the AIG executive said.

Mr. Thomas said he's seen public entities beginning to take advantage of products that enable them to transfer older risks off their balance sheets to insurance companies.

Insurers also are more aggressive with some of the "bells and whistles" they're putting in policies, and they're broadening coverages, said Ms. Chanzit. One notable example is the availability of occurrence-based public officials liability coverage from many insurers, "which you never would have even thought about 10 years ago."

St. Paul doesn't offer the occurrence-based public officials coverage, which Mr. Crosby described as "a scary thing," driven by growing public sector concern over employment practices liability.

Employment practices liability is clearly a growing concern among public entities, just as it is in the private sector. Mr. Thomas said he recently made a presentation on the topic to a public entity group. "In the research that we did, we were surprised by how many lawsuits there have been and the relative size of some of the awards against public bodies," he said.

"Even in states where there might be a sovereign immunity damages cap, it's a serious issue because of the body of federal employment practices law, which is leading to many of those suits being filed in federal court to escape the state caps," he said.

In his talks with public sector officials about employment practices liability, Mr. Thomas said he's seeing interest not only in the insurance portion of the product, but also in the loss control aspects the insurer offers as well.

AIG is considering a joint venture with a consulting firm to create an EPL product that would be even more focused on public entity liability, he said.

The nature of dealing with civil service employees, political appointments and public sector unions creates some employment practices issues unique to the public sector, Mr. Thomas suggested.

Expertise is another competitive advantage for insurers, Mr. Thomas said.

"A company such as AIG can afford to hire highly skilled individuals for claims, litigation management and loss management," Mr. Thomas said. A large insurance company can spread the costs of those individuals across its entire domestic operations, something a public entity pool with a more restricted budget can't do.

"I think that the intent of taking one's own risk and managing it and sharpening the focus of the manager on the outcome, which is what self-insurance did for some entities, was somewhat undermined over the years by the inability to keep some of that talent," Mr. Thomas said.

"We have a significant amount of claims expertise and loss control expertise as well," said Bruce Weaver, a vp at CNA Commercial Insurance in Chicago, which recently created its Municipal Insurance Program, aimed at cities and towns with fewer than 50,000 residents, counties with fewer than 100,000 residents and Native American reservations across the country.

"With 38 or 40 branches across

the country, we are able to serve the municipalities on an extremely local basis," Mr. Weaver said. For example, he said, a claims adjuster in Pennsylvania who is familiar with the nuances of Pennsylvania law and other local requirements handles Pennsylvania claims, rather than an adjuster half the country away.

But Tillinghast-Towers Perrin's Ms. Chanzit said she's skeptical about whether an insurer can ever provide the same level of service to all municipal clients across the country that those public entities can obtain from pools close to home.

"It's hard for me to imagine how an insurer that has a finite number of branch offices can service small accounts on a local basis as well as some of the intergovernmental pools can," she said. "But they're saying they can, anyway."

And service always has been one of many pools' greatest assets, Redmond's Mr. Sugiyama noted. "The strength of the pools, the better ones, is they've been providing more and more services," he said.

Beyond such services as loss control and claims handling, some pools are adding seminars on topics such as the Americans with Disabilities Act or police pursuit policies to the roster of member benefits they provide.

Mr. Crosby said he thinks the current market offers opportunities for pools to partner with insurance companies, offering members the chance to benefit both from the services the pools provide and the inexpensive coverages traditional insurers are offering.

The St. Paul recently entered into such an arrangement with the Connecticut Interlocal Risk Management Agency, providing prop-erty/casualty coverages for that pool's members.

"Traditionally, pools have done very well on the service side, the loss control side," Mr. Crosby said. "I think there are further opportunities for these kinds of relationships as well."

Because of the current competitive market, some pools will lose members to traditional insurers, however, he said. "There's some very strong pools out there, and there's some very weak pools."

"In some states, some of the pools are having some difficulty, and we feel we can capitalize on that," CNA's Mr. Weaver said. "In other states, the pools are doing great."

Because of the competitive market, some pool officials are thinking they need to broaden coverage and offer more products and services, "and that's a very dangerous place to be in this marketplace," Mr. Crosby said. "Right now is a time to focus on what you really do well."

"As the competition has heated up, the pools are trying to be proactive and get out ahead of what the traditional insurers are doing," agreed Ms. Chanzit.

But, though pools may be offering more in loss control and risk management services to members, "a lot of times it's not really clear that members are willing to pay for that."

At the same time they're trying to attract municipal business, many insurers are emphasizing the benefits to those public entities of placing all their coverages with a single insurer.

Naturally that benefits the insurer, AIG's Mr. Thomas acknowledged, but it also benefits the customer, he said, because if all the coverages are with the single insurer, "it's highly probable that any claim that is brought is covered by that one carrier. And what you eliminate is any disputes between carriers over coverage."

That consolidation also can result in further price breaks for customers, he said.

Mr. Weaver said CNA's Municipal Insurance Program stemmed in large part from that sort of emphasis on a "one-stop shop" approach to municipal insurance.

"We felt that no one company was really offering the full range of services a municipality would want, and we felt CNA had the ability to do that," he said.

At the same time, he said, the program was designed to be flexible, allowing customers to choose the entire package of coverages-which Mr. Weaver said could eliminate gaps in coverage or coverage disputes between insurers-or assemble a customized package a la carte.

Municipal risk managers likely will continue to enjoy the favorable market as insurers continue to see the public sector as an opportunity. "It's a market that will be there," St. Paul's Mr. Crosby said.