WHEN most agents and brokers think about public-entity business,arranging insurance for cities, counties and school districts iswhat comes to mind. But there are many other governmental unitsthat need protection too, and I've built my career serving theirneeds. Among these organizations are water and sewer authorities,which I'll discuss in this article. I'll also touch on housingauthorities.

I work primarily in New Jersey and Pennsylvania, although I'vealso done business with authorities in New York. In the first twostates, there are more than 250 water and sewer authorities. Someserve a single, large municipality; others provide services tomultiple communities.

Generally, water and sewer authorities are run by boards ofcommissioners, who are appointed by the cities, counties ortownships they serve. The board members typically hire an executivedirector to run the day-to-day affairs of the authority. Theauthorities' revenue usually comes from a combination of propertytaxes and user fees.

Unlike school districts and municipalities, many of which buytheir insurance effective July 1 or Jan. 1, water and sewerauthorities have no common renewal date. This makes life easier forbrokers writing such business, since it spreads the work moreevenly throughout the year. This spread of business also makes formore financial stability. For instance, losing an important marketshortly before Jan. 1 or July 1, will not affect brokers writingwater or sewer authorities as severely as those catering to schooldistricts or municipalities.

Like other public entities, water and sewer authorities benefitfrom a number of laws that may not be applicable to othercommercial accounts. In New York, New Jersey and Pennsylvania, forinstance, water and sewer authorities ordinarily qualify asself-insurers for certain lines of coverage, such as generalliability, auto liability and workers comp. The resultingflexibility has been important to authorities. In the past five toseven years, the number of insurance markets serving publicentities has shrunk. To cope with the reduction of markets, as wellas gain more control over their insurance, some authorities in NewJersey enter the MUAJIF (for Municipal Utility Authority JointInsurance Fund). Other public-entity JIFs exist in New Jersey,while similar organizations, such as pools and reciprocals, servegovernmental units in other states. These pools, JIFs andreciprocals potentially are assessable and have joint and severalliability. One of the advantages I can offer water and sewerauthorities is the ability to arrange guaranteed-cost coveragethrough private insurers or help place their coverage in pools,JIFs or other alternative-market mechanisms.

As with other public entities, a water or sewer authority'sselection of an agent or broker may be at least partly political.If I see that an authority has been with a particular agent formany years, I assume there's a reason for that longevity and thatit would be extremely difficult to unseat the incumbent.

Rather, I look for authorities that buy coverage with the helpof outside insurance consultants. The consultants, who draft bidspecifications and oversee the bidding process, largely take thepolitical factor out of the buying decision, giving an out-of-townbroker like me a legitimate shot at the business.

Probably less than half of the authorities in my territory useconsultants. Those that do include smaller authorities that may nothave full-time risks managers--as larger public entities oftendo--to handle bidding-related functions. The executive directoroften wears many hats and may not have the time or expertise toobtain and review bids. In such cases, retaining a consultant canmake a lot of sense.

I keep in touch with these consultants and try to develop goodworking relationships with them. There are several I've known formore than a dozen years. I keep them informed of developments inthe marketplace. Their clients are paying them a fee for theirservices, and anything I can do to help the consultants enhancetheir value to the authorities strengthens my relationships withboth parties.

Timing is important when soliciting authorities. Those that joinpools or JIFs generally make a three-year commitment. After anauthority is in such a mechanism, you have little choice but towait three years, then find out if they plan to once again puttheir insurance out for bid.

When water or sewer authorities bid out their business, I may seetheir requests for proposals announced in newspapers. Sometimes Iget a call from a consultant who, thinking a particular accountmight be a good fit for me and my markets, asks if I'd beinterested in providing a quote. I also contact the consultantsperiodically, just to see if there is anything coming up that Imight be able to help them with.

Generally, a consultant invites a limited number of brokers tosubmit proposals. The consultant also assigns markets to thecompeting brokers, although brokers typically can request certainmarkets, which they may or may not get. Which markets are assignedto whom depends on information the brokers give consultantsdocumenting the strength of their relationships with insurers(volume of business, length of relationship, etc.) and even withspecific underwriters. For example, I usually am granted permissionto approach NIF Group, a program manager/MGA for public-entitybusiness. I've also known Tony Kaprowski, who heads up theirpublic-entity program, for more than a decade.

Exposures and coverages

Water and sewer authorities can have large and unusualexposures. Including their pump stations, administration buildingsand equipment, they may have total insurance values ranging from $5million to over $1 billion. We need an inventory of all such realand personal property to prepare a submission. We also need aschedule of vehicles and, for workers compensation, informationabout the size and responsibilities of the workforce.

One of the atypical exposures water authorities have is failureto supply. An interruption of water service could lead tosignificant losses at some businesses. They or their insurers couldsue the water authority for reimbursement. This exposure isaddressed by a special coverage that most markets serving waterauthorities include in their packages. In underwriting thisexposure, markets want information about backup facilities, andtesting and maintenance of facilities.

For water authorities that have them, dams and reservoirsconstitute another unusual exposure. Insurers willing to entertainsuch risks underwrite them carefully. Water authorities mustcomplete separate questionnaires about such facilities. Engineeringreports attesting to the condition of any dams also are required.Pipelines are another important exposure for both water and sewerauthorities. Underwriters want to know how many miles of pipelinean authority has, as well as the age of the pipes.

Pollution exposures can be significant for both water and sewerdistricts. Some markets offer limited pollution coverage forrelease of disinfectants, but coverage generally must be arrangedon a stand-alone basis. While I usually recommend such insurance,smaller entities tend not to buy it.

Generally, markets serving this niche provide all neededcoverage within a package, while writing umbrella and publicofficials liability on a stand-alone basis. Agents also can lookoutside the package markets to find stand-alone coverage for publicofficials liability from such insurers as Diamond State, AIG,National Casualty and General Star.

One unusual twist to auto and general liability insurancewritten for water and sewer authorities and other public entitiesis that insurers generally provide coverage on a non-auditablebasis. This is a great benefit to clients, who don't have to worryabout having audits put their budgets out of whack. From astandpoint of service--e.g., adding and deleting vehicles toschedules--it also makes life easier for brokers.

Depending on the size of water and sewer authorities, theirpremiums may run from $50,000 to more than $500,000, with anaverage of about $100,000. Despite the significant exposures waterand sewer authorities have, their loss experience typically isexcellent.

Bid openings

Like other public entities, water and sewer authoritiestypically make public all bids they receive. (I rarely quote onpublic entities that do not conduct public bid openings. In suchsituations, you can't even be sure your quote will be presented.Nor do you have any idea of what you're up against in regard to thecompetition.) Usually bids are solicited and opened well before thecurrent coverage expires. Then the board or a committee reviews andvotes on them. A winner may be announced anywhere from one to fiveweeks later.

During the interim, brokers sometimes have the opportunity tonegotiate over terms and conditions--even price. I feel, however,that brokers should give prospects their best numbers from thebeginning, although underwriters sometimes have a different take onthe matter and would like brokers to try selling a higher pricefirst. It can be vexing to inform such an underwriter that you'velost to a bid 10% lower than yours, only to be told that theunderwriter could have matched it. In that case, why on earthdidn't the underwriter do so in the first place? I always want togo in with my best numbers, and I stress that to underwriters.After bids are open, I sometimes can negotiate a minor coverageenhancement, but I usually have little or no room to maneuver onprice.

I sometimes get to meet with the board or committee to explainparts of my proposal or otherwise discuss the bid, and I look forevery opportunity to do so. While I may work with the prospect'sconsultant and have a good relationship with him or her, I also doeverything possible to build a relationship with the water or sewerauthority itself. That's my real prospect--and hopefullyclient.

Once we land an account, we send out auto ID cards andcertificates of insurance right away. For an account we insure on aguaranteed-cost basis, we introduce the in-house claims person whowill serve them. For one with a large self-insured retention, weintroduce the assigned third-party administrator, who will be thekey person ensuring that the client's self-insurance program runssmoothly. We also continue to interact with consultants when theyare on a retainer to provide ongoing services. But many are hiredsolely to prepare insurance specs and oversee the bidsolicitations. Then they move on.

Housing authorities

Housing authorities have significant differences from water andsewer authorities. For one thing, I rarely find myself working withconsultants in this niche, but rather interact with the executivedirectors. Unlike water and sewer authorities, housing authoritieshave little discretion on when to seek bids. Regulations compelthem to do so at specified times, which may be every year, everythree years or some other interval. Interested brokers simply askto be added to a housing authority's bid list, then they arecontacted at the appropriate time.

Most public entities accept or reject bids for whatever reasonthey like, but housing authorities pick winning bidders strictly onprice, assuming all requested coverages are provided. Indeed, I'vebeen awarded contracts without even meeting the insureds; it can bethat impersonal. Given this fact, I'm careful about which housingauthorities I pursue. Generally, I shun small housing authoritiesand those for which I don't think I have the most competitivemarkets. I also prefer larger housing authorities because they aremore likely than smaller ones to retain some of the risk. Thatgives me an opportunity to offer ways to help them control losseswithin their retention level. The upshot is that I wind up, atleast to a degree, competing on the basis of something other thanproviding guaranteed-cost coverage at the lowest possibleprice.

Prime concerns for underwriters include the age and upkeep ofbuildings and prior property losses. As with water and sewerauthorities, they like to see a good spread of risk. A housingauthority with $100 million of property is easier to cover if theproperty is spread around rather than concentrated in oneplace.

There are a limited number of markets for housing authorities.Like water and sewer authorities, many of them turn to pools, JIFsor reciprocals. We use NIF Group for small and midsize housingauthorities. Other markets include the New Jersey Public HousingAuthority Joint Insurance Fund and HARRG, a national risk retentiongroup. In Pennsylvania, another market is the Housing AuthorityReciprocal Insurance Exchange (HARIE).

I hope this article has prompted you to consider more thanmunicipalities and school districts when evaluating opportunitiesin the public-entity niche. Water, sewer and housing authoritiesare just the beginning of the options that may be available to you.Others include fire districts, transit authorities, bridgeauthorities, park districts, parking authorities and improvementsauthorities. These entities and others make up your government.They also could make up a significant part of your book ofbusiness.