ALC-State Insurance Programs Oversight Subcommittee
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0:00
Thank you.
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Thank you.
If you could find your seats, we'll be starting.
Representative Robin Lundstrum
Unverified
4:30
Let's go ahead and start. We've got a review and approval of the action for the State Board of Finance. Mr. Wallace, if you could come on down. Introduce yourself for the record. Grant Wallace, Director of the
Speaker 11
4:54
Employee Benefits Division. Okay, let's hear it. What have you got?
Speaker 13
5:00
So the contract before you, there's only one. This is for our agreement with the EBRX program, UAMS, and it's for one year and at an amount of $1.68 million. I'd be glad to answer any questions. Let's open it up for questions. I know I've got
Representative Robin Lundstrum
Unverified
5:17
a few, but let's start with members. Senator Hickey? So I guess
Senator Jimmy Hickey, Jr
Unverified
5:27
maybe I'm confused. there's an amendment two and amendment one is that correct on the sheet that i'm looking at
Speaker 13
5:33
yes sir amendment one is what we the original and what we did last year amendment two is for this year for the
Speaker 21
5:44
one year okay why does it say new expiration date 6 30 of 2025
Speaker 13
5:49
that would have been the what is it currently expiring okay so that's the agreement and then we're extending it the new expiration date would be at the line above that at 6 30 2026 okay
Senator Jimmy Hickey, Jr
Unverified
6:01
so but but the total amount is just a million 680 yes sir okay for the
amendment 1 amendment 2 and 630 of 2026 so this is not this 630 of 2025 was just confusing to me on this yes sir okay thank you I'll
Representative Robin Lundstrum
Unverified
6:22
dive in I've got a few questions yes ma'am the original contract our memo
of understanding was 10-6 and this is supposed to be 1.6 million per year but the math doesn't
quite add up can you help me figure out because if you take the same trajectory right now it doesn't come out to ten million six hundred and fifty six thousand it
comes out to eleven million seven hundred six thousand so help me understand why the math is
Speaker 13
6:53
off a million dollars yes ma'am a lot of these are pre-plugged kind of formulas so just bear with
Speaker 14
6:58
me a minute in that the total projected is based off of kind of the first year that we enter and it runs it out seven years now we have the ability to update that every year
if we think we're going to run higher than that amount at this point we have been averaging a spend of 1.5 million so if you take that times the seven comes roughly to the 10 and a half which is why that figure has not been updated but it is a figure that we look at each year and have the ability to update as we see if spending were to increase beyond what we think it should be we will update that top end as well but this isn't intergovernmental so it is year over year
it's just that the particular procurement form that you plug these in automatically calculates that number when it sends it over to the legislature for you all to review so that's kind of an auto number based off of what the very first contract number was plugged in at times the seven i hope i've made that as
Representative Robin Lundstrum
Unverified
8:02
clear as mud you did sorry it just seems like the the auto number came back higher so i i just
Speaker 13
8:10
need well the auto number if we go off of our updated 1.68
Speaker 14
8:14
would actually be lower okay and that that's where i'm saying it's actually calculated off of the very first which was a lower amount like this contract started out a little bit lower so that's where the math gets it at we have not updated it because we haven't overspent we're not we're not hitting our annual authorized max at this point so we're comfortable with where that number is but again it's really
Speaker 13
8:42
a number that we're not quite held to because we look at intergovernmental contracts
Representative Robin Lundstrum
Unverified
8:46
every year okay i'm going to step out and let other
people ask questions representative Gardner you had a question it's all me oh boy gee all right well let's
keep on going then what type of audit process goes
Speaker 13
9:18
into this right so they are reviewing our all of our client
pharmacy claims uh internally and they are they do that on an annual basis
Speaker 14
9:26
and they're looking at everything from the performance guarantees they're looking at how a claim activity from start to finish what is what the pharmacist enters into the program versus what is actually um adjudicated at the end of the day making sure that that is where contractual obligations that we have with our pharmacy benefit manager as long as they're staying within those guidelines and what we've
agreed to they check off that everything looks right if anything is out then they go in and we talk with our pharmacy benefit manager reconcile that outage make sure we understand what happened if there's an explanation for it and it makes sense okay if there's not then a correction is made for the plan when
Representative Robin Lundstrum
Unverified
10:11
you say correction is made is that funds funds coming back to us for inappropriate payment or overpayment both it could
Speaker 13
10:17
go directly back to the member or to the plan depending upon what what that percentage was uh i
Speaker 14
10:23
mean if it was all on the member side then that
refund would go to the member if it's a mix then the plan would get some if it's on the plan
Representative Robin Lundstrum
Unverified
10:33
side then the plan would get all of it who's
Speaker 14
10:38
auditing the coupon coupon portion uh ebrx does ebrx and making sure that those are appropriately applied and are at the rates that they should be and that everything is all the math is adding out
Representative Robin Lundstrum
Unverified
10:50
at the end of the day okay explain to me how medi impact or novitas or who who handles ebrx's chain of command is that all in-house with ebrx
Speaker 13
10:59
right it is all in-house they are they are a part of the college of pharmacy at uams they are not related to a pharmacy benefit manager or anything like that okay any
Representative Robin Lundstrum
Unverified
11:15
other questions by members all right I
need a motion to review and approve motion to
approve accepted second representative Beck all right moving on we need a representation or a presentation on captive insurance J.R. Bizzell Ted Grace Ed
Corral and Kyle Hales y'all come on down
Speaker 49
12:09
If you could introduce yourself for the record, please. Okay, maybe I'll start, and then I'll hand it off to J.R.
Speaker 51
12:24
Yeah, J.R. Bizzle, Senior Vice President, Stevens Insurance. Okay. Can you guys
Speaker 53
12:33
hear me if I speak? I apologize. Go ahead. Yeah, J.R. Bizzle, Stevens Insurance, one of the leads on the placement. i know kyle and ed are also on via zoom okay let's go
Representative Robin Lundstrum
Unverified
12:41
ahead and see if we can pull them up
are they do we need to do anything with them
to pull them up okay one moment for technical difficulties I think
while we're waiting, we're going to back up just a bit. We had a motion by Senator Dismayne and a second by Representative Beck, but we needed
a vote. So if we could go back and all in favor say aye over this. Aye.
All right. Thank you all. Doing a check to see if you guys can hear me. All right, let's go
Speaker 64
13:47
ahead and start then. Can everyone hear me? This is Kyle Hales from Pern Night.
Speaker 65
13:52
We've got you, Mr. Hales. Who else is on? This is Ed Corral with Willis Towers Watson. I'm a director of risk and analytics, and I lead our
Speaker 49
14:11
captive consulting function. All right. Anyone? Let's go ahead. I think, yeah, I think that's it unless there's anyone else there. So can everyone see the screen? It should say Arkansas Bureau of Legislative Research Final Analysis Results in Transition with today's date.
Speaker 64
14:25
Kyle. Yes. Okay. Yes. Okay. Excellent. Thank you. So as I mentioned, I'm Kyle Hales. I'm a
Speaker 71
14:38
principal and consulting actuary at Per and Knight. What we've done here is we were engaged by the Bureau of Legislative Research to essentially kind of do a review of the captive, I'm sorry, a review of the state insurance uh plan and and uh programs for uh you know for the state of arkansas can everyone
Speaker 49
14:58
see the slides moving i see it on my end but on the shared one i'm not sure that
Speaker 54
15:09
i see it okay maybe it's just a little behind kyle i believe this jr i believe i'm gonna have to run
Speaker 70
15:16
it from my end so just guide me on what
Speaker 64
15:20
slide you're on and i'll move it forward
Speaker 71
15:23
okay um i'm actually back a slide. Is that right? No, I think that's right. Okay. So as background information, we're talking about commercial property insurance for K-12, higher education, and
publicly owned buildings. They were previously under the guidance and direction of three separate agencies, and they represent a total insured value of about $54.5 billion. What we had done, we started just with kind of a quick high-level analysis here, which just shows the total insurance expenditures by program. And what we could see here is we went back a decade, so you could see starting in 2016
all the way up through 2020, the costs were relatively flat. And actually, to back up a second, by total insurance costs, I mean what they paid out in terms of self-insurance, what their excess insurance premiums were, and in addition to that, the operating expenses. So we could see from 2016 until 2020, these numbers were relatively flat, fairly consistent, averaged about $22 million a year. Then in 21 and 22, these numbers jumped up and jumped up quite a bit.
It went to about in the mid-30s in terms of what those numbers were, mid-30 million. 23, a pretty significant jump as well. 2024, a very significant jump, and it started to level off in 2025. So, JR, can you move maybe
Speaker 78
16:52
two slides up? Okay. so uh what my firm
Speaker 76
17:02
were engaged by hold on one second yeah
Speaker 64
17:29
There we go. Okay. So what my firm and I, about 15 months ago, we were engaged by the Bureau
Speaker 71
17:44
of Legislative Research to do some analysis on this. So we did a couple different things. This slide here, I'm not going to go into a lot of detail here, but ultimately we did some research just to see what other neighboring states were doing in terms of self-insuring their property and
casualty insurances. What you can see here is quite a few states do self-insure several different coverages in addition to property. We did a deeper dive in the state of Tennessee, and they specifically formed a captive
Speaker 64
18:20
in 2022 to self-insure both their property and their side We can move a slide forward. Another analysis that we had done is we performed an actual
Speaker 71
18:32
analysis, and in essence, we kind of looked at the overall cost basis on an agency-by-agency basis.
And what you could see here with this slide is the biggest takeaway really with this slide is that, you know, one of the questions that potentially came up is, should we combine the insurance operations of the three entities into one? And this slide shows that, you know, every once in a while, the, you know, the orange bar might be the highest, sometimes the gray is the highest, sometimes the blue is the highest. In essence, what this means is that there is some benefit to diversifying the risk by combining the three entities into one.
This way kind of normalizes the results a little bit. And also in this slide, too, no major surprise. You could see the losses themselves were fairly low, again, going back to 2016, 2017, and then significantly increased. So no major surprise that the overall
Speaker 84
19:34
insurance costs had gone up as the as the
Speaker 64
19:40
claims had gone up. So, Jared. Yeah, thank you. So one of the other analysis that we had done
Speaker 71
19:47
is essentially to look at the overall retentions that these agencies had relative to relative to the overall claims that were that had incurred.
And in essence, it came down to one thing, and this is the blue bars here, where if you look at what the retained losses are versus an adverse scenario, you'll see that that difference
Speaker 76
20:11
is very low. Really what this is saying is that there is a
Speaker 64
20:17
big benefit for the estate to take on more risk. So the reason for doing that is,
Speaker 71
20:24
let's just say, for example, you're working at a large corporation.
If you have a million dollars in insurance claims and you're pretty convinced each and every year that you're going to incur a million dollars worth of insurance claims, in order to move that to an insurance company, that's a very inefficient process. because the insurance company is going to look at that and say, well, you know, we need to build in our cost structure. We need to build in our overhead. There's taxes. There's a profit that we want might want to make. There might be commissions. A lot of different aspects go into this. So in essence, what's happening is by retaining the risk that they were retaining,
but not retaining enough risk. Ultimately, they're passing too much of the cost onto the excess insurance carriers. And we see a big benefit in, you know, in these agencies retaining more risk. We can go on to
Speaker 64
21:21
the next slide. So we came up with a couple observations here, and Jer, maybe you could
Speaker 71
21:26
just kind of scroll through these. So up until 2023, everything was, I'm sorry, up until 2020, everything was going well with the agencies. The total insurance costs
were increasing slightly. The fund balances and net positions were rising. No real actual studies were being performed. And then the warning signs started in 2021. The excess insurance premium started seeing not just unusual increases, but very significant increases. And in 2022, two, the insurance market begins
Speaker 64
22:00
to harden. J.R., can you move? Thank you. And in essence,
Speaker 71
22:07
what we noticed is there really wasn't, unfortunately, there wasn't a great plan to kind of address this situation. You know, what ultimately ended up happening is the agencies had some additional net position, and they used that net position to buy down the insurance premiums. But in essence, they may have been able to either increase the risk or otherwise come up with, you know, some other solutions to potentially address the hard market.
So in 2024, there were some actual studies done that addressed the IDNR, but unfortunately, they didn't consider any higher retentions. There wasn't an actuarially appropriate rating plan developed. In the baselines comparisons, there was nothing that we could compare prior to 2022. with these analyses. So, you know, on an overall basis, we observed that the whole process really needed an independent, holistic risk management approach to assess the agency's capacity to
retain more risk, potentially pool the self-insured retentions for each of the agencies, and also optimize the
Speaker 64
23:19
participation in any risk pools. So, the results of this were, you know, based on our recommendations
Speaker 71
23:28
to the Bureau of Legislative Research, the General Assembly enacted Acts 560 and 779, which resulted in the creation of the state captive insurance program. So what did
that do? That formed a captive to self-insure the entity's property coverage. It combined the insurance operations for all three entities. We also had suggested and was approved to annually consult with an independent strategic risk consultant to optimize the use of the captive, and finally to annually perform an independent actuarial analyses. And with that, I'll hand
Speaker 90
24:14
Thank you, Kyle. So we can go to the next slide. So just a very brief high overview about captive insurance companies. So what is a captive insurance company? there are about 6,000 captive insurance companies around the world. About 55 or 60 percent of them are located within the United States. And the best way of describing it is it's kind of a miniature insurance company that exists almost solely to serve the risk management and insurance
needs of its parent, in this case, the state of Arkansas. But again, just back to some of the numbers, about 6,000 captives worldwide, they write roughly $200 billion in annual premiums worldwide. So captives are not a new technology. They've been around for about 50 or 60 years, and they are widely used by private corporations to create discipline and formalization in risk management and insurance. So rather than hold on to the risk, what they do is they create an
insurance company. And it's kind of depicted here graphically. You pay premiums every year into the insurance company, and it pays losses when the losses occur. That insurance company also might purchase reinsurance from commercial reinsurers. And if very severe losses occur that go beyond the ability of the captive to retain the risk, this is where reinsurance might kick in and reinsure excess losses. So again, the intent behind a captive insurance company, again, is
somewhat a miniaturization of what commercial insurance companies do, is that they try to create risk pools that create stability among different organizations to harness the overall economic strength of the combined buyers of the insurance and create a more stable result for the entire group, i.e. state of Arkansas, rather than have everybody be on their own. So what's good about captives, among other things, is that it makes it possible to trade
in the risk transfer market for the whole portfolio rather than individual groups going into the risk transfer market and maybe not getting the same or an optimal result. Excuse me. We can go to the next slide. so the um there are some there are some contrasts and comparisons between con between captive insurance companies and simply self-insuring and the way i like to put it is that the most
important thing that a captive insurance company does is again it puts a regulatory rigor around the self-insurance idea. So rather than saying, we're just going to hold on to this risk and pay the losses as they happen, you're paying an insurance premium. And as the insurance company, the captive, as it accumulates wealth, as it accumulates capital and surplus, that capital and surplus stays within the balance sheet of the captive. And I think when we were
presenting a few months ago, I referred to it as the insurance regulator acting as effectively a bodyguard on that amount of money. So if you get lucky for a bunch of years and the company starts to build up some surplus, that money still belongs to the insurance company and it's not rateable by other interests with corporations, other interests in the organization or here other interests in the state. So it does create this possibility of intertemporal over years
stabilizing the risk of the state rather than having each year looked at it as its own budget without any recognition for time after time type of stability. So Willis Towers Watson is a captive management organization, and we manage hundreds of other captive insurance companies. And so our role here will be to, as experts in insurance accounting and regulatory compliance, we will He'll be managing the books and records of this captive and handling financial reporting and liaising with the officers and the directors of the company itself.
Speaker 94
28:44
And we can, I think, move on. Yeah, this one's you, J.R. Yes, again, J.R. Bizzle, Stevens Insurance.
Speaker 53
28:59
Stevens was engaged to perform the excess property insurance placement. So the actual going to the marketplace that includes all domestic carriers and is inclusive of all worldwide carriers, most notably Lloyd's of London, and the excess capacity in Munich-Ree. I'll take a step back.
What we're doing at Stevens is ultimately building upon what has just been presented. So through Paranite, the analysis was performed. The recommended structure that was put in place is what we're showing here. and and I just wanted to take the time to understand there's a lot of semantics a lot of definitions and words we're using I thought it'd be helpful to give you a very simple schematic of what we're actually putting in place for the state of Arkansas and the three combined entities intuitively I need to start you at the bottom of the page and work up because that's how
the tower will build the maintenance deductible that we reference that is the deductible that all the districts the agencies and the facilities of higher education will maintain that is their quote-unquote self-insurance that was mentioned earlier in the in the analysis performed by Perron Knight that maintenance deductible is something that we continuously evaluated and have a set forth motion of what that number will be at least in year one and so maintenance deductible simply means they will take on this dollar amount first before the state insurance
captive or the excess property coverage will take into into place so uh take it um as you will but that's the school the agencies and the higher ed's maintenance deductible number two the aggregate retention that we're calling that that is the captive that was mentioned that is the state's captive uh the state's captive will take on a defined amount of risk uh over the top of the maintenance deductibles of all the participants in the program that number is important it was
actuarially defined the number was set there is a cap so that is where the excess property coverage will come into place the skip aggregate retention will be defined there will be a maximum loss on an annual basis it will continuously be evaluated if there's opportunities to both lower or raise that that skip retention that will help support all the participants that would be something both the captive actuary will perform, Stevens will guide, and then obviously Perrin Knight's input would be included in that as well. The last piece is the excess property insurance. That is the risk
transfer that was mentioned. That is us buying insurance for the state collectively. We have gone to the marketplace. We are currently and actively finalizing all terms based on parameters that are set forth here in
Speaker 94
31:39
this structure and hope to have resolution in the coming days. I'll stop there. Any questions on this slide before I move forward? Thank you. Representative
Representative Rick Beck
Unverified
31:55
Beck. Thank you, Madam Chair. So I was trying to go backwards on the graphic that we had.
Anyway, I think I can explain it. So my interest was the, you talked about the maintenance deductible. so let's just say that arkansas as a whole we're obviously projecting but it's going to be this amount what percentage of that would be typically the maintenance deductible so in other words if arkansas is paying if our claims have x amount what typically would that percentage be yeah i
Speaker 94
32:37
think kyle could add in here too but the maintenance deductible historically has
Speaker 53
32:42
been a low percentage of the overall claims experienced that was because the maintenance deductibles that currently exist for all participants in the three programs that are currently in place are lower uh in nature versus uh what you would traditionally see in in the direct marketplace so uh to answer your question the maintenance deductible is typically a very low low percentage of the overall risk but that number is being evaluated and naturally which kyle mentioned the maintenance deductibles
uh were not offsetting the cost of the of the losses that were that were occurring so i was kind
Representative Rick Beck
Unverified
33:17
of looking for a number there just historically speaking a total
Speaker 52
33:21
number i i don't have that off off hand the total maintenance deductible amount um well not the amount but the the percentage of the whole like that's five percent of what
Speaker 53
33:32
oh it's it's uh it's below one percent by multiples uh what i would say is that some of these deductibles were sub five thousand
dollars for some of these districts so when you talk about it from that perspective on a million dollar loss and the deductible is five thousand dollars it's a very very low
Representative Rick Beck
Unverified
33:52
percentage sub one percent all right so then moving up to the next level to the uh what the captive insurance
Speaker 53
33:58
you know what percentage would that be the vast majority so i would i would say you know when you look at the historical loss trends and back to Kyle's comment earlier about risk transfer that layer is intended to remove the regular reoccurring losses that happen on an annual
basis let's use the number 50 million for instance if there's 50 million of annual losses across all three of these portfolios it is it is important that you do not ensure that layer of risk because to Kyle's point earlier to add numbers to it they're going to take 50 million they're going apply somewhere between 30 and 50 percent margin to that number and bill it back to you in the form of premium it's no different than what they would do on your homeowner's insurance your auto insurance at the end of the day that was costing the state more money because they need to take
that risk on and view that as an expense and not risk transfer that so the skip's goal is to essentially remove all regular reoccurring losses spread that out over the group and and remove the cost burden associated with those
Speaker 71
35:04
claims right and just to jump in there i i would agree with with what jr had presented
Representative Rick Beck
Unverified
35:12
and mentioned there so again looking at it from the state's obligations
which would be to all their the people all of our employees what percentage would that be that next step of that number you're saying you said it would be overall would it be 99 or would it
Speaker 107
35:35
be i guess my question would be what percent of percentage of what i guess
Representative Rick Beck
Unverified
35:40
what's the denominator that you're looking for percentage of what the state is you know historically would pay let's say using your number the 50 million dollars all right so then what percentage of that
50 million dollars would actually fall into that slot captive insurers
Speaker 82
35:58
yeah if if i could jump in there jr maybe it makes
Speaker 71
36:04
sense to answer the question as a percentage of the overall insurance cost that we think is going to be uh self-insured so we're anticipating for this upcoming year the overall insurance cost this is operations this is self-insured and this is also purchasing excess coverage, we're estimating that to be approximately $101 million. Of that number,
we're estimating roughly $43 to $45 million will be associated with that aggregate retention that we talked about. So let's just, for round numbers, say about 45%. To kind of fill in some of the blanks there, roughly 40% or so will be the excess insurance purchases. Some of that will be the maintenance deductibles. Those are changing, and JR will talk about that momentarily. Those numbers are going up a little bit. And then the last component is
just the overall cost to operate the entity. Thank you. Representative Richardson,
Representative Robin Lundstrum
Unverified
37:08
did you have a question? Thank you. I just wanted to
Representative R. Scott Richardson
Unverified
37:12
go back to when you were going up the ladder, you had talked about uh the aggregate retention and you said that um there's a there's a loss on there uh i guess those are those are an expected loss of dollars do you know what that number is
is it or is it fluctuate or
Speaker 53
37:33
how does a great question and actually kyle just alluded to that the the actuary analysis expects 43 to 45 million in annual losses in that layer okay and that is derived from the actual loss history and the expectations that existed that number has not changed versus what all three entities were ensuring it's just combining it into one so i think in reference you could have expected to see all three entities total expected loss to equal that number good looking backwards okay thank you senator
Representative Robin Lundstrum
Unverified
38:02
clark or excuse me senator tucker
Senator Clarke Tucker
Unverified
38:04
thank you thank you madam chair uh jr can you just refresh my memory i know asba is the school boards association but the other two entities we're
Speaker 94
38:18
talking about state buildings i know but ap sit is the k through 12 state-run aid controlled participant and amait is all state agency and facilities of higher education okay and asba is just k through 12 in the school
Speaker 123
38:32
board association So ASPIT and ASBA are both education?
Senator Clarke Tucker
Unverified
38:37
Correct. Okay. All right. So y'all have delved into this, and I'm just, so I can wrap my brain around it, trying to put a number on these things. Kyle mentioned $101 million. Let's just call it $100 for a round number, okay? And then we'll say the aggregate layer is $45 million. And I heard Kyle say that 40% is the excess property. So that's what we're looking at, and that would put about $15 million on the maintenance deductible layer. So $15,000, $45,000, $40,000 is, I mean, roughly what we're looking at?
Speaker 118
39:07
The maintenance deductible would be before those numbers.
Speaker 53
39:10
So that $15 million would be, I would call that savings from the marketplace when you really think about it. That's the net savings. Last year, $101 million was paid. Actually, slightly over $101 million was paid to the marketplace. And what we've done is inverted the model. Prior to last year, 70% of the premium went out the door. I may have misstated
Senator Clarke Tucker
Unverified
39:32
my. Yeah, that's OK. Sorry. I'm just trying to get the numbers, not the order. I understand the order. The maintenance deductible comes first, but the members will be paying that, correct? Correct. And cumulatively, that will be about 15 million under this model?
Speaker 94
39:47
No, that it's below that. And Kyle, you may have that number that was historically paid by all of the participants and the expected number.
Speaker 71
39:55
Yeah, I think maybe the best way to kind of describe it is this. Let's use the $100 million as the number. As J.R. mentioned, we're keeping, and he'll get into this in the next slide, we're keeping the overall insurance expenditure to be the same. Previously, it was just north of $101 million. This year, it'll be almost the exact same number, just north of $101 million. Of that $101 million, roughly $40 million will be the excess insurance costs. Roughly $45 million will be associated with the retention.
And that difference is really going to be a net savings. This is one of the things I was going to mention at the very end. But in essence, what has happened before is as the premiums were paid and went out, any excess, any difference in that was really just retained by the insurance companies. So right now, in the first year of operations of this captive, it is going to be overfunded a little bit by approximately 15% to 17%. That's our estimate for that.
And so if everything goes as planned, that will essentially kind of flow through to the balance sheet of the captive. And in future years, then, decisions can be made in terms of what is the most optimal use of that
Speaker 76
41:21
additional funding, meaning do they retain – yes, go
Speaker 94
41:25
ahead. I think the specific question is do you have the historical dollar amount that was paid out
Speaker 53
41:32
of the maintenance deductible for the participants? And if, you know, Senator Tucker, one thing I would note is that historically they've all had maintenance deductibles.
We're not changing that. We're just slightly adjusting them higher. That $100 million started at the aggregate retention box and up. So the number, it was actually $100 million plus whatever that total maintenance deductible was in the past. So if Kyle doesn't have that on hand, we may need to follow up
Speaker 94
41:58
with that. I do know it was in the – sorry, Kyle. Go ahead.
Speaker 71
42:03
Yeah, unfortunately, I don't have that number off the top of my head. As J.R., I think you were alluding to, we could get you that number.
Senator Clarke Tucker
Unverified
42:12
Okay. Thank you, J.R. That's helpful. And also, Kyle, what you said helps me, too, that it's going to be at $15 to $17 million worth of savings on that projected this year, correct?
Speaker 98
42:24
That would have left and stayed in the insurance marketplace that is being retained by
Senator Clarke Tucker
Unverified
42:29
the state for future use as they see fit. Okay. All that is excellent. And then my last question is, how are the
Speaker 136
42:40
premiums going to be calculated per member, essentially?
Speaker 94
42:43
If you don't mind, actually the next two slides delve into that, if that's okay, and then we can potentially follow up. Yeah, thank you. Senator Dismayne.
Senator Jonathan Dismang
Unverified
42:56
Thank you. And this is kind of, you've already said it, and I think both of you all said it. And just to kind of bring it home one more time, so I think everybody understands, on an annual basis, we had reoccurring claims of what? I mean, if you put the three systems together, we had reoccurring claims, you know, that we could anticipate every single year.
You know, you have outliers of a tornado year, and some years might be a little bit lower. But on average, what were we paying out on a regular annual basis?
Speaker 84
43:25
Were these policies paying out in claims? that's the
Speaker 71
43:29
uh i think it's the second or third slide that i had shown that's the total insurance cost it's it's a little tricky to to understand but really what that is is the the total amount of dollars that each of those agencies paid out for the amount of claims that they were responsible
for it's the total amount that they purchased in excess insurance and it's also the total amount that would have been allocated specifically to the property program for any ongoing expenses in that. So, you know, it's that original, you know, those original numbers. You can see they're very low in the early 20-teens, and it increased quite significantly as it got to the 2020s and later.
Senator Jonathan Dismang
Unverified
44:18
but my point would be those like we were we had maintenance deductibles of whatever they met may have been with an estimated payout every single year as a you know total policy system-wide whatever it means amongst the three and so we were paying premiums on known losses that we could reasonably anticipate each year and when we did that all we were doing was giving someone else money to essentially finance those claims for a year if that makes sense that's exactly right
and so i just for the members as we're talking about this that is you know one of the major drivers that i that i hope and they covered it in a couple different ways and just
Speaker 53
45:06
trying to bring them both together maybe better stated from a 30 000 foot view the whole goal uh when we were educated on the processes and the plan was to create a stable opportunity for all participants moving forward which was not happening in their current structures they were seeing historical
spikes it was becoming a budget busting situation the losses that were obviously being reoccurring in nature all three in their separate forms didn't have the scale to ultimately take on the risk they needed to remove the cost associated with those layers and that that loss so what this property structure will do and is anticipated to do into many many years down the road tennessee is an example they've been doing this for over 15 years they've seen a very stable premium solution for all their participants the state of arkansas should expect to continue to retain the layer
that causes the biggest heartburn for the marketplace you'll see a stable marketplace which in time equals stable premium for all participants. It's a very budget-friendly structure. And so we are taking out the layer that they were charging way too much money for because it was regular and it was reoccurring in nature. And so I think what you'll see is as we get into the budgetary planning of the future years, we should see very nice, stable structure for the schools, the higher ed, and
Speaker 128
46:23
the agencies to know with some level of certainty what they're going to pay.
Representative Robin Lundstrum
Unverified
46:29
Thank you. Thank you, Senator Dismayne. Representative Collins.
Representative Andrew Collins
Unverified
46:36
Thank you. So in this $15 to $17 million in savings you're referencing, does that include, is that net of the premiums we're going to pay on that top layer, the excess property insurance that we will not retain as a state? Obviously, that'll be retained by the commercial
Speaker 94
46:52
insurance companies. That is correct. So that would be determined. Yeah. Sorry,
Speaker 84
46:57
Carl. Yeah, that is correct. So that includes the outlay for the excess insurance.
Speaker 53
47:01
uh premiums that need to be purchased and any expense associated with you know third-party vendors that are required to run the captive this is all in fully loaded that would be the net expected um income if you will for
Representative Andrew Collins
Unverified
47:15
the pnl and do we yet know and thank you and do we yet know what that is going to be that top layer i know that we don't have the that back from the market but do you have a sense generally of
Speaker 94
47:26
what we're talking about as far as cost of that we do you know the budget is 40 million
Speaker 52
47:31
uh based on calls analysis we uh expect to meet that number 40
Representative Robin Lundstrum
Unverified
47:35
million 40 million thanks just a quick question i know
other people are thinking of theirs how does the audit process work for this how does it work for our investment
side how does it work for the k through 12 side a school that hasn't been doing their deferred maintenance and just hoping for the hailstorm walk me
through more granular the two questions how do we audit and then how does this start up
Speaker 53
48:09
maybe I'm going to start with the startup and evaluation I think
you know the office of property risk was formed to maintain and run this process there will be staff members and this is no different than what aid was doing as well as asba they had staff participants that were doing both claims management and what we would call lost control servicing meaning they are physical boots on ground evaluations of the facilities they were helping them both work through maintenance uh efforts as well as evaluating the need for those maintenance efforts um so i would argue that we're going to start with a pretty restrict you know a pretty
robust and helpful loss control process where there will be expectations for schools agencies higher ed to maintain their facilities as you state we do not want one participant not keeping up their maintenance capex not maintaining the roofs and hoping for insurance when other schools are actually being good actors and good performers so there is an expectation that all facilities will be evaluated from that aspect and and the marketplace will push that as well let's not even talk about the requirement of the of the of the states captive let's the marketplace the
londons the domestic carriers will have some level of comfort knowing that there are people seeing the facilities they're evaluating the roof situations and so from that perspective that's the how we avoid the the exposure for bad actors versus good actors and i don't have a better way of describing that than that on the audit perspective that audit will obviously take place as you're evaluating these facilities. There's also opportunities to evaluate. There's some third-party technologies that can be deployed in the future if needed. A lot of this Stevens
deploys as well for roof analysis. Valuations are key and we'll get into that here soon is making sure the schools are also replacement cost value appropriate. What we do not want is somebody to under-insure their facility on paper and then when it comes time to replace something they need more money than what was expected on the statement of values and so we're also going to do an evaluation of both facilities and the values and on a go forward basis all of that will be maintained and managed through standard processes and procedures that quite frankly we do I know
Perrin Knight does on a regular basis well all are both private sector and public
Representative Robin Lundstrum
Unverified
50:34
sector clients so well this will stop some of the gaming and the the stick is you've got fifteen thousand or $25,000 deductible or more on some of these really large
Speaker 53
50:48
facilities to hopefully stop some of that? You would expect that over time I think everybody benefits from having an appropriate risk management strategy. This is not adversarial. I think this is more of everybody being educated on how to maintain their
facilities, knowing that they are reaping the benefit of a very low maintenance deductible at the school level or the agency level or the higher ed level quite frankly if you look at the standard marketplace these deductibles are significantly better than market so to your point I think the goal is more of to incentivize risk management strategy in order to maintain that low deductible I can't speak to future years but in this first year it's a very muted change and their maintenance deductible with the expectation all facilities will be
evaluated and and then there will you know that next step will will come
Representative Robin Lundstrum
Unverified
51:36
in year two okay thank you representative um brooks
Representative Keith Brooks
Unverified
51:40
thank you madam chair and jr i know you got a few more slides and so if this is appropriate time actually question probably goes to mr wallace um relative to he laughs uh because this is relative to communications and and uh staffing and things like that if that's okay. Okay, we can
Representative Robin Lundstrum
Unverified
51:58
wait till he comes up. We'll jump over to Senator Tucker.
Senator Clarke Tucker
Unverified
52:04
Thank you, Madam Chair. Just one follow-up on Representative Lundson's question. Who's actually, you know, when we're evaluating whether the members are good or bad actors, if Lloyd's, for example, is our excess carrier, they'll be doing their own evaluation, or will the skip do it itself, or other third parties? Who's actually doing
Speaker 116
52:18
that? Great question. I'll start from my perspective, and we can work up to Kyle, but
Speaker 53
52:23
the market will evaluate every single location that is submitted that's no different than a normal occurrence when we're placing any type of insurance on property so the market will have it say that doesn't mean they get what they want that's our job to kind of make sure that it's a fair and equitable from our perspective that
doesn't mean fair and equitable from and i probably shouldn't use those words but at the end of the day they're going to evaluate the risk and make sure they're comfortable with the risk they're taking on moving to the next step from our perspective i know that per night will stay on And on the BLR side, TAA, the actuarial advantage, was the vendor selected as the go-forward actuary that will be required by the state regulation to evaluate not only the premium but also rates and other factors being driven. Are we funding appropriately? Through that process, you're going to have them checking each specific location versus market standards, market rate.
And then they will provide that information to leadership of the captive to make calls and assumptions on the go-forward rating and deductibles. And I know Kyle and them are constantly evaluating as well, and I'll let Kyle kind of speak to that as
Speaker 84
53:30
well. Thanks, Jared. Yeah, one thing that I'll add to this is, and again, it may have been lost a little bit in some of the earlier slides, but the reality is an actual study was not performed for several years with these programs. So what was happening is the way that the premiums were allocated
Speaker 71
53:49
back to the individual schools, individual buildings, so on and so forth, it was based on a study that was done probably in the very early 2000s.
So that was one of the other major kind of hangups on this. When we dug into this in a little bit more detail, we realized some schools were probably paying less than they should have. Some were probably paying more than they should have. So over a longer-term time frame, what the goal is is to come up with an actuarially appropriate premium and, or I'm sorry, a rate for each of the individual school systems and the buildings themselves.
So this will, again, kind of start to realign that. It would have been probably a little bit too much of a change to do that all at once. We think that's something that can likely be phased in over a couple-year process. But it is part
Senator Clarke Tucker
Unverified
54:48
that analysis and review. Okay. And the lack of those actuarial studies over a long period of time was a big factor contributing to our current predicament, correct? I would agree with that, yes.
Representative Robin Lundstrum
Unverified
54:59
Okay. All right. Thank you all very much. Any other questions? i think they're still digesting a few more questions um my understanding is the schools can choose to participate in this program or not choose to participate in this program explain to me how that works they'll have to go out and get their own insurance
Speaker 53
55:29
separately i think that question is probably not in my purview i think um i would need to ask on the
law or the act if you will what the expectations were i do believe there is the opportunity not to participate i know there's some uh some items that may affect funding of some kind i don't know the details of that what i will say is that they would naturally have to go out and place this insurance on their own if i want to speak to that i think on uh level setting with the marketplace if they were to go out i think that you can prove that it's a it's a very difficult market for anybody right now i would not seek uh the rate and the premium i wouldn't even focus on i think
that we're competitive in that term by multiples but where i think it would be very impactful for schools not to participate would be on the wind hail deductible when you think of uh we all know the convective nature you can see the last five years of losses the vast majority of those losses are tied to wind hail and what the uh marketplace is now calling convective storm we know that is high winds tornadoes and so when you see that in the open marketplace you're seeing anywhere from three upwards ends of five percent of building value deductibles so when we're talking maintenance
deductibles uh 250,000 or below depending some most are at 25,000 and 50,000 on a hundred million dollar building a three to five percent wind hail deductible on each building adds up very quickly And so I don't want to – I probably didn't answer your question. What I'm saying is that entering the open market would be very difficult for one-off facilities, which is why they were already collectively buying in these three individual structures. All we've done is merged it into one and hopefully improved upon what was in place.
Speaker 42
57:14
Okay. Thank you. Other questions? Okay. All right. Let's
Representative Robin Lundstrum
Unverified
57:19
see. We interrupted you about three-fourths of the way through that slide deck. I
Speaker 94
57:23
realized I asked for the questions, so I deserve the questions. That's okay. I think there
Representative Robin Lundstrum
Unverified
57:27
are going to be some more as we go through and finish the slide deck. Members, if you would, when you're referring back to a particular slide, give us the page number so we can all follow
Speaker 53
57:38
along with you. And the next two slides will actually build upon Senator Tucker's question around kind of the rating and the process around that. So this is slide 17 for everybody that's wanting to keep track.
I thought it would be helpful to remind everybody, this is the semantics as well. the word premium is used very broadly and in my mind we need to make sure we understand what that word means and the components of that so the premium formula this is no different than you getting charged for your homeowners and your auto a premium is simply a rate they charge on the value that they're looking at so rate times total insured value tiv total insured value is an
entity's property exposure collectively so think that includes building contents equipment and other covered assets so that can be everything that's ultimately housed with inside the the four walls and the roof of those facilities it also includes extra expense so if some claim happens and they need to move to a new facility that would be extra expense business interruption and other coverages depending on the facility that already participate so this why this matters and why I thought this was important to note. Not a single TIV, total insured value, was adjusted
through this process. So the legislator through BLR, Per and Knight, Stevens, the market, nobody adjusted values on any of the participants. All of that data actually came from the facilities themselves to their respective funds they're in now, be it ASBA, APSID, or AMADE. So that's important to note we're not forcing any value changes on anybody so we were hyper focused on rate the values did not change and that's important so if if somebody sees a value change on their
renewal it was because their value changed during the year and they supplied that information to their respective insurance carriers so why i'm
Speaker 94
59:34
building on this as you can note so that it was through the analysis both per night all the parties involved and then steven's analysis from
Speaker 53
59:43
the market we are maintaining flat rates year over year for all participants in the program meaning if they did not change their values and they did not adjust them up or down they will
change chart be charged the exact same premium they were charged last year their rate will be flat which is a very competitive position the next step deductibles remember we have premium and we had deductibles both those items were of note and and really deductibles were where there was what we would call some discrepancies and some muted numbers that needed to come up we had deductibles as low as $2,500 for full districts and I'll note one thing here we're talking about deductibles that is going to be per district per agency or per campus so these are
not per building like you would see in the domestic marketplace these will be per occurrence per the whole district and I'll pick Pulaski County as an example you know Little Rock School district if an occurrence came through a tornado high wind a hail event they would not be charged a deductible per building it would be for the whole little rock school district which is another added bonus and benefit
Speaker 94
1:00:52
of this structure the recommendation and then the agreed upon and and and obviously department of finance agreed upon was we are going to move the minimum deductibles
Speaker 53
1:01:03
for all parties in the program all participants to a minimum of 25 000 per occurrence up from their current deductible and if their total insured value is greater than 100 million collectively they will move to a minimum deductible of 50,000 per occurrence I will note that is just for year one year two is still being as we discussed actuarially reviewed and adjusted and I will note that there are quite a few participants that are already
greater than both those deductible thresholds, but the vast majority of those $25,000 will come from the K-12 divisions. We have a couple of
Representative Robin Lundstrum
Unverified
1:01:44
questions that have popped up. Representative Collins. Thank you. So
Representative Andrew Collins
Unverified
1:01:49
I'm looking at the difference in the deductible $25,000 versus $50,000 if it's TIV greater than $100 million. You know, I kind of worry about like a cliff like that and i don't know if there's any kind of blending or if that's even possible um i guess
first is it in fact a cliff the way it looks and second is there any way to kind of consider that maybe in year two and beyond when you
Speaker 53
1:02:16
guys are are looking at a new structure on the on the first question around the cliff it optically looks that way but i think when you actually dive into the data and look at it it's um most of the participants that were north of 100 million were probably at that threshold or higher. If they were not, they would be an outlier, which is why that number was chosen. We evaluated multiple scenarios where there would be multiple layers and multiple
outcomes. I think that would be an opportunity for year two. So I think that that's all in actuarially driven analysis now. I'll leave it to other members to answer kind of the strategy going forward. But what we can say is the decision was made. This on paper was the most fair and and right strategy given the time frame and the restriction that's being put on this in the near term so we're very confident that while it may look like a cliff i don't think it'll appear once it goes out okay all right thanks let's keep on going i'm not going to hit on year two i think the point i would make on that is
it's simply still in analysis and it has not been determined. There will be full transparency once that information is available, and I'll leave it at that. That is all I had from a slide basis. Kyle, Ed, anything that I missed or you'd mention on the rate or deductible analysis? No, I think that's it. I mean, again, I'll
Speaker 71
1:03:45
just kind of reiterate what I had mentioned before, a burning question that had started almost from day one when my firm and I were involved in this
is, what is this going to save us? Why are we doing this? Why does this make sense? So on and so forth. And that was one of the key components that we had gone through and kind of really understood that. I mean, there were some other behind-the-scenes changes and stuff like that that we implemented, just kind of looking at the policy language, making that a little bit stronger, You know, just ultimately kind of pushing that cost, you know, to make it a little bit more appropriate among the different facilities and that so that there weren't, you know, these inequities essentially that were kind of going on.
So, again, I'm very excited to kind of see this through the end and ultimately just kind of see how
Speaker 49
1:04:41
this turns out in the long run. I would not brush under the rug the form
Speaker 53
1:04:47
comment that Kyle made, the policy itself. If we all understand you're simply entering a contract and you hope the policy language responds the way you want it to. And what we've done is collectively reviewed best practices, not only of the three policies that were in place, all teams were involved per night, Willis Towers, Washington Stevens, the intermediaries in London, there were multiple parties involved in the formation of the policy.
And what we can say is Arkansas has a bespoke policy that took the best practices of all the policies, combine them into one, and then also added in additional what we would call best practices between the collective group. It was accepted by the lead marketplace, and so the policy moving forward is actually more robust than the policies that were collectively in place for the prior years. We have
Representative Robin Lundstrum
Unverified
1:05:39
a couple of questions. Oh, go ahead.
Speaker 90
1:05:43
I was just going to add a couple of sentences, which is that we generally tell our clients don't buy insurance from an insurance company that's expecting a loss because that will be in the premiums. premiums. And we also tell them don't trade dollars with insurance companies. And I think that by creating your own insurance company, you create an opportunity for you to essentially formalize the fact that you're all in it for the long term, that it's not a year by year kind of proposition. And by doing that, I think you will long term save money because you'll only use the
insurance market where you really need them to take
Representative Robin Lundstrum
Unverified
1:06:22
risk. Okay, that's helpful. Representative Brooks. Thank you, Madam
Representative Keith Brooks
Unverified
1:06:26
Chair. Could I ask Mr. Wallace to come to the table? Yes,
Speaker 11
1:06:43
please. Grant Wallace, Director of Employee Benefits and soon-to-be Director of the office of property risk thank
Representative Keith Brooks
Unverified
1:06:49
you madam chair so grant a quick question as i know that
so now this is going to be a part of department of shared administrative services correct yes so thinking about communication so i know that at this point we're um 13 days away from renewals for schools so what does communication look like because i i have gotten a few messages and i know it's been referred to you so what does communication look like initially now from from your department to schools and then also what does it look like if just because realistically the most people are probably going to have questions because they're the largest portion of of the change
should they have questions are you staffed up and ready to go with those to answer those
Speaker 14
1:07:31
questions they may have so answering your first question there will be a mass communication going out within the next 24 hours to all impacted entities so state agencies school districts higher ed that will just kind of outline hey here's the change here's where you can contact us here's kind of where some basic information is and that you will have insurance on july the first i think
that's probably crisis number one that we need to address and just make sure and give some reassurance that there will be property insurance on july the first it's going to be managed by the state captive program who is underneath the department of shared administrative services my information is on there we have a 1-800 number that we're standing up that will be able that they will be able to call and ask questions obviously we'll have an email address and website as well and anybody is welcome to reach out to me and I think I'm staffed to my best capabilities
to be able to help address answer questions now we do have staffing positions that we can fill come January the 1st, or July the 1st, sorry, that we are starting to get job descriptions, postings, and interviews going on, and starting to get that process rolling as quickly as we possibly can. But knowing that we can't actually hire and start having anybody until July the 1st. Follow up.
Representative Keith Brooks
Unverified
1:08:58
So second question would be on, so generalized communication going out in the next
24 hours uh how about specific communications uh to the to the specific individual school districts about here's your premium you've you're what what jr has so very well outlined uh about increases in deductibles here's your specific situation when would we see that going out so we need to
Speaker 13
1:09:20
kind of take a step back and just kind of understand and if i could just take a second to kind of explain the process and what's
Speaker 14
1:09:28
going to kind of go on it's very similar to how the relationship between this committee and the employee benefits division so
Speaker 13
1:09:36
with the office of property risk we
have to go to the state board of finance for their review and approval of everything that we would want to do under the program so that's everything from the creation to the premiums to policies to whatever what have you has to be approved by the state board of finance once it's approved by the state board of finance it then comes over to alc and this insurance company or for this insurance committee um so we are in the process of getting those things done we have had one state
board of finance meeting already regarding the captive program you'll see those two items are coming up next on your agenda and then we will have to do is specifically speaking with premiums Those are still being developed and
Speaker 14
1:10:22
still being analyzed and making sure that we do have the total insured values correctly, that we're using the right values that were submitted. We still have to get those
Speaker 13
1:10:33
approved by the State Board of Finance once those are approved. and i'm hoping to do that in the next week or so we will have to come and use the emergency
provisions for approval that alc and this subcommittee have
Speaker 14
1:10:46
set up because we do have to have those in place by july july 1st the invoicing would go out as they normally do within that first early days of july probably within the first 10 days or so we'll be able to get invoices out and everybody will be able to start making those payments and getting that process done one final follow-up and thank you
Representative Keith Brooks
Unverified
1:11:11
for that so just to kind of put a bow on it so
generalized communication going out within the next 24 hours specific communication likely sometime the first part of july ish yes sir uh and then if there are as as jr indicated about the bespoke forum that's a great conglomeration of everything that had happened with the individual policy forms if there are specific questions about the form specific questions about their coverages they can reach out to your office to answer those questions and that's the appropriate place to go absolutely thank you
Representative Robin Lundstrum
Unverified
1:11:47
thank you uh representative senator dismay
Senator Jonathan Dismang
Unverified
1:11:49
and it was just i want to circle back up on the tivs and kind of the reasons why i mean and i think the goal was we were there was not going to be some major disruption to districts as far as what their premiums were generally what their deductibles are i mean i'd still say we're at a place that is not real to the other the rest of the world as far as the market but that's okay um but on the tva tivs in particular i just kind of want you to say it again to make sure i understand i mean though because of the timeline there's no way for y'all to go in and do new
tivs on everyone i have that analysis done so you have to rely on the information that was given to and some of those some of those values were very recently updated in fact in mid-year if i understand right and so there's you know certain districts that reported higher values not to you but to the you know one of the three entities they were associated with will have an increase in premium because their tivs went up is that what we should anticipate and what that they need to understand
Speaker 53
1:12:52
that's correct and and just to add more color to what
had been done prior every quarter valuations were were sent in so there were quarterly reports on all all three of the of the participant funds that's important because that is how the market also evaluated so if a school district added a new building mid-year mid-term that was the way to capture that new facility there was coverage there but then it's specifically defined it's sent to the market there is a pro rata you know premium charge so what we actually received and there's two reasons why we did not adjust TIV. One is speed to market. It's no different than
what was done in the past. They typically went forth with a December 31st or the March 1st, 2025 report that came through. We actually used the March 2025 assessments that came through from all participants, meaning AMATE, APSIT, and ASBA all very kindly provided the statement of values for all of their participants which is what was used going forward so there were adjustments made as there naturally were i think school districts that were either assessed by the
natural process or individually chose to add facilities add uh both buildings stadiums whatever it may be uh that would have been done by them and or their uh respective uh participating
Speaker 175
1:14:11
fund they were in so and just sort of the members and so if there's a
Senator Jonathan Dismang
Unverified
1:14:17
district that calls and you know talks about some jump in their premium or whatever it may be that would have happened regardless of what we were doing here and probably to a greater extent than what we're doing here correct is that a fair correct if
Speaker 94
1:14:31
it was uh adjusted it would have been something that would have been go forward in
Senator Jonathan Dismang
Unverified
1:14:36
the program they were in so if there's a phone call what they really need to go back and probably the first question members should ask them is did you change your
Speaker 98
1:14:46
tiv uh in the middle of this year were you assessed
Speaker 53
1:14:49
did you add a new facility did you remove a facility that's the first question Because if there was a change in their values, and there are some on the statement of values that we've seen, it would have been something they need to go back and understand why those values changed. And once they know that, then the conversation's a lot easier to have.
If it was a forced assessment and or a new facility, it should answer the
Senator Jonathan Dismang
Unverified
1:15:12
question around the TIV. But, and again, for the members, it will not be anything that we've done here, that premium increase. we're doing our best we can to hold premiums flat with the exception of those that had increased in TIB. Correct. Okay. And as far as deductibles, you know, if we get a phone call about deductibles with $25,000, the $50,000, you know, maintenance deductibles are there to there. They are system wide. For instance, for a district, it's multiple campuses, different locations, all of their
buildings. So essentially what you're saying is these that have $100,000 below in TIB, Essentially, if a hailstorm comes through and damages 15 buildings on their campus, they have a $25,000 deductible for the total event, not per building, which is really abnormal from what I understand for what's in the actual market. I mean, most insurance companies are insuring per building, not system-wide.
Speaker 53
1:16:13
Is that correct? Correct. I think at a muted level, they would do a per occurrence percentage deductible, probably in the tune of 5% for the whole district. And more aggressive deductibles would be percentage per building. So that is correct. $25,000 in your example, it'd be $25,000 for the whole occurrence, the whole district. The remainder of that loss would go on skip the aggregate and above, if necessary, into the insurance
Senator Jonathan Dismang
Unverified
1:16:41
marketplace. But as far as this idea that there were $2,500 deductibles on $100 million campuses, or even greater than I think in some situations, or $5,000 deductibles on half a billion dollar campuses, I mean, in the rest of the world's insurance market, is that anything that you see?
We have not. Okay. And so we're just kind of bringing things. This isn't real world insurance, but we're
Speaker 143
1:17:09
getting just a degree closer, maybe.
Speaker 94
1:17:11
I think similar to kind of Kyle's comments about the actuarially driven rates
Speaker 53
1:17:16
that were evaluated that were 20 years dated before kind of 21, 22, 23 time period. I think the deductibles were in a similar structure. I would note we did not move them to market rate. We kept them very muted. Quite frankly, multiples would be expected in the marketplace of this number.
Senator Jonathan Dismang
Unverified
1:17:35
All right. Thank you. So if there's a question on deductibles, you know,
so again, a district's called because they've been enjoying a $2,500 deductible, which by the way, is less than what their teacher would have had on their health insurance plan, then maybe we need to have a bigger talk about deductibles. And so again, I think you guys will be equipped to be able to help answer that question on what the real world does as far as building deductibles.
Representative Robin Lundstrum
Unverified
1:18:04
So thank you. Good points. um representative tosh thank
Representative Dwight Tosh
Unverified
1:18:09
you madam chair i want to go back to representative brooks
asked the question and i just want to make sure i understand this that here we are less than two weeks when this goes into effect on july the first so i'm assuming at this point there's been no communications with the schools as to what they would be what they would be required to do to make sure that they have insurance on july 1 so if they do absolutely nothing at all i'm not sure what your mass communications is going to be but if uh they're going to have coverage on july 1 if
they if they do nothing is is that uh is that
Speaker 14
1:18:48
correct yes sir they do not have to do anything and coverage we're we're doing all of that behind the scenes and transferring policies and all of those responsibilities over to the SIP from their existing vendor and that is going to be behind the scenes and the entities do not have to do anything prior to July the 1st. I just want to
Representative Dwight Tosh
Unverified
1:19:08
make sure here in such a short amount of time that you're not going to be required
to submit a lot of documents and so forth so you're going to take care of all that that's going to be handled for them and they will have insurance
it's come july 1 yes sir all right one more and a follow-up the the madam chair asked a question earlier and i know kyle and jr could not answer this question i understand that but grant i'm not sure if you can or not but she asked a question if the schools had the uh if they could opt out of this and uh i've i'm not sure i've heard that they can opt out but also been told that there's a considerable amount of money that they would forfeit if they do opt out can you
are you in a position to kind of clear that up for
Speaker 13
1:20:01
me right um yes the law that was passed requires that schools participate in
Speaker 14
1:20:06
this if they do not forfeit I think is the appropriate word in this instance their facility funding for that year
Representative Dwight Tosh
Unverified
1:20:15
do you have any idea is that I guess each school that would be a
Speaker 10
1:20:21
different amount we right it would be
Speaker 14
1:20:23
there yes that that is a district derived calculation I don't have those numbers but it would be as I understand facility funding
enough to be dangerous that that's a significant amount of money exactly
Representative Dwight Tosh
Unverified
1:20:37
be a considerable amount probably one that probably wouldn't really allow them to be able to opt out okay senator clark
Senator Clarke Tucker
Unverified
1:20:52
thank you madam chair uh going back to page i need to get my readers out 16 uh and this was just a follow-up to some of the questions i was asking earlier it's it's really just one question and just so just to oversimplify what
we're doing here the whole point of this is that we have an expected number of losses that are going to take place every year previously we've been paying through the nose to insurance companies on what we expect to have losses on which doesn't make sense from a financial standpoint correct i mean that's why we're doing this correct so my question is that threshold between the aggregate and the skip and the excess with with the market i understand that that number this year is going to be about 43 to 45 million but generally as we move forward that will vary and the point is that what's in the skip is the amount that we expect to have on a year-to-year basis and then what is
in the excess in the marketplace or for potentially excess claims correct correct i'm understanding that okay all right i just think you know this has been a huge project before we wrap if we're getting close i just think we need to thank all the work that has gone into this you know starting in the session uh senator gilmore and legislation a lot of legislators who helped um jr colin ed from my standpoint you all have done a really tremendous job and and i think we owe you all a big thanks for all of the work that you've done. It is actually not in BLR's job description to run a state captive insurance program, and Marty and Jill and their team have
done really tremendous work over the last couple of months doing that, and I think we owe them a big thanks as well. And then Grant, thank you for being willing to take this on. This has never been done in Arkansas before, so I just want to say I think you have a strong commitment from this group for this to succeed. As you get into it, there are probably going to be things that are not foreseeable at this moment that you may need from us in terms of resources. And so if and when that happens, I hope that you will communicate with us because, you know,
we need for this to do well, and I have full confidence that it will. So thanks everyone for their contributions to this.
Representative Robin Lundstrum
Unverified
1:22:51
Okay, thank you. Well said. Any other questions? All right. Thank you, gentlemen. This was a very useful presentation all right moving on thank you for your time all
right thanks everyone thank you gentlemen all right any final questions for mr wallace all
right i think we will move on you're out of the hot seat for now well
you're about to come right back so you can stay put
Thank you. All right, moving on. I need a motion to consider the subcommittee rules to take up actions
to approve the State Board of Finance. Motion, Senator Hickey. Second by Representative Beck. All in favor? Aye. All opposed? All right. We'll move on as
approved. All right. Let's get into this.
Speaker 13
1:23:49
EBD. All right. Grant Wallace, Director of Employee Benefits Division and Office of Property Risk.
The resolution that the State Board of Finance passed that is before you accomplishes six things. First, it is empowering the Treasurer of State to apply and form the captive insurance program. Second, it is naming the initial directors, which would be Leslie Fiskin, Secretary of the Department of Transformation Shared Services, soon-to-be Shared Administrative Services, Treasurer of State John Thurston, Jim Hudson, Secretary of the Department of Finance and Administration.
The third thing it does is it selects the leadership of the captive, which will be its president, Secretary Fiskin, the secretary, Andy Babbitt, a state controller, and treasurer, Treasurer John Thurston. The fourth thing it's doing is approving all actions that have been taken up to this point in preparing for and structuring the captive insurance program, really just kind of a catch-all for us. The fifth thing it does is it is approving the designation of Secretary Leslie Fiskin to do the day-to-day operations of the captive company.
Representative Robin Lundstrum
Unverified
1:25:10
And the sixth thing is a separate agenda item, so I'll hold on that one. Okay. For those of you that are just trying to figure out what just happened, that's Exhibit E1, and it's a proposed resolution for the State Board of Finance. it's setting it
up to do this entity so take a look at
that and see if you have any questions okay do i need to set a motion on that one yes all right oh we've got a motion and a second
all in favor opposed motion passes thank you the next item would be
Speaker 13
1:25:52
exhibit e2 so this is what we were getting to and what was presented to you just a minute ago around the deductible and rate structures as presented the recommendation that was approved by the state board of finance has the deductibles established at for state agencies a flat deductible of 250,000 per occurrence for k-12 public schools it's 25,000 per district per
occurrence for districts with less than 100 million in total insured value 50,000 per district per occurrence for districts with greater than 100 million in total insured value for state supported institutions of higher education it's following the same kind of tiered structure of 25,000 or 50,000 or the existing 100,000 or 250,000 which are already in place we're not lowering them we're not really raising them we're keeping them most of them are
already at the hundred or two hundred and fifty thousand and then that for the rates for FY 26 all entities will be kept flat for FY 26 with the rate value from FY 2025 all right that's helpful
Representative Robin Lundstrum
Unverified
1:27:14
take a moment that's exhibit e2 if you look at that and then on the back there's
also a spreadsheet when you look at underwriting deductions investment income and other income
Speaker 13
1:27:27
so that sorry i missed that one that one is the
budget that was presented for the captive program the office of property risk for fy 26 year two is just kind of showing that that would be fy 27 that's just again kind of showing that hey this model does work and here are kind of the reserves uh that this would also need to be approved but this is the budget that was approved by the state board of finance okay before we approve it
Representative Robin Lundstrum
Unverified
1:27:53
we have a couple of questions um representative collins thank you so there's
Representative Andrew Collins
Unverified
1:27:58
no separate wind and hail deductible here it's all just correct in that flat wow okay thanks
Representative Robin Lundstrum
Unverified
1:28:05
what was the logic behind no separate wind inhale deductible i
Speaker 13
1:28:13
think this was in trying to get caught up to speed on all of the so there may be some things and we may need to bring jr back but again this was not to shock the system it was really trying to keep things as levelized as possible during this transition until we could kind of dive in and really get the data under our belts to figure out what is the best way to move forward.
Now, within that $50 million that is at the skip level, there are embedded hail and wind and loss kind of deductibles that erode at that $50 million. So I think one of them off the top of my head was $15 for wind and hail. Okay. my concern is I don't want to end up
Representative Robin Lundstrum
Unverified
1:29:00
how we ended up in this situation again by smoothing the edges too much because things are going to go up absolutely and I think that's why
Speaker 13
1:29:11
we we've kind of embedded them within the skip program so again kind of just collectively being able to manage that and control that but then at the same time knowing that yes we are going to have to look at that as we get into year two three four on what is that right balance and how do we look
Speaker 14
1:29:27
at those per occurrences and i think the market's going to dictate a lot of that back to us as we get
Representative Robin Lundstrum
Unverified
1:29:34
into that and our investments when we take that money and invest it stevens and hopefully that will grow as well and help offset some of that other questions
motion to review and approve
Motion. Senator Smeyne and Senator Hickey. Okay. All in favor? Aye. Those opposed? All right.
It's been reviewed and approved. I believe we have one last request from Senator Boyd.
Senator Jim Petty
Unverified
1:30:12
We have a sub in. So he had a question, a request, actually, for Grant. He wanted for you to become or for you to come for the August meeting prepared to give us an update about the status of the litigation that our PBM provider has, Navitus and Optum, and how that may or may not affect their participation in that.
You don't have to do anything today. Just come for the August meeting. Come prepared to speak to the status of that and if there's potential conflicts of interest or other matters that might be a problem going forward with that pending litigation. Okay. Any other business for the good of the
Representative Robin Lundstrum
Unverified
1:31:01
body? All right. With that, we are adjourned.
Agenda
A. Call to Order
B. Review and Approval of Action by the State Board of Finance
C. Presentation on the State Captive Insurance Program [Exhibit C]
D. Consideration to Suspend the Subcommittee Rules to take up the Following Agenda Items
E. Review and Approval of Actions Approved by the State Board of Finance [Exhibits E1-E2]
F. Other Business
G. Adjournment
Documents
Speakers
Representative Robin Lundstrum
Unverified
Speaker 11
Speaker 13
Senator Jimmy Hickey, Jr
Unverified
Speaker 21
Speaker 14
Speaker 49
Speaker 51
Speaker 53
Speaker 64
Speaker 65
Speaker 71
Speaker 54
Speaker 70
Speaker 78
Speaker 76
Speaker 84
Speaker 90
Speaker 94
Representative Rick Beck
Unverified
Speaker 52
Speaker 107
Speaker 82
Representative R. Scott Richardson
Unverified
Senator Clarke Tucker
Unverified
Speaker 123
Speaker 118
Speaker 98
Speaker 136
Senator Jonathan Dismang
Unverified
Speaker 128
Representative Andrew Collins
Unverified
Representative Keith Brooks
Unverified
Speaker 116
Speaker 83
Speaker 42
Speaker 175
Speaker 143
Representative Dwight Tosh
Unverified
Speaker 10
Senator Jim Petty
Unverified