The CFA Board of Directors voted at the summer board meeting to take the next step in the CFA self-insurance program. Business may be slow but if you are doing business, you are still buying insurance.

The CFA program will be modeled after the highly successful CSDA (Concrete Sawing and Drilling Association) insurance captive. That program, which suffered a setback (as did all insurance companies) after the terrorist attacks of 911, is now in its 9th year. Overall, premiums have dropped 40% since 2004. The captive has returned over $1 million in residual fund balances to insured members and is expected to return another 4 million when all claims have been settled.

The first step is to assemble the members who will invest the money necessary to fund the start-up costs (around $60,000). Judging from interest at the summer meeting there will likely be between 15-20 initial investors who will share equally in the start-up costs. This investment, with interest, will be paid back with reserves or by assessments to new participants.

Initial participants will need 5-year loss histories, current financial reports and a variety of other insurance related statistics so underwriters can evaluate risks, seek reinsurers, and establish the corporate structure of the venture. Once the initial investors are set, no one will be able to join until the venture has been initiated. At that time, minimum criteria for participation will be established.

The premise behind the CFA and all captives is that members self-insure normal losses and other risks as determined by the trustees. The captive then secures reinsurance at various levels to cover catastrophic losses.

Why are the CSDA and other captives successful? First and foremost is that your insurance premiums are paying only for the risks you decide to incur. You develop information on where accidents and losses are occurring in your industry and implement safety and education programs to reduce or control those risks. Second, you are not part of the general insurance pool. If you have standard insurance, you are not only paying for your risks (and you should note the number of exclusions and items that are not covered) but you are paying for risks that have nothing to do with your operations (such as an oil spill); Third, dubious claims are vigorously investigated instead of simply being paid; and lastly, you cut out the middle men. The agents, the general agents, and the overhead of those huge high rise insurance buildings are not paid by your premiums.

The start-up period could take anywhere from 6 months to 18 months. Savings will be minimal as the reserve fund is developed but as risk management and experience grows, so will savings. Initial insurance premiums will be the same as what you are currently paying.

The final decision will be made by the initial participants at the fall board meeting in Chicago. If you would like to participate in this venture, please contact me at your earliest convenience (ph 319-895-6940 or email esauter@cfawalls.org). I’ll forward the application and background information regarding the program.

Ed Sauter, Executive Director, CFA

esauter@cfawalls.org