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State Capitol Week in Review

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LITTLE ROCK –The legislature has been working on a long-term, sustainable solution to the spike in property insurance costs of Arkansas schools.
A consultant hired last year will submit his report in March. The legislature will meet in fiscal session in April.
Schools are experiencing the same dramatic increases in property insurance that homeowners are going through. For example, last year legislators learned that premiums went up 114 percent, or $21 million, for 170 school districts in a program managed by the Arkansas School Boards Association.
Another 68 schools in a program managed by the state Insurance Department saw rates go up by $15 million, or 154 percent.
The Bentonville School District, which purchases property insurance through the open market, saw an increase of about $393,000, which amounts to a 50 percent increase in premiums.
After hearing about the increases, legislators and the governor agreed to provide almost $11 million to partially offset the cost to schools.
However, that was a one-time fix to a problem that has been getting worse, so the legislature also voted to contract with a consultant to recommend long-term solutions.
During a recent meeting of the Legislative Council’s Executive Committee, the consultant told lawmakers that the increase in insurance costs was “not going to be an inexpensive problem to fix.”
One proposal would be to increase retention, they suggested. That is very similar to an individual holding down the costs of an insurance policy by choosing a higher deductible.

The consultant said that if schools agreed to a retention of $25,000, it would go a long way toward holding down costs.
Greater retention would allow schools to afford higher limits on coverage. Some schools may want to increase the limits of their coverage because of recent inflation driving up the cost of construction.
Also, to be eligible to participate in a state insurance partnership and qualify for the advantages of being in a larger risk pool, school districts must be insured for 100 percent of replacement costs.
The consultants said they would probably recommend that the Arkansas Insurance Department set up a “captive” company to provide coverage for schools. It would operate like a state-owned insurance company, and would fall under existing law that is 26 pages long in the statutes. There would be no ambiguity and no need to change existing state insurance regulations.
Currently, schools have insurance under trust companies, which are regulated under three pages in the law books. The consultants said they prefer property insurance coverage through captives, rather than trusts, because they are more highly regulated.
The combination of factors driving up insurance prices have created “a pretty big problem,” and the current insurance plan for Arkansas schools is not sustainable, they said.
Their final recommendations will be for “building something that is self-sustaining,” they said, adding that they would recommend long-term solutions rather than ideas that would merely patch potholes.
It is possible that they recommend combining the two programs into one plan operated by the state Insurance Department.



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