NJMEL - Background
Since 1985, joint insurance funds (JIFs) have modernized risk management for New Jersey local government. To date, the JIFs that are affiliated with the MEL have saved taxpayers over $1 billion.
Prior to the formation of JIFs, local governments had two choices for their property/casualty programs - commercial insurance or individual self-insurance. Over the long run, commercial insurance is the most expensive way to finance a risk because insurance company overhead adds $75 to the cost for every $100 in claims. Overhead for self-insurance is only about $25 per $100 in claims.
The problem is that most local governments are not large enough to retain a substantial portion of the risk. This minimum size requirement effectively eliminates most local governments in New Jersey. Even government units that are large enough often lack the managerial resources to properly administer their programs.
The idea behind joint insurance is to bring together a number of local governments to (1) create the critical mass needed for self-insurance, (2) jointly purchase the excess insurance needed to cover large claims, and (3) create the specialized administration needed to effectively manage the program. On January 1, 1985, the first municipal JIF in New Jersey was established by fourteen Bergen County municipalities.
Later that year, the insurance market in the United States crashed and it became very expensive for local governments to secure commercial insurance. It became especially difficult to secure excess insurance to cover large claims. Therefore, in 1987 the Atlantic JIF, Camden JIF, Morris JIF, Ocean JIF and Professional Municpal Management JIF established the MEL to provide excess insurance to JIFs. They were quickly joined by the Bergen JIF, Mid-Jersey JIF, Monmouth JIF and South Bergen JIF. Since then the MEL has grown to nineteen JIFs that collectively cover over 60% of the local governments in New Jersey. With an annual budget of over $200 million and a statutory surplus of $100 million, New Jersey's MEL system is the largest municipal property-casualty pool in the country.
Just as importantly, the MEL has been exceptionally successful in improving safety records. In 1991, the employee accident frequency for the local governments that were members of the MEL was 5.7 lost time accidents per 100 employees, or approximately the national average for municipal government. Today, the MEL's accident rate is about 55% lower, or about 2.5 accidents per 100 employees.
Some of the programs innovated by the MEL include:
Managed Care: The MEL was among the first governmental entities to adopt this concept for workers compensation to improve the treatment of injured workers and to return them to work earlier.
The MEL Safety Institute: The MEL created this program to provide PEOSHA required safety training to local government employees. Last year, the Safety Institute trained over 30,000 workers. The MEL also offers a discount to members whose elected officials complete risk management training. Last year, over 1250 Mayors, Council Members and other local officials attended the Community Safety Leadership class.
Personnel Practices Risk Control: The MEL developed model policies and procedures so that each member can avoid the expense of writing its own manual. To date, almost 300 local governments have used this model. The MEL also provides anti-harassment training to managers and employees.
The MEL system has been successful because it has remained under the control of the members. By law, a JIF is a local governmental entity, not an insurance company. Every member appoints a commissioner, and each month over 250 Mayors, Council Members and other local officials come together at the nineteen local JIF meetings to make the decisions. JIFs are subject to all of the laws covering local government, such as the open public meetings act, the public contracts law, the fiscal affairs law and the local officials ethics act. Because the members have a strong sense of ownership, they apply considerable peer pressure on each other to prevent accidents and reduce costs.