By Crystal Wylie
Register News Writer
MADISON COUNTY —
The Madison County School Board accepted bids for fleet, general liability, educator’s legal liability, property, worker’s compensation and pollution insurance for the 2013-14 school year for a total cost of almost $1.1 million at Thursday’s meeting. This is up from the $939,673 spent last year with longtime school district insurer, the Kentucky School Boards Insurance Trust (KSBIT).
When the news broke in mid-January that KSBIT was dissolving and member districts would be left with the bill, 174 districts also began the search for new insurance providers.
The Madison County School Board hired Roeding Insurance Group and Roberts Insurance and Investments in April at the recommendation of the broker search committee.
John Roberts, with Roberts Insurance, presented bids from insurance provider Liberty Mutual at Thursday’s meeting.
“The increase (in cost) for Madison County was one of the lowest ones we have seen for a school district leaving the KSBIT pool,” Roberts said.
For example, Bullitt County must come up with an extra $240,000 to pay for worker’s compensation insurance this year. Clark County, which is half the size of Madison County, will pay an extra $40,000, he said.
Roberts was initially concerned about coverage for the Madison County district’s Chemical Stockpile Emergency Preparedness Program (CSEPP) bus fleet, which KSBIT considered “temporary use” and did not charge the district to cover, Roberts said. “Insurance companies typically charge for those.”
Liberty Mutual will provide full-coverage for the 130 CSEPP buses and also will conduct school property evaluations to make sure facilities are not under- or over-insured.
“We want to make sure we have these buildings valued appropriately. And in the event of a catastrophe, we know exactly where that building needs to be insured for and we can start rebuilding that school immediately,” Roberts said.
Members of Liberty Mutual’s loss control team will go through the district’s policies and procedures as well as examine the schools and look for hazardous areas.
Roberts got two quotes for property, liability and educator’s legal insurance. One quote was around $1 million, but Liberty Mutual offered the same coverage for $673,000.
Superintendent Tommy Floyd said the new insurance arrangement “increases the protection of the board, especially with what they were able to do with the CSEPP fleet.”
Roberts said a critical factor in getting low premiums is the school’s “e-mod” rating, or “experience modification” rating.
This rating is determined by how much the insurance company pays out in losses compared to what the district pays in for coverage, Roberts said.
With the district’s various safety programs and “return to work” program associated with workmen’s compensation, the “rating for Madison County is much better than other districts,” Roberts said.
Board member John Lackey said he was struck by the huge price difference between the $1 million quote and the $673,000 quote.
“You got to feel that you get what you paid for,” he said.
“John, different companies have different appetites,” Roberts replied. “Some companies are more aggressive than others.”
Roberts said the insurance company which gave the larger quote only covers “a handful” of districts in Kentucky, so “they’re not real sure where the pricing needs to be.”
“Liberty Mutual needs your business,” he said. “They are giving you a very competitive number.”
Lackey moved to accept the low bids, and the motion passed 5-0.
The district also will purchase student accident insurance through K&K Insurance for a total of $199,353. That amount was $17,000 to $20,000 cheaper than the other two quotes.
The Kentucky High School Athletic Association requires that all athletic departments are insured up to $25,000, Roberts said. Since the district insures all students and not just athletes, the general liability insurance rates are lower.
“That was something that helped us when negotiating with Liberty Mutual,” Roberts said.
The district has retained student accident insurance through Roberts for several years and averages about 100 claims a year, he said.
Response to KSBIT
As a member district, Madison County received a “high-end” estimate that it would be liable for more than $1 million to help pay off a long-term deficit in KSBIT, the district’s chief finance officer Debbie Frazier said in February.
Districts were directed by the Kentucky Department of Education to hold off on any settlement with KSBIT until the department is satisfied that the assessments are appropriate, Frazier said.
Board members just recently received an email from KSBIT offering two repayment options: runoff or novation.
Under a runoff scenario, KSBIT will continue to pay all valid claims.
“KSBIT members have claims that, in some instances, will require handling and payment for several decades,” according to the email.
The value of the claims are estimated by an independent actuary and peer reviewed by another independent actuarial firm. The actuaries would provide a range of estimates of ultimate costs of KSBIT claims with various confidence levels — from a low-end cost estimate with a 37.5 percent confidence level that it is sufficient to an 80 percent confidence level for a high-end estimate.
The email suggested that the board consider using the high-end estimate with the higher confidence level for the initial assessment to reduce the chance of a second assessment.
Under the novation scenario, KSBIT would transfer claims to a large, national A-rated reinsurer to take over the future responsibility for all present and future KSBIT claims, according to the email. “The reinsurer will essentially step into the shoes of KSBIT.”
This option would provide more “budget certainty” to KSBIT members and the total cost of a novation is slightly cheaper than the cost of the high-end estimate of a runoff, it stated.
“We don’t feel like we have enough information to make a decision — we don’t even have a real dollar amount,” said board member Becky Coyle.
Floyd said conversations will begin between the Kentucky School Board Association, the Kentucky Department of Insurance and the KDE in October.
It would be premature to make a decision now, Floyd said. “I think Mr. Lackey summed it up well, in his frustration, that it was insufficient information to give them an answer now.”
“There are a lot of unanswered questions,” he continued. “I think those answers will come. And I think one of those things that will hopefully happen is that boards, such as yourselves, will be communicated with numbers instead of estimates.”
The board decided it required more information to make a decision on how it will pay the KSBIT assessment.
Crystal Wylie can be reached at firstname.lastname@example.org or 623-1669, Ext. 6696.