Top 10 Most Frequently Asked Questions About CFSA’s Risk Sharing Pool Programs
- What exactly is risk pooling? And how is it different from commercial insurance?
- We keep hearing that a benefit of pool membership is fee stability. What does that mean?
- How are my fair’s annual pool fees determined?
- How does my fair’s loss history influence our annual fees?
- How does CFSA know how much money is needed in the General Liability and Workers’ Compensation pools to cover current and ongoing past-year claims costs, and when planning for future claims?
- Are CFSA’s pools insured against high losses?
- Why is it important for fairs to send CFSA copies of insurance certificates for review?
- Why does CFSA advise fairs to include fair volunteers in their Workers’ Compensation coverage?
- Why does CFSA advise fairs to have their counties provide Workers’ Compensation coverage for Community Service and Alternate or Assigned Work Program workers?
- How many participants are in the General Liability and Workers’ Compensation pools?
Risk sharing pools are an alternative to traditional commercial insurance. Instead of paying annual premiums to an insurance company with dividend-earning shareholders, participants in a risk sharing pool program have their annual fees combined into one interest-generating pool from which all claims costs are paid. At the end of the year, unspent pool funds remain in the pool to help pay for future claims costs. Risk sharing pools are participant driven, not profit driven; pool members are the pool “shareholders.”
When a group decides to self insure, a joint powers authority (JPA) such as CFSA is typically formed to manage and administer pool funds. As a responsible risk pool manager, CFSA is committed to helping risk sharing pool participating fairs identify and mitigate risk exposures, two essential steps in protecting the pools from preventable losses and in keeping annual risk pool fees down. One of the ways we do this is through a collaborative, year-round risk control program that includes pre-fair and fair time facility inspections, state-mandated fair staff training, certification training and testing, workplace safety program development, and by serving as a liaison between the fairs and regulatory safety and fire officials. These and other Risk Control programs are provided at no extra cost to pool participants and are tailored according to the pool(s) in which each fair participates.
CFSA’s staff and board of directors strive to keep annual risk pool fees as much the same year to year as is prudent; balancing member needs with responsible pool management. By working together, CFSA and pool participants play an influential role in this goal.
For example, CFSA’s Risk Control specialists work directly with fairgrounds’ staff to develop safe environments for employees and the event-going public. Our in-house claims management team has in-depth knowledge of California’s fairs and California’s laws, regulations and immunities as they relate to claims against California’s fairgrounds.
Our Contract Log and Contract Review service ensures that the mandatory risk transfer language requirements are met in both hazardous and nonhazardous fair contracts. Then, should a claim be made stemming from an action by a vendor, carnival, facility renter, entertainer, tenant or exhibitor, the claim can tendered (transferred) to the insurance company of the responsible entity.
In addition, CFSA created an Agency Equity Reserve (previously called the Adverse Development Fund), in 1996, to act as a “rainy-day” fund for pool participants. Should the risk pools experience a frequency of accident severity higher than anticipated (paying out more than is collected in annual fees) this reserve acts as a cushion to absorb sharp increases in claims costs, claims activity and/or investment shortfalls.
Note: Depended on heavily during the past five years, the Agency Equity Reserve is the focus of a multi-year rebuilding strategy. This strategy includes tight control of CFSA’s operating costs, lowering the pool’s self-insured retentions (the amount of money CFSA is responsible for paying on each claim before excess insurance kicks in) and necessary increases in pool base fees.
Both the General Liability and Workers’ Compensation pool program fee formulas are designed to reward fairs with low loss histories and to assess higher fees to fairs with above average loss histories.
General Liability Pool fees are based on a formula that uses your CFSA fair classification and your individual fair’s loss history over a five-year period compared to the loss histories of the pool’s members for that same five-year period. For 2019, that five-year period is 2013-2017. The most recent year – in this case 2018 – is excluded to give recent claims time to develop.
Workers’ Compensation Pool fees are based on a formula that uses your fair’s gross payroll along with your own individual fair’s five-year loss history as compared to the pool membership’s overall loss history average for the same five-year period.
Keep in mind that your fair’s General Liability and Workers’ Compensation fees can decrease or increase depending on your fair’s own loss history record, and in the case of Workers’ Compensation, by any changes in your fair’s gross payroll from year to year.
CFSA evaluates loss histories with an emphasis on the frequency of claims, rather than the severity (cost) of claims. We do this by capping General Liability and Workers’ Compensation pool participant claims losses at predetermined levels. Total capped losses are then divided by total program fees paid during the five-year period (explained above), and the resulting loss ratio is used to pinpoint your fair’s modification ratio on CFSA’s Modification Percentage Table.
Pool participants with modification ratios or “mod rates” that fall below the pool membership’s average are rewarded with discounts of 5% to 15% off the General Liability program’s base fees and/or the Workers’ Compensation program’s base rate. If your fair’s modification ratio is within the average range, you will pay 100% of the base fees/rate and if it is above average, you could be assessed 10% to 60% over the base fees/rate.
Note: CFSA’s Risk Control Department works closely with fairs experiencing higher than average accidents and losses. By pinpointing the fairs’ most frequent accidents, our Risk Control specialists can help these fairs develop a mitigation plan.
We consult annually with an actuarial firm that specializes in helping risk pools determine responsible and appropriate pool funding levels. The actuary’s goal is to identify funding levels sufficient to cover the year’s anticipated claims, as well as ongoing developing claims while meeting CFSA’s funding policy and governmental accounting standards. CFSA’s board and staff use all of this information along with other factors, such as projected future claims losses, when setting annual pool fees. Our responsibility is to ensure that the pools are funded at levels that enable fees to stay the same, or if additional funding is necessary to meet future needs.
Yes they are. To protect the pools’ integrity and the pool members’ pocketbooks, CFSA proactively purchases excess coverage for claim losses that go over the pools’ self-insured retention dollar amounts. A self-insured retention (SIR) is the dollar level at which an excess insurance policy is triggered to begin payments on a claim.
The General Liability Pool has an SIR of $100,000 per claim with excess coverage of up to $25 million per occurrence. CFSA lowered the pool’s SIR from $500,000 per claim to $100,000 per claim in 2018 to reduce the pool’s risk exposure and to provide added protection for pool reserves.
The SIR for the Workers’ Compensation Pool was lowered this year from $500,000 per claim to $250,000 per claim with excess coverage up to California’s statutory limit per occurrence.
It is important because certificates of insurance that meet CFSA’s insurance requirements protect your fair! And, if your fair participates in CFSA’s General Liability Pool Program, having correct certificates of insurance also protects the pool, keeping everyone’s fees down.
When a certificate does not meet CFSA’s insurance requirements, we will work on your behalf to correct the incomplete or missing information. Then, should an incident occur on your grounds during an event, the liability can be transferred or tendered to the responsible party’s insurance carrier, protecting your fair’s loss history and for pool members, the General Liability Pool.
CFSA also reviews hazardous contracts for all district agricultural association (DAA) fairs – pool members and nonmembers – through a contract with the California Department of Food and Agriculture. Again, our goal is to ensure that all certificates meet CFSA’s insurance requirements.
CFSA reviewed 3,455 insurance certificates last year and of those, approximately 25% had errors. The most common error (for the third consecutive year), was the absence of the required additional insured language.
It is very important for all General Liability Pool members to please send in their contract logs monthly for review so that we can assist you in determining which contracts need an insurance certificate review.
If a volunteer is injured while working at your fair, he or she can file either a workers’ compensation claim if covered by the fair’s workers’ compensation program, or a general liability claim if not. CFSA recommends including volunteers under your workers’ compensation coverage because it allows for immediate treatment of the injured party and it is usually less expensive to do so than when a general liability claim is filed. California has a no-fault workers’ compensation system; coverage is automatic and no fault is assigned, as would be the case with a general liability claim.
Under normal circumstances, volunteers are not considered employees of your fair and are excluded from workers’ compensation coverage. The California Labor Code, however, allows coverage after the adoption of a resolution by a fair’s board of directors deeming that volunteers performing services for the fair are employees for workers’ compensation purposes. Resolutions are kept on file at CFSA and every January, volunteer wages (calculated by multiplying volunteer hours by minimum wage) should be included with your payroll report to CFSA for fee assessment purposes.
You will find a sample resolution on CFSA’s website: www.cfsa.org, under Self-Insurance > Workers’ Compensation > Alternate Work Program & Volunteers, and in your fair’s CFSA Red Book (Claims and Loss Reporting Guide). You can also contact Cindy Hehner, CFSA’s workers’ compensation claims administrator, if you have questions: 916/263-6172 or firstname.lastname@example.org.
Current California law states that for the purpose of workers’ compensation coverage, Community Service (CS) and Alternate/Assigned Work Program (AWP) workers are considered employees of your fair. In fact, CS and AWP workers are considered to be employees of both the county supplying the workers and the fair using them (general/special employer), so either the county or your fair is required to provide workers’ compensation coverage.
Because of the added risk exposure these workers present to CFSA’s Workers’ Compensation Pool, CFSA recommends having the county provide the coverage. In addition, there should always be a written agreement between the county and the fair identifying the terms and conditions for the use of these workers, including who is responsible for the workers’ compensation coverage.
You will find two sample CS and AWP worker forms on CFSA’s website: www.cfsa.org, under Self-Insurance > Workers’ Compensation > Alternate Work Program & Volunteers, and in your fair’s Red Book (Claims and Loss Reporting Guide).
These forms are written by CFSA’s legal counsel and approved by legal counsel at CDFA. CFSA strongly recommends that pool members use Form #1, requiring the county to provide coverage. If this isn’t an option, use Form #2. Remember, it’s your responsibility to report the hours worked by the CS and AWP workers to CFSA annually for fee assessment purposes.
Please contact Cindy Hehner, CFSA’s workers’ compensation claims administrator, if you have questions: 916/263-6172 or email@example.com.
In the General Liability Pool there are currently 69 participants (66 fairs, two fair-related JPAs and one special district), and in the Workers’ Compensation Pool there are 74 participants (72 fairs, one fair-related JPA and one special district). Most of these fairs and agencies have been in the pools since CFSA’s inception more than 30 years ago.
If you have additional questions about CFSA’s pool programs, please contact CFSA Risk Department Manager Tom Amberson at (916) 263-6180 or firstname.lastname@example.org.