Intergovernmental risk pool
risk pool" is a method used by insurance companies to reduce their exposure to sudden and severe losses caused by large-scale catastrophic events.
To use a simplified example: an insurance company with many policies in hurricane-prone Florida might form a risk pool with an insurance company in tornado-prone Kansas. Should a severe hurricane season occur, the Kansas company will share some of the loss with the Florida company, allowing the Florida company to avoid unbearable deficit; and the Kansas company gets the same benefit if a severe tornado season occurs.
Intergovernmental risk pools (IRPs) operate under the same general principle, except that they are made up of public entities, such as government agencies. Thus, IRPs provide
alternative risk financingand transfer mechanismsto their members, through which particular types of risk are underwritten with contributions (premiums), with losses and expenses shared in agreed ratios. In other words, Intergovernmental Risk Pools are a cooperative group of governmental entities joining together to finance an exposure, liability or risk.
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