You don’t see a new city or town pop up every day, which means the public entities book of business is fairly finite.

Movement in the public entities space, then, revolves largely around accounts shifting between standalone placements—where they as an individual public entity purchase their own insurance—versus participating in a risk-sharing pool.

“It’s not so much additions and deletions in the universe of accounts, but rather where their placement is and where they endeavor to secure quotes from,” says Brian Frost, executive vice president at AmWINS. “You may see movement where a city gives notification to seek terms from another pool. Or you may see cities that are currently placed on a standalone basis seek quotes from a pool for the first time, or pools participating in other pools.”

Many public entities find it advantageous to join a pool. In addition to value-added risk management, loss control and claims management services, pools can usually offer more competitive pricing than the standard market because they have multiple members and retain a large amount of risk.

“In a harder market, it makes more sense because you can share that limit and you get some economies of scale,” says Jeff McNatt, executive vice president at AmWINS. “The pricing is just much more favorable in a pool during a harder market.”

But now, in a softening property-casualty market, that’s all changing. “For the first time in my 20-year career, we’re seeing clients able to buy their own standalone coverage at a very similar—if not discounted—price from what they’re paying inside a pool,” McNatt says, noting that most of his clients have saved 30-40% on premiums in the past three to four years. “That’s been very uncommon historically.”

Because pool pricing has been suppressed for so long and non-catastrophic losses have picked up in recent years, “the pools get such spread of risk that they’re not making money,” McNatt says.

“Don’t always assume that the pool is absolutely the cheapest option for you,” agrees Joe Caufield, senior underwriting director at OneBeacon Government Risks. “The reason insureds have a tendency to stay in the pool without validation is because it’s easy. But the truth about pooling is that oftentimes since all their services are purchased from outside vendors—risk control, auditing, claims services—their expense ratios can actually exceed those of a commercial player.”

According to Caufield, it’s not unusual to find a pool with a 42-45% expense ratio—which means when the pool encounters unanticipated loss experience, it may find itself in a bind. “Depending on the equity issues within the pool, what I’ve seen is that pools get overly aggressive and perhaps take on an account with exposures that are larger than average, and then they’re not prepared for the atypical losses that they produce,” Caufield explains.

Consider a $2 billion pool paying $6 million in premium. “Somebody in that $2 billion of values is having a $6 million loss at some point, a fire or flood, and it’s eating up all the premium,” McNatt explains. “So the pool’s rates aren’t coming down, whereas individual members inside that pool are continuing to do very well and aren’t having losses. Those members are finding that on the outside, they’re able to now buy coverage at similar rates.”

McNatt has been shocked to find single-digit rates even on catastrophic accounts in Florida. “The big pools that used to eat us alive—our rates used to be in the 18-20 cents range for that stuff, and the pools were always in the 11-13 cents range—they’ve only got so far they can go before they start to hit that bottom threshold,” he explains. “Meanwhile, everybody else’s standalone has started to creep on lower down closer to that 10 cents.”

That means for some public entities that have been pooling their business for years, it might make more sense to “buy your own $50 million of insurance versus sharing $150 million with 30 other people,” McNatt points out.

Interested in courting a public entity that currently participates in a pool? Caufield suggests using a “creative approach” that considers only one aspect of a public entities account, such as cyber liability or property coverage.

“Pools aren’t very flexible, whereas agents and brokers working with their various markets can be,” Caufield says. “That really plays against the weakness of the pooling administrator, because they’re good at what they do, but their whole philosophy is one size fits all.”

You might find a local government, for example, that is very interested in cyber because it has a large in-house IT operation. In this case, “that’s really a better plan of attack against pool placements—to work your way in in solving problems on one line of business rather than a direct assault across the entire account,” Caufield says. “That’s where we’ve seen brokers successful with pool placements.”

Jacquelyn Connelly is IA senior editor.