ALC-Executive Subcommittee

If you would stand. Thank you mister chairman and the litters bower here lord we come to you today thank you for another day becking you for all the things you've done first what are the things that what I see to do for us lowered on this day game was wisdom it was you grace in mercy and jesus night and they were that groups and first with that we'll go into our facility insurance thirty final report mr lee. This is pretty much the same thing as your power point from last week correct with some few changes. If we could less hit the changes and then we'll open it for a questions from remembers. Okay I can do that what I had planned to do which is kind of make the the key points that of it and try to keep it as a sanked is a court that before if that makes sense yes sir that that's awesome with that if you guys would introduce yourself for the record and then i'll recognize you for the report share roberts lee matters adams and lay call morgan matters items and leave. Clint lambert metters adams and land. Okay so. First thing before we get started I just want to uh say thank you to both of the chairs and I want to say thank you to. To jail and marty for their help and for the help of everybody that's been involved through this process there's been a a lot of time and effort put into it on our part and we feel really good about the report in about the recommendation that we're making so mangol will be to try to get through this as quickly as I can make the key points and just logically lay out how we arrived at the conclusion that that we came to so if you'll turn to page four you know we all know that there's three programs in place. And we know that they're competing against each other for similar limits of insurance we made the point that. When you buy insurance like a consumer vs buying insurance like an insurance company that it's not it it's very very difficult difficult to control your cost we identified the five major types of losses in wind is really the driving factor in any catastrophic events that we're going to have one of the things that we found and we will talk a little bit more about this and I think there's probably seven key points in this car presentation but the rates to the schools very and there's some there's additional part of the report that's been added that covers that the limits of insurance based on the. Based on the the concentration studies that we performed tell us that we need higher limits of insurance and then we looked at a trust versus a captive and versus a captive insurance company and we noticed that there was an opportunity to to really strengthen the corporate governments that was in place and then the last thing that I would mention that I think is important for everyone here to understand is that the higher ed program currently has the state property involved in it we did not. Study the state property it's not included as it change our recommendation and it doesn't affect our findings but it is important to know that hired was included in our study so it will that is something that'll have to be addressed at some point if this is adopted. Recommendations we're gonna wear recommending special purpose captive insurance company to be owned by the state of arkansas the name that we gave a couple weeks ago that we like we we said we like the diamond state insurance company but yell can pick whatever you want should you choose to move forward with that we think all programs need to be combined into the one captive insurance company I talked about purchasing insurance like a consumer versus purchase seen insurance like a company i'm on page five. Um the minimal capitalization that were recommending for this is two hundred million dollars significantly more money than we started out thinking that we needed and I will walk you through logically how we came to that conclusion. The structure of our insurance company we need to retain. All of our forecasted losses in order for us to have to be able to control our cost. And then we would buy reinsurance for about two and a half billion dollars. Up above that that would be the goal that we would try to get to so. In and then we got a charge sufficient enough premium to the schools to cover our expected losses the cost of our reinsurance and create a surplus to cover claims. So finally we want to establish good strong corporate governments that is made up of experts within the industry and then we want to have those that would have directors report directly to the arkansas insurance commissioner. We think that it in studying this had also let us to see that they're needed to be a good strong investment strategy which is a corner stone of any insurance company and we needed to begin operations october the first twenty twenty four are there were recommending and we think the greatest risk is not to take action now benefits can protect the schools and create something that sustainable which was one of the goals that was laid out for us it's going to give us a broader press reinsurance markets to approach that are reserved specifically for insurance companies captive insurance companies and not just businesses out purchasing insurance. When you have three programs and you have that are competing against each other that creates fixed frictional cost with your vendors and we feel like their significant savings that can be achieved by bringing their cent to one program and eliminating this frictional cost I would say those can be reduced by as much as forty percent. Yeah. The. Transparent responsible corporate governments is really really important. And if you are currently paying eighty six million. For your premiums and you target a program that would come in around seventy five million it gives 10 a twelve million dollars of savings instantly to the to the schools. In it also does this instead of spending money and continuing to subsidise something that is not currently working or is no longer working it takes a cat it takes a capital investment that remains an asset of the state and puts out asset to work in you know year after year you'll continue that asset will grow and continue to be an asset of the state and then it gives flexibility to the board to determine you know look at how the insurance company is functioning in multiple levers that the board can poor and make recommendations that the insurance commissioner can then approve and adopt or or not and then I think the other thing is that it will set the state of arkansas put us on the map as a captive domastic we started we became a captive domicile over twenty years ago we have very few captives that are domiciled in the state we have really really good captive regulators at the arkansas insurance department that are very very experienced and we could bring arkansas businesses that own captives that are domiciled another states back to our state so we see that is an ansulary benefit of this so in trying to honor the spirit of getting through this quickly. I'm going to give an overview of the project the project was based on the fact that the schools the insurance on the schools increased substantially about a hundred and thirty percent increase and it wasn't sustainable going forward and it had the all three programs had to be subsidized last year there was an eleven million dollars that were included from from governor sanders to supplement the in the cost of the increase so that's what got us here. In addition and what led to that was the fact that we had if you look on page nine the market contacts the multiple billion dollar losses that occurred across the us. Not just in twenty twenty two and twenty three but prior to that that with inflation increased cost of construction led to a capacity crunch inside the insurance marketplace and that is what caused those premiums to to double over night we see this is a paradime shift we don't think that were going back to the old days there is market stabilization that we are saying and there is a little bit more capacity than when there was a year ago which is creating some stability in the market that were not gonna see rates coming down substantially so we believe this is our new normal so. That gets us to less capacity in the market and then if you look on page twelve it just simply shows you that imbermutal and there's two hundred billion dollars in capacity that's available for specifically for reinsurance captives so it gives us access to additional places to look for capacity to to to run our insurance company that we haven't had current status. The current status is we have three programs forty one billion dollars in a property that we're trying to cover and two hundred and ninety five districts and twenty thousand building so we started with. We said the very first meeting we had we said this is a math problem and it really is just a math problem we can make this work. There's a hundred percent chance this solution works it's just how what are the variables and how do we change those variables to make it work and that's this is going to tell us a story that we're going to get to so. These are the variables that we started with on page thirteen page fourteen something that's new to the report that I think is worth taking a look at. So we started out trying to create something sustainable trying to reduce cost. We got into it and we noticed and we had a little more time to study and we just kept studying we we never stopped studying when we had the opportunity to look at more we did we noticed that the rates varied and everybody understands football classifications and if you look at a two a school versus seven school the rates on average for a two a school in the programs are thirty one the rates for a seven a score or nineteen cents now we're not here to judge how that happened we understand how those things happen but if you if you look at this you have an average utilization of a two school that the two school on a five hundred million dollar limit needs eight percent. Of that five hundred million dollar limit the seventy school needs a hundred and thirty five percent of that limit so we've got a two way school paying a fifty percent higher rate for an eight percent utilization of a five hundred dollars five hundred million dollars limit vs a seven a score pain a fifty percent less rate for hundred and thirty five percent elization so when you talk about a paradime shift let me tell you how how the amount of tell you right now being honest with everybody in here i've had an insurance schedule that looks like this for clients myself were we made those decisions it's been some time ago but i'm not second guessing how these decisions were made when you have a two a school that is at a protection class nine fire classification that's unsprankled and you have thirty forty million dollars sitting there. Ten fifteen years ago and even maybe as recently as five years ago that drove a considerably higher rate for that reason so this doesn't it it's not that this doesn't make sense but as how it happened but as we move forward what has changed is the schools that have the seven hundred million dollar limit of insurance next to a school that has an eight hundred million dollars limit of insurance now drives that rate every bit is much as that two a school that was isolated and unprotected so when insurance companies are looking at their pretentional for loss in the size of the laws they're looking at concentrations now every bit is much as they're looking at those protection so we saw this and we said you know what we're going to shannon spotlight on this and we think that this is important that the poorer schools in the state receive some of the biggest benefit of what we're going to do here maybe they'll have the money to reinvest in their facilities and make those better schools so we think that a blanket rate across the board for all the schools when we form our own insurance company is the fairest thing to do and we think that the case can be made that the the insurance industry has changed to the point where that the the largest schools are driving the rates every bit as much as the smaller schools that are unprotected at the bottom of this page on fourteen this is just a scatter plot you can look and move this from the uh from twenty eight cent median you can move it over to twenty cents or you can move it in a move it further to the right but it just shows you that at fifty million dollars is where the are sixty million dollars median issues showing you most of our schools are less than sixty million dollars in most of our school that's most of them were paying the highest rates. And that's just a visual representation of that not going to get into the names of the schools because I don't think that would serve a useful purpose but their schools that are in here where you have a school pay in two hundred and fifty one thousand dollars for eighty million dollars of insurance and you have a school that's in a higher classification that's paying two hundred and eighty seven thousand dollars for a hundred and forty six million dollars of insurance. That's something we think needs to be fixed so the methods and this is where amazon moving through this in the spirit of time really quickly we had aggregator data we had the map or data so we had to take three programs we had statements of values and loss information that had to be aggregated for all of those programs this is to our knowledge had never been done and it was a a pretty pain staking process that we went through then we had map then we had to analyze the losses and build a loss forecast and we had to identify our biggest lost types what were major causes in with them we had to look for what can we do to try to control some of them what are some of the losses that are occurring that we could possibly eliminate if you look at page eighteen this is shows you that there were sixty six million dollars and claims from lightning water damage there snow snow and eyes vehicles running into buildings freezes sprinklers that led to. You know that does your opportunities for us to try to risk managing control some of those losses not saying that that hasn't been done already but by putting more of a focus in more of a spotlight on it that can does your dollars that could go back into the insurance company that we earn so. Go into page nineteen this just shows the largest losses that we've had when really stands out on this page as a yeah a unique event very very fortunate that it happened where it did so we took this data and we then built the loss forecast the last forecast is simply what we believe the loss is will be moving forward interestingly enough I think that lost forecast was exactly the same was as was mentioned by a id in a earlier presentation. Page twenty analysis this is where are. Study shifted. When we started looking at these concentrations we realize that rate and cost wasn't the only problem that we had we knew that we had to increase the values and we did that if you if you look at that map it's very easy to see that. Central arkansas northwest arkansas fort smith you know jones where hot springs not surprisingly those areas you could have a major event that would affect those areas in the limits would be exhausted in addition to that think about this if you're an insurance company really look at that map. What are the chances that you're not going to have a loss if you're writing the property insurance in the state of arkansas and a major weather of that. That's a lot that's a lot of property out there represented on that map so what's your appetite to step in in write it at a compared aggressive rate if you know that claims are going to happen. It within that level so that told us right there we would have to have a higher retention and we would have to have a higher limit and we would have to move to a completely different structure than what we currently have page twenty one just shows you that northwest arkansas there's seven point two billion dollars exposed. On page twenty two i'm going to spend a little bit of time on this central arkansas we have twelve billion dollars exposed if your work almost a year ago we had a tornadoe here in a little rock and if you look at figure for figure for is going to tell it show you the path of the tornadoe the tornadoe went thirty miles. Below that path it's going to show you you l r t up through uams and had that tornado gotten on that path. The limits of insurance that were there it would not have been a good day for our state we would not be talking about building an insurance company and capitalizing with the surplus because they're there might not be one. So having said that. I did some further study on this weekend fitted on this page and it would make too much sense to you but if you take that line and figure five and you take it and you go directly southwest with it. It goes straight and brian ben high school. And then if you take it and you go directly northeast with it guess where it goes luck main. That's just a really scary path in there's other examples that you can give across the state where these things can happen in addition to that you could have another event going on in northwest arkansas the exact same time. At the exact same time so this told us hey we've really got a change the direction of where this study is going because of that. We there new that there would be different components to what we were going to recommend and will will lay out how that led us to what those components are in why they were necessary so moving forward the loss analysis the loss analysis and came through twelve told us over the last ten years you're going to have about twenty eight million and losses the wind said narrows a unique scenario but about forty six over the last five we know it's been tough. We have claims of about seven million a year and eight million a year in higher ed over that period of time the combined data is about thirty five million over that ten year period of time and typically what you want to look at when you're looking at a lost forecast as a minimum of ten years you want to do a ten year look back in a ten year look forward so our loss forecast came in just a little bit north of the average which was right at about forty million. Moving to page twenty eight and and said that this is me going back the value not the valuation but the loss forecast told us we need to have a retention of fifty million dollars we have to retain the losses that were forecasting so that's the port of the analysis that led us to that retention the valuation valuations really really important for an insurance company to collect the premiums that if you have a ten million dollars building and are a twelve million dollars building that's insured for ten million dollars then you're in your only collecting premium for a ten million dollars building that is not inefficient model for an insurance company to be profitable in successful so valuation is really really important and there were some concerns that were discussed early on about some of the properties in one of the programs that might need some that similar valuations to be addressed. When we realized and move into corporate governance. When we realize that we would be. Recommending a very large capitalization in that we would be recommending a fifty million dollar retention in that we would be trying to do this and achieve higher limits we started looking at the corporate governance that was in place for the existing programs and you can go to the appendix in the appendix has the trust document the appendix also has the captive regulations that are in place and they lay out specific specifically how they function and we looked at both of them which is what led us to the captive recommendation cause we saw the need for stronger corporate governments if you look on page twenty nine it just shows you and just what how trust works everything everything flows up through the risk manager at a id into the arkansas insurance commissioner and the wrist manager has the responsibility of all of the functions of the trust beneath it. We felt like the combining three programs particularly won that it was the school boards program that was separate in on its own the risk management the department would already be taxed trying to bring that in in addition we thought that we knew we would be asking or making a recommendation for a lot of money in the state to take a lot of risk so we believed at that time that we needed to build a board of directors that was separated in the two distinct functions and inside an insurance company. All insurance companies are broken into two distinct functions response and risk management wrist management focuses on. Valuations risk engineering lost prevention and then you have the claims management piece that focuses on bringing and claims for the least possible amount that you can the wrist finance piece handles. The reinsurance place met handles your captive management in this particular case which would all the accounting all of the auditing actuaries reports that have to be referred formed if you are going into a captive tax. Yeah anything tax related all of that is handled by your captive manager. And then having an investment advisor sitting on the board making recommendations about how the captives assets should be invested so and then you would have functions that the board handled all together looked at every single year which would be your assessment of your retention review of deductibles sub limits and your level of insurance coverage again. Recommendations all made to the insurance commissioner they're not not that to deborah the board can decide these things they have to be approved by the insurance commissioner and then finally there's just some contrasting regulation in regards to captives and trust on page thirty i'm not going to go through all of those function. So. This. We went through. We looked at the concentrations with which led us to our structure which led us to the other things that we've been recommending in an order for this to function and will get into you on page thirty three it will show you. That example at the top we have forty billion dollars we have a re insurance rate of ten and a half cents that were targeting we taught to partners that we have in the reinsurance markets that indicated to us that this was an achievable number. With a fifty million dollar retention to get to a two and a half billion dollars limit of insurance so we believe that this is an attainable number we would not have it in here. Policy holder surplus who were trying to build a. A spread between the re insurance premium that were charging. And then the to create a surplus. And then also offer a decrease in the cost to the insurance to our to our schools which is the seventy five million and premiums so this was how we looked at structuring theirs to get to a two and a half billion dollars more insurance for less for less money in the only way that we could do it was to wish to structure it this way take more risk in then add into this a good sound investment strategy which would create additional income investment income which would cover the difference between your forty million dollar loss forecast if you can see the thirty two million dollars. In policyholder surplus premium that's there we've got to get. To forty million dollars to cover our loss forecast well that led us to a capitalization that would be necessary to create that kind of investment income if you don't want to capitalize the insurance company with that type of money then you're going to have to charge the schools more money there's just there's no way around it so we have a one time lever which is going to be our capitalization and will show you how this performs at two hundred three hundred million dollars I will remind everybody in probably one more time before this is over this month is not going to the insurance company this money is staying inside in insurance company that the state earns it's an asset of the state in will remain as soon as the state and that is what is fundamentally different about our recommendation versus anything else that's going on is that the money when you give money to an insurance company it is gone forever they are not giving that back so. We have and we're recommending a captive effective day you can pick whatever date you want but we think six months this can realistically get off the ground the annual levers your retention you know that retention could go up that could retention could go down the deductibles charge to the schools we can charge the schools different deductibles based on taking this through a proof of concept phase in the information that we get back. Two and a half billion dollars of reinsurance you don't have to buy two and a half billion. But you should and we think that you should probably bought more than that. But we don't know if the math will work to make that happen eighteen and have sent rate is what we should charge then that's a good targeted rate to to provide some savings to the schools and get the coverage that we need. Should be looking at annually the terms and conditions I think senator rice mentioned cosmetic damage exclusions for roofs at one time I think representative ward law mentioned you know acv for roofs over a certain age so those are things that can be looked at on an annual basis based on the performance of our insurance company that's what your board of directors should be doing every year and then reporting to the the arkansas insurance commissioner and then how much do we self insure can we start insurer self insuring the two a schools and how much more money does that keep inside you know diamond state insurance company and how much more how much more do we keep in this system that we can earn investment and come on so that shows you the health would function if we started this with a two hundred million dollars capitalization ten years ago we'd have three hundred and fifty six million dollars in the company today based on the losses that we have in the the assumptions that we made that's with the fifty million dollar retention if you look at the so we get a page thirty six we've got a recommended structure and strategy in this just simply lays out what a captive looks like and how it would operate if we have our capitalization two three hundred million that's going to create investment income we have our program or eight per one hundred dollars a value that we charged our schools which creates surplus. That creates revenue for a captive we retain our losses and then it creates a surplus beneath that that we're earning investment in come on. In page thirty seven and just talks about our board of directors and lays out operationally how a captive works based under the statue page thirty nine talks about reinsurance markets and access to capacity that you have inside an insurance captive. We get through then a outline that really is based directly off of the captive regulations that are in the back in just shows you exactly how the domicile the you know the reporting information examination by the insurance department your board of directors just everything specific to the capital captive banking investments claims lost control all of those things and if you want to read it further in depth as a sad the entire regulation is in the back. So when we realized that we would have a shortfall based on trying to save premiums for the schools and the amount of premium we could collect versus our reinsurance cost we knew that we needed a good sound investment strategy in order to offset that shortfall so. The. If you will get page pages forty five through to. And. Through sixty three. Umm this is broken into three specific sections the first one is just shows you that how. In in how a captive insurance company it's a proforma here's three pro formats in it i'm once for two hundred million once for a hundred million then once for three hundred million and if you look at the top left hand corner of any of these tables it shows you what the capitalization is and then it shows you after ten years how much money and capital and surplus is still inside your company the pro form on a two hundred million dollars in a capitalisation if that's your seat capital that you put in two hundred and thirty one million after ten years a hundred million you would have seventy nine million left so we would be operating in the red at that point if you look at a three hundred million dollars investment you would have three hundred and ninety seven million dollars is how it would perform that is based up fine and there's information and here about the current treasury yield i'm not going to get into all the details on that but if you look at when we currently look at this a one month three month two minute five year and thirty year all of those yields were north of four percent so we feel like that a four percent was a very conservative number that we used to to make these performance and then if you go back and look from nineteen sixty all the way to current time there's been very few times where the yes treasury yield was was less than that um. It shows we have graphs that show the surplus over time how each would perform and then we go back in we show that. With higher losses they you need more capitalization so if you look at a two hundred million dollars you know two hundred million dollars capitalization in higher losses at the end of ten years you have a hundred and eighty three million dollars left at three hundred million year at three hundred and thirty one million on a higher loss forecast and that's building for inflation trending with me we expect building material costs to continue to rise we expect reinsurance costs to continue to rise so you know when you look at this not considering inflation what's going to happen over the next ten years when you try to do this right the first time we think it's really important to look at that finally there is a scenario and I don't think it's a very good one but if you want to just hold everything static in charge of schools the exact same amount of money. Over a ten year period of two hundred million dollar capitalization when you'll do you know you'd have a hundred and forty nine million still left in your company and then two hundred ninety seven million left in your company with a three hundred million dollars capitalization that's holding your premium static that's not realistic in that the insurance commissioner should say no if the board of directors recommended that that we did want to show you what it would look like. And then there's a report on inflation building material cost what we expect real estate costs to do. It shows you also that over the last five years insurance premiums have gone up double digits every single year so not modeling an end that reinsurance cost are going to continue to increase in trending this for inflation would be in would be a mistake and finally just shows you the liquidity needs to be better based on the investment constraints that we have to deal with inside title nineteen we have to have fifty million dollars of cash liquid at all times so there's two different ways to look at this if we took a modified you know in investment strategy modified in with only you know half a point of the increase in yield we could get an extra million dollars a year in investment in calm so you know having that investment advisor have that seen the table to really give us a good solid strong sound investment strategy too to get the most for our money we think makes the most sense and then finally in concluding. So our conclusion is this we think that the state should start its own per special purpose insurance captive that retains all of the losses. Are attempts to retain all the losses that are within the annual loss forecast allowing enough premium for investment income to cover all expected claims and cost of reinsurance. Umm. Three three programs by an insurance is not efficient or sustainable we think that all the schools should pay the exact same rate per one hundred dollars of value whether they're big or their small and the time to address that in the time to fix that is now. Be also think that there are higher limits of insurance that are needed. There is a loss forecast of forty million dollars and that led us to have to approach the market differently. And then we think that focus on proper portfolio port corporate governance and risk management. It's gonna yield additional savings and improve school quality so need to start purchasing insurance like an insurance company and not like a consumer and we talked about the fact that if you do that you gain control you control your cost. We get our values to where they need to be the resources get directed where they need to be directed and that the implementation risk of doing this if you move to a proof of concept phase or basically zero because if the concept is not proven and doesn't turn out that this can go into a fact and you don't achieve the goals that you want to achieve then you don't have to do it so but we're very very confident and the recommendation that we're making. Finally I want to say that. It's very very difficult for us to envision anything other than the structure that were recommending anything that could compete with their structure that were recommending that could achieve all of the things that were trying to achieve in this program you know get rates flat for the all the schools get higher limits and reduce the cost we just don't see another way to achieve those things. The cost of doing nothing and continuing to do what you're doing ten million dollars a year in perpetuity discounted it four percent that's about two hundred and fifty million dollars that's the sea capital start this entire insurance company um in btw that's money that would all go away. They will go to the insurance companies and you would not get it back the cost of not doing something could be in the billions with a severe weather of it so. What we're recommending is that the committee moved to a proof of concept phase we feel like this is the next logical step and if you work on page sixty five of the report page sixty five will show you how a board of directors would work together over the next six months to achieve taking these from a you know from a concept in taking it into practice and we think that the next logical thing to do is to select an implementation team have that team established the board of directors that board a directors be made up with the corporate governments that we discussed and work between may in october to achieve a desired result and then if they were able to achieve that desire to result in august and report back to this committee then you would cat then you would make the necessary capitalizations and you would put this into practice in launch or captive in october so this the studies laid the groundwork to do this and we think the best strategy forward is to take a zero risk. Uh step to put this thing in the place over the next several months. I will tell you that. I'll think that we've done anything but this for six months. This is all we've done is study this. We'd feel like that we have done what we were hired today that we've provided a service to the state. We're very very confident the report we've written. We would love to be a part of seeing this and practice but regardless of what happens from here we do believe that we have found the solution that you asked us for our will tell you that when you if you decide to do this. I think that it's really really important that whoever you entrust us to as somebody that believes in it. Thank you. The. Questions a number of people and that's because people the room if set through the presentation largest with the exception of the classification I then combounded that she brought into this particular presentation and II guess really my question is for us and it has legislators and where we're going to go from here. You know I mean I think we have a report I think even if you just took it it's bare bones in acknowledge and you would have to acknowledge that the friction exist. And so that's you know good moving up through someone else is getting paid provide the services and there is a value or potential benefit to the state of creating number one and investment non an expense of an insurance company and then being able to buy passing those frictional costs that exist or with the current set up not to mention the fact that the what we have right now is clearly not sustainable that's why we're setting here you know. Probably you know the the strongest lobby that the state government has is inertia. And I think as i've set through some of these meetings that's what I hear more than anything is that essentially this is the way that we've always done it and this is the way that we need to keep doing it. And I just don't think that's a very good practice. We have the opportunity because of what we've been able to create in reserves and trustment balances to be able to create long term savings for the state which I think will reward our tax payers with the potential a decreases in cost as we move forward which returns and allow us to provide more back to the citizens if we're willing to take the risk that's associated with establishing this. Again II kind of want to know there's I have some questions and probably not even for your governance is going to be important if we were to move in this direction there needs to be independence and we don't want to create you know a typical government on the sheen that is subject to lobbying and political influence and we want a machine that would be subject to analysis and. It in really market forces with keeping in mind again that we're trying to lose some of those ongoing costs who again my question would be maybe deletion of this committee it it has to involve more than us it's going to have to be in conjunction with the executive branch and we're gonna have if we were to move forward and how would we want to do that I know we have a report in front of us I think and I appreciate the work has been put into it I think there's a lot of to be honest common sense in the report but where do we want to go from here. This. Senator dots and you recognize thank you mister chair. Just a. Question I think as far as you're looking at page sixty four your proof of concert your conclusion here. Talking about the state owned insurance captive. Charges the same amount per one hundred dollars. Of insured value. Yeah. Is that a. An initial starting point based line. What if you have some some schools or districts that are are. High claim abuse abusers of certain factors are their rates going to go up or does everybody's rates go up as they make those those claims so in insurance pool. Which is which is what this would be. Is where you share risk with other people. It that are at it and as you start to understand that you know and you almost have to look at all of this as this property belongs to the state of arkansas and that's why you're setting the september sway so when you look at master insurance schedules and we deal with lots of them in you know the hundreds of millions of dollars and you have a blanket rate that you charge and you may have a me now a building in one area that has a claim and it may not have a claim for ten years and you may have another one and that's the reason that you pull it all together so I think that it would be an absolute account in nightmare to try to. Keep up with all the different rates in establish the different rates for this many different properties and you know the the reality of it is is right now your smallest poorer schools are. Just they're just paying the mast and that doesn't seem to make a sense that's right I have those if you have claims of a. Of a large amount that are for things like the third maintenance and and and things like that so it's poor mismanagement by that school district it's not state owned property it's locally controlled properly rato just one make sure that we're not getting to the situation where uhm. They're not paying any additional premiums regardless of how many claims they have for for string aspects of things they can attack on to that. We believe that the most efficient way to kind of combat claims misuse would be through policy language and stuff like that will be the proper replace to address that. Yeah then that's where you're you're bored the annual things that you would look at in it specifically talks about the policy language that's where you're looking at your claims and if you feel like there's a deferred maintenance issue where you have a roof that's twenty five years old that all the sudden you know has to be replaced you can write and you could do it on the front end you don't have to wait a year to do it but that's part of what your board of directors would sit down and do is build the policy slip in build that language in there to protect for the deferred maintenance things that you're talking about and that's not in the interest of anyone to have one district paying for the deferred maintenance of another district and you know that I don't know if that answers your question but we think that's where that should should take policy within this report for that yes it's in there okay thank you. Thanks since your dought central gio more you record. Thank you i'm sorry etc but then wrong seat no appreciate it thank you so much so II tend to agree with senator dismaying I thought your report was very well done I think that. I think for me though it stood out the manners for some page twenty three when you said and it goes to that frictional. Um. Frictional frictional. Competition in the marketplace that exists but that the inefficient nature of the three programs competing for the same capacity. From the same insurance companies at the same time every year that led to this problem so could you just expand a little bit on that sentence for me as far as capacity. Am competing for capacity and properties covered or. And could you just expand on that idea for me real quick and I have a few more questions. So if you're buying so the way it's currently done as you have. Two programs that purchase five hundred million dollars of insurance and another program is purchasing seven hundred million dollars of insurance. So you're. Go into the same re insurance markets the same pool of insurance companies in your asking for the same limits. And that's a very inefficient way to do that so that capacity that first dollar capacity is at a much it's attaching to the much lower level the deductibles are lower and so instead of building that five hundred up to a billion and up to one point seven billion your your buying the same the same amount of thing amount that you might exact yes and your in your pain for all the the frictional costs that go along right with that with all of the you know okay I think there's a you know a. A US broker in european broker and I mean there's just a lot of different costs that go along with that in your multiple times for the same limits of insurance okay so make sense absolutely no I don't think it's just a it's something that's really sticks out to me the other thing that stuck out to me the most also was the fact that you've got your two a schools and it like the way that you broke that down pain more so did you do did you look at like what you're flat rate if you you suggested a flat rate i'm not sure if you put a dollar amount to that or not but how that flat rate is in comparison to you with their currently paying I would I would assume some would be more somewhere be less but it would be fifty so if you work at the. Start fourteen on the low line graph their scattered plug whatever it's called. Um one and a half boxes over in between the fifteen the twenty five you draw line just straight up the graph around there that's about eighteen fifty and that would be where hours would be in all the all the dots would just be winding up and down that line. Okay. Okay thank you that is about seven or eight schools that. What actually. Have to pay a little bit more it looks like but they also most of schools need the higher limit of insurance two so it wouldn't. Yeah adversely affect six or seven districts had a two hundred and seventy not not that adversely ok and then and then kind of along the lines of what senator dots and was talking about is has there been maintenance on policies previously what i'm meaning by that is when you looked at I think you had a list of the different types of claims that we could actually have an impact on rate so have we looked at it and I know just personally speaking i'm not an expert at all and insurance but I know from time to time you know you as a homeowner need to do a maintenance of your policy and there could be things that have been changed or added or new technology things like that do you know that it has have any of our policies kind of been maintained properly. When you say have the policy has been maintained properly i'm not sure exactly the valuations like the valuations of the properties than any changes upgrades fixes it is it is our belief that the arkansas insurance department has a very very strong valuation process and has done an excellent job with that in terms of the arkansas school board association not that there has been. A bad job but we think they're our potentially some valuation issues with some of those properties so that could be a variable that could affect right right but there are you know there's water waterflow systems that can be put in in terms of say sprinkler please age those types of there's all types of things that can be done in the board could even look. Had a rate increase in in a look at maybe a rebate for schools that do certain things to get some of it so there's all kinds of things that can be done when you were in control and that's that's the point of this you'll be in control of it of what happens to those are the risk adjustment side of the government sport that you put correct the claim we'd make we think having. Experts in all of those specific areas sitting at a table making those decisions together reporting to the insurance commissioner. Is the right thing to do and then on the governance erm that you laid out on the investment side I would assume that a little similar to like maybe what we have for our retirement systems or now I mean are you thinking I mean so title nineteen governments that but we do think you have in a voice at the table of someone in and I think I think it was so soon just maying that mentioned it a second ago but. You know having a voice at the table in. I mean you're going to start a company. This is not more government that you're starting you're starting a business this is an insurance company so it has to be operated like a business and you want business minds sitting at that table and when he was talking about their being in a more governmental influence and not operating that way that's why you need that corporate government structure and you want business people sitting at that table you have the government oversight over the top of it with the arkansas insurance commissioner sitting above it right but four of the members of that border made up of a business people in the community and when we think that you know though whoever handles the insurer the procurement of the insurance should you have the same company shouldn't be in handling the investment strategy they need to be separate third party all no conflicts of interest have a voice okay well I appreciate a expanding on that is points and and again just I thank you for your work about appreciate it very much thank you mister chair thanks to urban representative brooks irregular will a hit hit a fat finger hit your key again here you thank you mister chair appreciate it and thank you so much for your you're not only in are you yeah I know yes thank you thank you guys again for the hard work in the six months of work on anything it's not too easy what's less six months of work and relative to a government programs is probably looking more danting so um i'm surprised that you're not all great headed by this point quick question I noticed on page three executive summary no actual studies been performer a lot upon in developing conclusion rather recommended that actually where you'll study be conducted by the board of directors so my question relative to actual science obviously that's kind of the foundation of how we approach things in the insurance world when looking at. You know potential losses were looking at how do we take grade how we forecast things what might have changed and this conclusion should we are are we saying that the dad is not quite what it should be what might have changed in this conclusion we're not saying that at all what we're saying is that it was an actual study would have been premature until we know exactly what concept we're moving forward with and that in actual study in fact until you know what it is that you want to do you wouldn't spend money to have multiple different things analysed if the state doesn't want to make this type of investment in this type of strategy in this type of capitalization it would not make sense to do that so it's not something that were saying you should forego we're just saying that until you know exactly what you want to submit to the actual firm and we think you should have a third party actual firm and in fact the one that we would use actually has a property captive that they have a hundred private universities that they report of and they had one of the largest property captives in the world right now so but it was premature to do that but definitely that would be a part of the proof of concept phase and come back and I kind of feel like that. The capitalization requirements from the actual study might actually be less than what the capitalization requirements are based upon what we looked at because because remember what drove this. We got here because we wanted to pay less money so we always made that a part of our study we wanted it to be sustainable and once we realized we had to have more insurance on top of it the only way to do that was to increase the capitalization based upon the lost forecasts for forecast and when we first walked in here I think I think the first meeting I said you give me fifty million dollars i'll figure this out and then every time I came in it went up then humber kept going up so until we knew where we were going to land with all of that was sure but that would be. If you move to a proof of concept phase that would go into action in in may april or may. Thank you follow mister chairman said and she questioned it us thank you appreciate that is there potential of there could be significant changes. To the conclusion with we don't think there's gonna be significant changes to the conclusion based upon any of that we wouldn't have spent six months writing and eighty five page report income in here and presented it to you if we weren't confident with the conclusions actually all steady will support what's in this report thank you mister. Thank you central dismantle recorder in I think you know his questions kind of go back to the initial question is where do we go from here I mean there's a two point a percent cut proof of concept who all needs to be engaged how it how do we want to develop that outline you know I think this may not be the final thing that we do and you know that's okay if if we provide that maybe it doesn't work or we feel like they've been in the direction or maybe we don't want to be that visionary what however and that's fine. Again like I said earlier I understand change is probably in the most difficult things to do especially if miniate players as you have in this particular equation. But I would. Just a question the chair where where do we want to go from here how do you want it how do we want to further this conversation how do we determine the who needs to be at the table and that sort of thing thank you eh so introduced maying in a would you say I think it's. A evidence that today with the report and and we do think uh mister lee lamberton bargain for your exhaustive work on this that it's clear that uh based on presentation it we're going to need to have additional meetings a century dismaying is is a mentioned things when you do there is common sense things are nice there's very complicated things in this. Uh. I think we all realize we all admitted or not status quo is not going. Work we've had to do something so where fixing me in physical session I would say we're likely meet some damn during that and we will have more discussion on this so since this means anything else that that you have seen no questions for media the members again thank you german for you presentation report is we'd ideas this and we will be of more into where we're going from here I have one last comment that I wanted share with everybody here I mean number one I think i've made it clear yellow no were available. If it was wanted for us to work through this proof of concept phase but. The last thing I want to leave you with and I think it's really really important doing what's right is not always doing was popular or what's easy and it wouldn't easy to come in here and make the recommendations that we've been making in a public open forum a spin of a difficult thing to do but we did what we believed was in the best interest of our state in the best interest of the schools. Thank you. Thank you thank you members being her day can thank you gentlemen for all your work on this and we are journal.