Hefty payouts spur changes to liability program for Yolo County agencies, cities

After absorbing tens of millions of dollars in recent claims, Yolo County’s municipal insurance risk pool is overhauling how it charges members, shifting more costs onto agencies with a history of losses.

For most members — cities, special districts and Yolo County agencies — the change will lower their rate or keep it steady. But members of the Yolo County Public Agency Risk Management Insurance Authority that have paid out claims from the risk pool will see their costs increase in an amount proportional to their share of the pool’s losses.

The reason for the change is “to better align liability program costs with members driving costs, and reward those who have had no losses,” according to board meeting minutes.

Twenty of the risk pool’s 32 members have not incurred any liability losses in the past five years, said Executive Director Barbara Lubben. Using the new formula, those members would see their costs drop by about 25% or remain steady if they are already paying the minimum rate.

“What I’ve changed is the emphasis that we put on prior behavior in predicting the future, in terms of how I divide up the total cost,” Lubben said. Instead of using an entity’s payroll size to determine its level of risk, the risk pool will begin using the entity’s loss history.

Payroll can work as a proxy for risk in a pool where every member carries out a similar function, but in a pool like this one, where members have big differences in size and operations, “then the loss history is going to be a much better predictor than payroll,” she said.

The change comes on the heels of two multi-million-dollar losses for a risk pool member at a moment when the costs to settle a lawsuit are skyrocketing and local governments face budgetary headwinds.

Last year, a jury awarded $24 million to the family of a 44-year-old woman who was killed in 2021 by a falling tree branch in a Davis park. Months later, the risk pool settled a slip-and-fall lawsuit filed against Davis for $18 million, a payout the attorney involved described as “record-setting.”

This year, Davis began the process of shifting some sidewalk repair obligations onto adjacent property owners to address a repaving backlog and citywide budget deficit.

Between the jury verdict and the settlement, an illegal fireworks operation in Esparto exploded, killing seven people and sparking a 78-acre wildfire. Twenty-two claims were filed against Yolo County and 18 were filed against the Esparto Fire Protection District, another risk pool member.

Costs for municipal risk insurance have dramatically risen in recent years.

Sizable jury verdicts scare entities into expensive settlements, which raises the risk pool’s reinsurance costs and trickles down to members. The risk pool’s spending on excess liability insurance grew by more than 600% since 2019. It spent about 70% of member fees on excess insurance last year, Lubben said.

In Davis, annual membership costs in the risk pool have risen by more than $2 million since 2023, according to city budget records. And Davis is one of the member entities that is likely to see another rate hike this year.

The change is “a necessary adjustment to remain fair,” Lubben said. “And to really incentivize and reward people that manage the risks well.” The change was well-received by members and approved by the risk pool’s board. “Everyone was in agreement that it was the right place to land,” she said.

Member agencies pay a fee to the authority, which then buys “reinsurance” from other entities, capping its own losses at $1 million before its insurer, PRISM, takes over.

Public Risk Innovation, Solutions and Management is one of the biggest risk pools in the country. It includes about 90% of counties, 70% of cities and dozens of other public entities in California. After Yolo’s risk pool pays for the first $1 million, PRISM covers the next $5 million of liability costs before PRISM’s excess insurance kicks in and the costs are spread among PRISM’s insurers, which could include as many as 10 insurance companies, further distributing the risk and potential loss.

The formula used to calculate rates is a complicated one based on a variety of factors, including an agency’s size, function and history of losses, Lubben said. PRISM has access to a vast trove of actuarial data and a team of analysts to support its members, she said.

Changes to how the authority calculates rates for members will not change the level of coverage agencies receive, Lubben said. The risk pool cannot calculate member rates until reinsurance costs become clear. The risk pool and PRISM are still negotiating next year’s rate.

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