Cities pool their risks and insure themselves

Some American cities, pressed by high rates for hard-to-get liability insurance, are pooling their risks to avoid commercial insurers altogether. In 1985 alone, the average cost of liability insurance to cities rose 650 percent, according to the National League of Cities. By this year, 13 states had self-insurance pools for cities.

One of the oldest is run by the Tennessee Municipal League here. Of Tennessee's 340 incorporated bodies, 270 to 280 have joined the pool. The largest cities have deep enough pockets to insure themselves without it. Since the pool was created in 1979, it consistently underbid the commercial insurers on some accounts. In 1985, the commercial market began to collapse in the state and the pool has doubled its accounts and income.

How does the pool insure cheaper? ``We're a break-even operation,'' says Jack Floyd, the league's vice-president who runs the pool. The pool keeps 88 cents on every dollar to invest and pay claims compared with 48 cents for the commercial carriers, says Mr. Floyd. But his prices -- and losses -- have gone up, too. Why? Says Floyd: Juries award large damages, federal courts will entertain any rights case no matter how weak, and the lawsuit has become the weapon of choice for anyone with a complaint.