Is your municipality considering joining PIRMA for your insurance coverage?
Over the years that I have been helping public entities with their insurance, I have repeatedly encountered municipalities that are no longer satisfied with their PIRMA membership. They joined PIRMA to save money, but later found themselves stuck without alternative options.
Due to PIRMA’s policies, these municipalities could not make the move to a more effective insurance program. And for those municipalities that did make the switch, it was not an easy move.
If you’re considering PIRMA for your municipality’s insurance coverage this article is for you. If you are currently a member of PIRMA and to this point have had no major claims, this article is also for you.
In this article, we address these three topics:
- What is PIRMA
- The Upside of PIRMA
- The Downside of PIRMA
Now before we dive into this content, let me call out the elephant in the room. As an independent insurance agent who specializes in municipality insurance, PIRMA is one of our bigger competitors. So naturally, you would expect that I am not a proponent of this insurance option.
And you would be right. But the biggest reason that I am tackling this topic is because of the number of public entities I have encountered that want to leave PIRMA, but, for reasons we will hit on in this article, can not.
As an agent who is dedicated to educating his clients, I don’t want to shy away from a topic just because it’s uncomfortable. So here it is.
What is PIRMA?
PIRMA is an acronym for the Pennsylvania Intergovernmental Risk Management Association. PIRMA is a “group self-insurance pool that offers comprehensive liability and property coverages to Pennsylvania public entities.”
According to their website, over 600 public entities have now joined this association. PIRMA is “owned by its members.” And each of its members is provided $10,000,000 in liability coverage.
PIRMA membership is serviced solely by H.A. Thomson Risk Management Services.
The Upsides of PIRMA
With over 600 members, you can guarantee there are some attractive features to joining PIRMA. Here they are.
#1 PIRMA often quotes policies at lower rates.
For some municipalities, PIRMA’s insurance products are lower priced. This is especially true if your municipality has little or no claims.
For many of the entities that I’ve interacted with, this was one of the main reasons they opted to join PIRMA. They were looking for an affordable option, and when they joined, PIRMA met this expectation.
#2 PIRMA insurance agents give good day-to-day service.
For most municipalities, their day-to-day experience with PIRMA is fairly good. Their agent is usually responsive to phone calls regarding claims or policy changes.
Again, when I met with municipalities that were members of PIRMA to see if there was any way we could help them, most of them reported that if they needed something, their agent was quick to help them.
#3 PIRMA doesn’t often cancel municipalities due to high claims.
Once you’re in, you’re in. Most times PIRMA does not cancel memberships. If your municipality has a claim, they will add surcharges to your policy, but they won’t cancel it.
“So,” you might be thinking, “this sounds too good to be true. Lower prices, good service, and our municipality won’t get canceled.”
As the saying goes, if it sounds too good to be true, it’s probably too good to be true.
The Downside of PIRMA
I have worked with multiple municipalities that were insured under PIRMA when I first met them. And there have been other municipalities that wanted to make a switch to our agency, but couldn’t. The reason: PIRMA.
On the surface, PIRMA is appealing to many municipalities. It’s not until they begin having insurance claims that they find themselves unhappy with their policy and agent.
So in response to the upsides to this program, I also want to offer these words of caution.
#1 PIRMA is easy to join but hard to leave.
Let me explain this a little bit. When your municipality joins PIRMA, you must accept a couple of agreements that can make it very difficult for you to leave PIRMA and look for a new insurance agent. You agree that:
- You will give two months’ notice before you will be leaving.
- Your municipality will own the responsibility of any open insurance claims when you leave the program.
Giving two months’ notice
Agreeing to give two months’ notice might not seem like a big deal initially. The problem is that, if you acquire any large claims during those two months, you will likely walk away with the responsibility of having to pay for those claims.
Here’s a practical example. Let’s say that your public entity has a claim resulting from someone slipping and falling in your municipal building. Your municipality will most likely have to pay for that claim. A serious slip and fall claim could end up costing hundreds of thousands of dollars. They sometimes end in litigation and result in settlements.
If you have this kind of claim during those two months, it may be near impossible to leave PIRMA, because you won’t be able to pay for this claim out-of-pocket.
Owning responsibility for open claims
This part of the agreement has been an enormous problem for several municipalities that wished to leave PIRMA. If your public entity has any large open claims that are not closed before you leave this association, you will have to pay for those claims.
This may not be a huge deal if you have small claims, but all it takes is one large claim to hold you captive with PIRMA for a long time.
That brings me to the second downside, premium increases.
#2 Once you have large claims you will have premium increases and no other options.
So as in the above scenario, once your municipality has claims you can expect your premium to go up. Now that’s the reality with all insurance policies.
The main difference is that when you have premium increases with other insurance companies, you have the option to leave that company and look elsewhere for coverage.
With PIRMA, you only have that option if your claims are closed before looking elsewhere. And some large claims can remain open for several years.
Long-term open claims
Let’s look at another example. Imagine that your municipality has a vehicle accident. Your municipality’s snowplow hits and seriously injures another driver. Claims like this often end up in litigation and can take years to settle.
And we know how litigation often goes…slow. So, this kind of claim can remain open for several years ending in a settlement of $500,000 or more.
Until this kind of claim is closed, your municipality couldn’t even think of leaving PIRMA.
And open claims cause your premiums to increase. So your municipality would be forced to stay with PIRMA and pay the higher premiums.
#3 Not having other options creates a conflict of interest for PIRMA insurance agents.
Earlier I noted that I’ve mostly heard good things about the day-to-day responsiveness of PIRMA agents. That responsiveness was generally regarding filing claims or making changes to policies.
However, because it can be so challenging to leave PIRMA, an inherent conflict of interest exists. If I know my clients can’t easily leave my program, how hard do I need to work to keep them?
Beyond quickly answering emails or returning phone calls, the PIRMA model does not encourage the agent to be proactive with mitigating claims and driving down their costs.
Also, most agents are paid a percentage of their clients’ premium amount. Why would I be proactive in helping them mitigate their claims when I know that their higher premiums result in higher pay.
And why would I help them mitigate claims when I know that claims keep them tied to my product.
This is one of the most concerning factors regarding PIRMA.
#4 PIRMA doesn’t offer many workers’ compensation products.
The final downside to PIRMA is in regards to workers’ compensation. While a few companies offer standalone workers’ compensation products for municipalities, most insurance companies will only write workers’ compensation in combination with the package policy.
PIRMA doesn’t offer workers’ compensation. But the H.A.Thomson Agency has a unique relationship with AmTrust to provide this coverage. AmTrust is a good workers’ compensation company that works with many insurance agencies.
In terms of PIRMA, this arrangement works for a municipality as long as they don’t have many claims. However, workers’ compensation claims can exponentially increase your premium.
If your municipality suffers from significant workers’ compensation claims, AmTrust might cancel your policy. H.A. Thomson Agency won’t have as many options as an independent insurance agent would have.
If they don’t cancel your policy, you will likely have to pay whatever surcharge AmTrust applies because you can not competitively price out your policy.
What other options do municipalities have?
Other than PIRMA, municipalities have two other options:
- Joining another Municipality Trusts
- Working with a traditional insurance company
Besides PIRMA, there are three other prominent municipality trusts in Pennsylvania. All of these providers offer property and casualty, general liability, and workers’ compensation coverage.
Like PIRMA, municipalities need to seek membership directly from this trust. PennPRIME offers property and casualty and workers’ compensation insurance to its members.
Keystone Municipality Insurance Trust
Keystone Municipality Insurance Trust offers membership through independent insurance agents. This trust functions more like traditional insurance products. This trust serves just under 1,000 members.
MRM Trust serves over 400 members. It is similar to PIRMA in that it is exclusively represented by HUB International. MRM Trust also offers its products through appointed independent insurance agents.
Traditional Insurance Companies
Working with a traditional insurance company is the other option municipalities have beyond PIRMA. To pursue this option, you need to work with an independent insurance agent.
Independent insurance agents are appointed by various insurance companies to write insurance policies on their behalf. So when you work with an independent agent, they can provide your municipality with multiple quotes for insurance from multiple companies.
Some of the insurance companies that write municipality insurance through independent agents include:
One of the most significant differences in working with a traditional insurance company is the freedom to switch companies at any time. Along with that, when making a switch, most of the time your public entity doesn’t have to worry about paying for open claims.
One other major benefit can be competition in the marketplace. Traditional insurance companies need to compete for your business which can help you with getting better insurance premium quotes.
Switching companies at any time
Unlike with PIRMA, with a traditional insurance company, your municipality will not need to give notice before making a switch. If things are not going well with the company that wrote your policy, you can move your business to another insurance company.
In this scenario, you don’t have to worry about existing claims while you are changing companies. You can rest knowing that those claims will be covered.
Paying for open claims
With traditional insurance companies, even if you move your business to another insurance company, your former policy will still cover open claims – even if they extend years into the future.
Let me explain this practically. Let’s go back to that slip and fall claim submitted to your carrier, Insurance Company A. Now, let’s say after that claim your municipality gets a rate increase that you’re not happy with. So, you “shop around” to other insurance companies for better rates.
To your delight, Insurance Company B comes in with equal coverage but better rates. You want to switch.
Even though you leave Insurance Company A, they will continue to pay for the claim that was filed when you had your insurance policy with them.
So, if this slip and fall claim ends up taking three years to close, Insurance Company A will own the responsibility to pay for that claim. (Even though you ended up taking your business to Insurance Company B for two of those years.)
Covering a late-filed claim
Now, let’s imagine you don’t have open claims but still move your insurance coverage to Insurance Company B. A year after moving your policy, someone files a claim on an incident that happened when you were covered by Insurance Company A.
What will happen? Will you have to pay for that claim?
No. Insurance Company A will still hold responsibility for the claim.
This is not the case with PIRMA. This is one of the major differences. And one of the major reasons that many municipalities prefer working with traditional insurance companies.
Multiple premium quotes
The final benefit of working with traditional insurance companies is being able to have your policy quoted by several different companies.
With traditional insurance, you have more than one product to consider. This can be a real advantage for your municipality.
Our municipality is a member of PIRMA, and we’re having some of these problems. What can we do?
This is a great question to end on. Often when I meet with a municipality for the first time, this is where the conversation begins.
Because every municipality’s insurance history varies, it’s hard to give a hard and fast answer to this question. It depends on your claims history and the risk your municipality will have to accept when making the switch.
To consider leaving, you will need a well-developed plan. You will need to work with an insurance agent who has the tools and resources to help you assess your municipality’s needs, establish a plan of action, and help to execute that plan.
To determine if an agent is capable of doing this, you would want to ask them for examples of how they have helped public entities make this switch in the past.
It’s critical that the insurance company that your municipality is moving to understands that you are coming from PIRMA. Some companies will provide you the coverage you need to lessen your risk of a late-filed claim that occurred while you were with PIRMA.
Looking for an agent to help you?
At Baily Insurance Agency, we have provided insurance coverage to all types of public entities for over a hundred years. And in the last several years, we’ve honed our process to help municipalities assess their current insurance program.
Through an initial meeting, we can quickly determine if we have the resources and tools you would need to make this kind of switch. We will also be able to identify what problem areas need to be addressed in your insurance program.
At Baily Insurance we approach insurance as a partnership. We take an active role in helping our clients lessen their claims and reduce their premiums. We believe that a long-term approach is the only effective way to manage insurance costs.
If you are interested in assessing your insurance program, I would invite you to get in touch with us so we can dive in and take a look at your current program. Our model starts with analyzing the biggest factors that impact your insurance program and addressing those first.
To learn more about our strategy, I would suggest reading about our five-step process for creating an effective insurance program. And if you’d like to learn about how we practically helped another municipality address their issues successfully, I’d invite you to read about our work with McKees Rocks Borough.