My “From the Director” column two issues ago presented some of the details of the CFA initiative to form a CFA self-insurance “Captive”. The CFA Board of Directors is ready to move forward with the CFA Self-Insurance Captive, but we need member participation to make it happen. This has the potential to be the biggest single benefit for CFA members with regard to financial payback. It can save members anywhere from 5% initially on their insurance premiums, upward to 30% or more when the corporation has greater experience managing member risks (anticipated at 4-5 years).

The CFA itself will also make money from the enterprise, which will help keep dues under control and fund additional member benefits.

This insurance will include all coverages except for health insurance. Workman’s compensation will be covered in all states except those where it is mandated that companies must purchase Workman’s Compensation from the state (Ohio is one we are aware of ).

The concept is one that has been used by municipalities, hospitals, government agencies, and corporations for decades to reduce their insurance costs. It has only recently been introduced to the trade association industry. Our program will be modeled after the successful venture of the Concrete Sawing and Drilling Corporation (CSDA). CSDA is similar is size, scope and risk to our group and their members are realizing savings on insurance premiums of approximately 30% in their fifth year of operation.

We have two challenges to get the program started.

• First, the CFA members must match the start-up fees involved in establishing the Captive. The total start-up costs are projected to be between $120,000 and $130,000. Our consultant will contribute $60,000 of this cost in return for a 5-year agreement to manage the Captive. CFA members, acting as investors, must come up with the balance. We are researching the steps involved to establish a separate corporation for the Captive and the mechanism of raising the remaining $60,000-70,000.
• The second challenge is having a sufficient number of companies participate so that the minimum annual premium amount, estimated to be approximately $3,000,000, is met. We anticipate 25-30 investor/participant companies initially. This will reduce the risk and investment of the companies.

Board members have attended a presentation by the consultant and most of them will be participating in the venture but we want to make certain that all of our members have the opportunity to participate at the start-up phase. Investors in the effort are projected to get a return of at least their initial investment (in addition to their insurance savings) plus a yet-to-be-determined return at a time the Captive has sufficient funds.

The concept is too complicated to explain in a letter, but in its simplest terms, members pay the same insurance premiums they are currently paying but pay them to the Captive. This premium covers basic losses identified for the program and purchases additional insurance to cover the higher risk and catastrophic losses that could be incurred. The premise is that the Captive members are paying only for the risks that they are subject to, and thus have a better opportunity to control and manage their risks as opposed to paying into a pool that includes the broad spectrum of risks and claims that a typical insurance company must pay.

To better explain the concept and determine the level of participation by our members, our consultant will make a presentation at our meeting this fall in Columbus, Ohio. The presentation will take between 3-4 hours and we suggest that the person responsible for your insurance and/or the financial officer for your company attend the presentation. (Turn to the Fall Regional Meeting Information pages and registration on pages 8-11.) Our intent is to move forward by December 1 if there is sufficient interest.

Please feel free to contact me if you have any questions.