Arkansas lawmakers give initial approval to new state insurance captive's rate structure

A legislative committee on Monday granted preliminary permission for officials to move forward with proposed rates for Arkansas' new state property insurance program, the result of nearly two years of work aimed at developing a plan to control rising insurance premiums for schools.

Following the recommendation of consultants to create the State Captive Insurance Program, an insurance company owned by the state, lawmakers this year passed Act 560 and Act 779 and approved contracts with vendors to run the self-insurance program.

Under the newly approved legislation, the captive will be formed by July 1 and apply to buildings and property owned by a public school, state-supported institution of higher education or the state.

During the Arkansas Legislative Council's Executive Subcommittee meeting Monday, Crossett Republican and panel chair Sen. Ben Gilmore recognized everyone who has been involved with forming the captive, which "has been quite the process."

"It's important that we acknowledge where we started and where we are now, and this is coming to an end … what we did is something we should acknowledge is very big with the State Captive Insurance Program," Gilmore said. "So we are on to the next step with that, and I appreciate your involvement, and we'll continue to work and make this successful."

Insurance premiums have been increasing nationwide due to more frequent natural disasters, additional legal liability from more lawsuits and the growing frequency of cybercrimes, according to Education Week.

The issue came into focus for Arkansas in July 2023 when Gov. Sarah Huckabee Sanders announced the state would help school districts cover the cost of rising insurance premiums. State lawmakers approved a request from the Arkansas Insurance Department to transfer $10.8 million from the state's restricted reserve account to offset the cost of increased premiums.

The funding was split three ways — $6.3 million for the 170 districts in the Arkansas School Boards Association-managed program, $4.46 million for the 68 districts in the Arkansas Public School Insurance Trust (which is managed by the Insurance Department), and nearly $118,000 for the Bentonville School District, which procured insurance directly through the open market.

Kyle Hales, a principal consulting actuary at Perr & Knight, told the committee Monday that the total cost of premiums for the three agencies approximately tripled between 2021 and 2024 insurance renewals.

J.R. Bizzell, senior vice president in Stephens Insurance's risk management group, said the intent of the captive is to "improve efficiencies with purchasing reinsurance or excess property insurance," which is what the Little Rock-based firm is primarily helping obtain.

"There's going to be a centralized claims and underwriting component, as well as overall it should help stabilize long-term insurance costs for all of the districts, all the agencies and all the participants of this program," Bizzell said.

For the first year of the captive, Stephens recommends a flat rate for all participants. Premiums are calculated by multiplying the rate by building values, Bizzell said. All schools should have a flat rate, he said. If they change their value due to an assessment, or by adding or removing a building, "they will experience some level of premium change, but it should be modest in nature," he said.

Stephens also recommends that participants carry a maintenance deductible that's below the captive, Bizzell said. The deductible structure would be changed to a minimum of $25,000 per occurrence, per participant, and $50,000 per occurrence if their total insured values (i.e. asset values) are over $100 million. For state agencies, the recommendation is to move to a $250,000 flat deductible for the first year, he said.

The rate and deductible structure for year two is continuing to be evaluated, so Stephens made no recommendation "outside of there is an expectation that deductibles need to continue to be rightsided and that detail will come in the future," Bizzell said.

Stephens has been coordinating with the Legislature as well as the newly created Office of Property Risk, which will be managing the program after July 1, Bizzell said. In the coming weeks, all participants will receive a summary of their expected premium and deductible, he said.

The subcommittee authorized Stephens to move forward with its proposed rate and deductible structure and for the Arkansas Legislative Council's co-chairs to approve that direction by emergency action.

The new rates and deductibles will be effective for the 2025-2026 academic year, if they receive final approval from the Arkansas State Board of Finance and ALC, Bureau of Legislative Research Director Marty Garrity told the Advocate. They're scheduled to meet on June 12 and June 20, respectively.

Arkansas Advocate is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Arkansas Advocate maintains editorial independence. Contact Editor Sonny Albarado for questions: [email protected].