Kentucky School Board Insurance fund to hit districts with more than $50 mil. in assessments

01/14/2013 11:23 AM

UPDATED (1:21 p.m.) — The insurance pool that covers school boards and districts on Monday told superintendents it will need an extra $50 million to $60 million from their districts and announced it would shut down at the end of June.

The Kentucky School Board Insurance Trust — which was created by the Kentucky School Board Association but has been administered by the Kentucky League of Cities since 2010 — announced to its member districts in a letter Monday that the fund covering workers compensation and liability insurance ran a deficit. That will require the pool to hit-up its current and former members with the extra assessment.

The financial problem dates back to 1990 when the pool was paying out more that what it was collecting from districts. And the assessments will affect every school district in the state because each of them relied on the insurance trust at some point, said Jonathan Steiner, executive director of the KLC.

“The deficits have grown as claims costs have escalated and a substantial number of districts have continued to leave the two Pools due to competitive pressures,” the letter from the trust’s board of trustees said.

The message notes that the pool, since KLC took it over, has cut its operating budget and switched to a managed care model to save money. But it said an independent review of claims to the fund showed that the pool had been bringing in less money than it had paid out in claims since 1990. And its reserves showed that it needed the more than $50 million to cover its obligations, according to law.

Steiner said when he joined KLC as its director in the fall of 2010, KLC needed to put $8 million into the insurance trust.

The fund did have to shell out more than $5 million to cover the costs of schools wrecked by a tornado in Magoffin and Morgan counties last March. The fund paid about $500,000 for those claims because it had what’s called re-insurance — essentially insurance for the insurance pool.

The amount each district owes will be calculated based on how long they were members of the insurance pool and each district’s claim history, Steiner said. That will likely take another four-to-six weeks, he said.

But the assessment comes at a time when school districts have been cash strapped. State funding has remained stagnant amid the recession. But school districts technically had to absorb a reduction in per-pupil state funding because officials underestimated the increase in enrollment last year.

The extra assessments could be paid by the districts over 20 years if districts decide to band together to sell a bond for the financing, the letter said.

UDPATED 1:21 p.m.: Kentucky Education Commissioner Terry Holliday issued a statement saying the department, which isn’t affiliated with the insurance fund, is aware of the pool’s deficit but has not oversight of it.

“A deficit, however, does have the potential to affect Kentucky’s 174 school districts, and we are monitoring it closely. I am always concerned about situations that have the potential to hinder the education of Kentucky’s children,” Holliday’s statement said.

Fayette County Schools Superintendent Tom Shelton said the worst-case scenario for his district would be an assessment of $2 million. He said the district could cover that from its reserves, but “it wouldn’t be our preference to spend it like that.”

Shelton said he was glad to find out about the assessment now before the system was too far into its budget for next year. He said he would rather pay the bill all at once than take on debt to pay it off over 10 or 20 years.

Shelby County Schools Superintendent James Neihof said his district left the insurance trust three years ago because official saw a “weakening position and knew the possibility that someday they would assess.”

The district hopes to have enough in its reserves — it has more than three months worth of payroll — to cover its share of the assessment.

The Kentucky Department of Insurance has approved the methodology of calculating the assessments but has not signed off on the assessment plan itself until that is finalized.

“Our main responsibility for the fund is that the claims on the books right now will be paid and the injured workers will be covered,” said David Hurt, chief financial examiner for the Kentucky Department of Insurance.

The letter also indicated this is it for the pool, itself. The trustees’ letter informed districts that the fund wouldn’t take any new or renewed business and would transfer its coverage to other insurance providers after June 30.

Steiner said once Kentucky School Board Association officials made the decision to “get out of the insurance business.”


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