Self insuring: how one group of public institutions did it: Wisconsin's Technical College System's insurance venture, Districts Mutual Insurance, is proving that through collaboration, commitment, and communication public entities can successfully control insurance costs while enhancing coverage limits and providing specialized services.

• Author: Stoeger-Moore, Steven
• Position: Best Practices

Is it possible to start your own insurance company? How about starting one with other public institutions? That's what Wisconsin's 16 technical colleges did, and they have found it to be a successful venture.

BACKGROUND

The Wisconsin Technical College System's (WTCS) districts have a combined annual payroll in excess of $500 million with more than 7,700 full-time and more than 12,000 part-time employees. Property is valued in excess of $1.9 billion. It has more than 950 vehicles and business is conducted at 52 locations throughout the state, serving over more than 400,000 people last year.

Throughout the 1990s several WTCS districts participated in a group insurance program that provided broad coverage for property, auto, liability, and workers' compensation exposures. While coverage was available, there was little flexibility beyond the standard coverage document. Loss control services were not targeted for a technical college environment. Consequently, the technical college system assessed its risk management needs. As a result of a feasibility study undertaken in 2003, WTCS formed its own insurance company to provide the unique coverage and services needed by the 16 WTCS locations. On July 1, 2004, Districts Mutual Insurance (DMI) operations began.

Why did WTCS start its own insurance company? To understand, it is necessary to go back to 2002-2003. The commercial insurance market was in a state of flux. Events of September 11, 2001, influenced the market. Double-digit renewal percentages were commonplace, underwriting guidelines were restrictive, limits were decreasing, market availability was declining and deductibles were soaring.

In the State of Wisconsin, budget restrictions required the Technical College Districts to make tough choices. As funding at the federal and state levels declined, staffing changes and service level decisions became necessary. The districts recognized that their business costs included a comprehensive portfolio of insurance and/or a risk management program. Reducing or eliminating coverages or limits was not considered a prudent budget reduction option.

With this backdrop of commercial restrictions, escalating insurance expenses, and dwindling budget resources the districts asked, "How can we take greater control of our program?"

The WTCS decided to explore the feasibility of creating an alternate risk funding mechanism that would offset the additional risk while providing for coverage against catastrophic losses. Seven alternate risk funding options were evaluated. The feasibility study provided the WTCS districts with an actuarial analysis that indicated the formation of an insurance entity was viable. After conducting their own thorough research, all 16 colleges in the system opted to form a Wisconsin-based municipal mutual insurance company--Districts Mutual Insurance.

THREE CRITICAL COMPONENTS

There are three critical components of insurance: coverage, service, and price. In a commercially insured program the insured party can generally control one or two components, but never all three. By organizing as a municipal mutual insurance company...