ALC-Executive Subcommittee
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Senator Ben Gilmore
Unverified
4:00
all right members calling executive to order and I think we'll start with miss
Speaker 37
4:25
there chief legal counsel for the bureau Thank you, Mr. Chair. Jill Thayer, Bureau of Legislative Research. You should all have in your packet a summary table related to the Sedgwick Claims Management Services contract, similar to the previous captive contracts that you have approved.
This one summarizes the contract. It's for claims administration for the new captive program. And I have a summary here of the fees. I did highlight for you that the fees will range from $800,000 to $1.2 million annually. And if you are okay with this, we would just ask that you approve it and give the co-chairs the authority to authorize Director Garrity to enter it by emergency.
action I'll take any questions
Senator Ben Gilmore
Unverified
5:13
okay members any questions seeing none then without objection thank you all right moving on next time on the agenda state captive insurance program presentation by Stevens and members I would just remind you work as we're bringing this to a close this is something that's been going on that started with mine and Representative Eve's predecessors and this was brought about
as a way to find a solution to control premium increases for school districts and state-owned properties. Been quite the process and so I think credit needs to be given to all of those who've been a part of that, this committee in particular, there's the executive committee and then of course our staff at the Bureau, Director Garrity was there, and of course now Stevens, and I can't forget Perra Knight and Kyle and the work there. So anyway, I just wanted to make those remarks because I think it's important that we acknowledge where we started and where we are now, and this
is coming to an end. So with that, gentlemen, you're
Speaker 41
6:27
recognized. Okay, I'll start. Is that okay, J.R.? Yes, please. So I'm Kyle Hales. I'm a principal consulting actuary at Pern Knight. I'm also the director of our risk strategies and solutions area. What I'll do is just give a little bit of the background kind of up until this point today. And then from there, I'll hand this off to JR at Stevens.
So as most people in this room will recall, what happened for the commercial property program, There are three separate entities within the state, all the way up until maybe 2020, 2021 renewal. Everything seemed to be going fine. But from the 21 renewal all the way up until the 24, this last year's renewal, the total insurance cost approximately tripled among the three agencies combined.
My firm and I were brought in about a year ago to go through the, you know, the process here and essentially kind of dig in to see what had happened and ultimately what could be done on a going forward basis. So, late last year, we came up with a recommendation of four separate components. One of them was to combine the insurance exposures of the three agencies. A second was to form a captive insurance company to self-insure.
The third was to have an independent actuarial review of the losses and the exposure. And the fourth is to continue with an independent strategic risk advisor to help with the state throughout this process. So that pretty much gets us up to today. And with that, I'll hand it off to J.R. Ed Stevens. Yeah, thank you Kyle for
Speaker 43
8:17
the background. I think one other thing to note is the idea and the intent of the captive based on all the work that Perne Knight has done. The idea is to both improve efficiencies with purchasing reinsurance or excess property insurance, which is what Stevens is primarily helping obtain.
Obviously, there's going to be a centralized claims and underwriting component, as well as overall it should help stabilize long-term insurance costs for all of the districts, all the agencies, and all the participants of this program that we have come to know as State Captive Insurance Program. We'll call it SKIP for short. I think one other thing, as Kyle mentioned and alluded to, the premium changes that were experienced by all participants in the three programs, there was a surge in wind and hail losses in ultimately high-hazard states, specifically Arkansas.
What we saw from that were both rate increases, dramatic rate increases, as well as imposing very difficult-to-cover deductibles. And it was historically something much smaller, much lower dollar amount moved to a percentage deductible of the values, the property values. So when you look at the actual market that if the schools and agencies were to carve out, they would most likely experience a 3% to 5% wind hail deductible per building, and that's on property value.
So 3% to 5% of property value. That was a separate deductible that was something that we were obviously sensitive to in addition to the premium that was being charged and the rate that was being charged. So what's the advantage of skip? I think ultimately it's a long-term stable solution that will hopefully stabilize the budget for all of these participants. Greater control over claims. And naturally, we have, due to the state's investment in it and the consolidation of this, they have removed the percentage win held deductible at the district agency and participant level.
The higher eds are included. And so that in itself is a major win for the overall program, and that's going to be supported by the captive insurance company that's been formed. So what I want to do is we are here today to ask permission and make a recommendation to move forward with a rate and deductible structure for year one, with a little caveat on year two, expectations on a few certain items. So in your packet, you'll see that we, after the analysis of Per and Knight, the involvement of all the parties that have participated, we are recommending a flat rate year over year for all participants.
By rate, as a reminder, that is not the premium, but that is the rate charged on their building values. So rate times building values equals premium. So what we are recommending that any school should have a flat rate. However, if they changed their values, so if they had an assessment done, if they added a new facility, if they deleted a new facility, they will experience some level of premium change. But it should be modest in nature. Secondly, we're recommending year one, each school, district, as well as agency and higher education facilities
all have and carry a deductible, a maintenance deductible that's below the captive. They vary in size and dollar amount. We are recommending changing the structure to a minimum of $25,000 per occurrence per participant, meaning that it could be district-wide, it's occurrence-based, and a $50,000 per occurrence if their total insured values, i.e. their asset values, are over $100 million.
Lastly, on the year two deductible structure, we're continuing to evaluate. That's the option of per night, the actuarial advantage, who's the participant in this, to determine year two expectations on both deductible and rate. So at this time, we're not making any recommendation outside of there is an expectation that deductibles need to continue to be right-sided. And that detail will come in the future. But in summary, we're asking permission to move forward with a flat rate. Sorry, I'll take one step back.
The state agency recommendation is to move to a $250,000 flat year one deductible for all state agencies. So in summary, we are recommending a rate B-flat, which is counter to the marketplace. It's a good outcome for the program. Minimum deductibles moving higher to $25,000 per occurrence from their current status and $50,000 if it's over $100 million in value. And lastly, we're recommending all state agencies move to a $250,000 minimum deductible.
Senator Ben Gilmore
Unverified
13:03
And I'll pause. Okay. Members, that pauses for any questions at this time. i see no questions okay all right well with that um gentlemen if you would um speak briefly just to the rollout and how you see that once this meeting ends
Speaker 43
13:29
we have been uh coordinating with the legislature as well as the office of property risk who will be managing this program uh following the
july 1st date the expectations is all of the participants will receive in the next few weeks a summary of the expectation for their their both premium and their deductible it'll be a clear emailed message and obviously there will be opportunity to discuss individually so expectation is very soon disseminate this information to each entity okay thank you
Senator Ben Gilmore
Unverified
14:03
so much members one one last question or comments before we move forward okay then with that i will take a motion from the
committee representative ladyman you're recognized thank you mr chairman i move that the legislative Council meeting for the month of July 2025 is cancelled Jack Sorry Sorry It is You got one
All right, President Layman, you're recognized for the proper motion at the proper time.
I move that we direct Stevens Insurance to move forward with the premiums and deductibles as presented today and authorized at ALC co-chairs to approve the direction to Stevens by emergency action. All right, members, I have a
Senator Ben Gilmore
Unverified
15:15
motion. I have a second. Any discussion on the motion? Seeing none, all in favor say aye. Aye. Any opposed? ayes have it. Thank you very much. Okay, so now that we're past that, we'll move on to the director's
report. Ms. Garrity, if you
Speaker 60
15:34
would, please. Thank you, Mr. Chair. Marty Garrity with the Bureau. The only item I have on my director's report is the July ALC meeting. Usually this meeting is either canceled or moved to another week due to various conferences that are occurring. So this month, there are conflicts, direct conflicts, the week of ALC. In the past, there's been the option to allow the ALC subcommittees to meet and to give them final authority, action authority.
And then it's reported the following month to the full ALC. Okay.
Senator Ben Gilmore
Unverified
16:11
Members, you've heard that. This is very standard that, you know, there's always something going on in July. So with that, any questions to the chair or director? Seeing none, Representative Ladyman, do you have a motion? You're recognized. Thank you, Mr.
Chairman. I move that the Legislative Council meeting for the month of July is canceled.
The ALC subcommittees are permitted to meet to take up items that have an imminent need such that they cannot wait until the regularly scheduled August meetings of the subcommittees. The ALC subcommittees are permitted to meet outside the regularly scheduled ALC week in July, and all actions of legislative council subcommittees that would normally be reported at the July meeting of legislative council will be considered final and shall be reported to the legislative council at its scheduled meeting
Senator Ben Gilmore
Unverified
17:15
in august thank you representative members i have a motion i have a second any discussion on that any questions seeing none all in favor say aye any opposed ayes have it thank you very much members see no other business thank you for being uh to support participatory in this i think what we did i think is something that we should acknowledge is very big with the state captive insurance program so we were on to the next step with that and so i appreciate your involvement and
we'll continue to work and make this successful thank you very much we are adjourned Thank you.
Agenda
A. Call to Order
B. Presentation of Claims Administration Services Agreement with Sedgwick Claims Management Services, Inc.
C. State Captive Insurance Program Coverage Presentation
D. Director's Report
E. Other Business
F. Adjournment
Documents
Speakers
Speaker 1
Speaker 3
Speaker 12
Speaker 18
Speaker 21
Speaker 9
Speaker 24
Speaker 26
Speaker 27
Speaker 28
Speaker 30
Speaker 7
Senator Ben Gilmore
Unverified
Speaker 37
Speaker 41
Speaker 43
Representative Jack Ladyman Chair
Unverified
Speaker 60