School insurance fund in merger talks

lblackford@herald-leader.com, ctruman@herald-leader.comOctober 29, 2009 

An insurance fund that protects Kentucky school property and employees is almost $5.5 million in the hole, prompting discussions of a merger with the Kentucky League of Cities.

The Kentucky School Boards Insurance Trust, or KSBIT, approached Kentucky League of Cities Insurance Services this summer, said Mayfield Mayor Arthur Byrn, the chairman of the League's insurance arm.

"KLCIS is in discussions with the full knowledge of the Department of Insurance to explore opportunities to assist KSBIT in strengthening its insurance pool," Byrn said Wednesday.

KSBIT covers about half of Kentucky's 174 school districts for risks ranging from school bus accidents to compensation for sick or injured employees.

Kentucky School Boards Association Executive Director Bill Scott, whose organization oversees the school boards' insurance subsidiary, sent word of the potential partnership to Kentucky school board members and superintendents on Wednesday after the Herald-Leader made inquiries. Scott described the arrangement as a turnover of day-to-day management to the League's insurance arm, which then could financially stabilize the school boards association's property/liability and worker's compensation insurance funds.

The workers' compensation fund is running a $4.5 million deficit, while the property and casualty fund has a $900,000 deficit. Scott described the deficit as a failure to adequately budget for the long-term financial effects of claims, rather than an inability to pay current bills.

The school boards' insurance trust, or KSBIT, would continue to process unemployment insurance claims for most school districts around the state.

The state Department of Insurance, which oversees both groups, has been part of the discussions, officials said. In August, the department forced the League's insurance arm to stop giving gifts to local officials who buy their insurance services. The League also agreed to further separate its insurance from its other operations.

The problem is with KSBIT's workers' compensation fund, according to a statement from the state insurance department. Insurance officials said they have not approved any new plan between the two groups and would not comment specifically on the discussions.

"The department has been working diligently with KSBIT for over a year to resolve the deficit and to explore solutions that will protect its policyholders and the injured workers who rely on the fund while avoiding an assessment of the school district members," the statement said. "Any plan would be carefully reviewed to be sure it complies with regulatory requirements."

Kentucky law requires that school districts carry insurance for school property, boilers, auto liability, workers' compensation and unemployment insurance. Districts also often carry general and educators' legal liability as well as auto property insurance.

KSBIT differs from traditional insurance companies in that it is a risk pool set up specifically for Kentucky school boards and some independent colleges.

It is not the only player in the Kentucky school insurance market. Liberty Mutual's Indiana Insurance, a private, for-profit insurer, also holds a large part of the Kentucky school insurance market.

But the discussions between the two insurance groups for public employees are raising eyebrows, particularly after KLC executive director Sylvia Lovely was forced this summer to announce she was stepping down, effective at the end of the year.

An audit of KLC spending by state Auditor Crit Luallen's office is expected by the end of November. Luallen declined to comment on the insurance talks because of the ongoing audit.

A series of articles in the Herald-Leader found that the three top executives, Lovely, KLCIS Director William Hamilton and KLC Deputy Director Neil Hackworth, had spent more than $300,000 in three years on travel, meals and other items, such as sports tickets.

In particular, Hamilton was reprimanded by the state insurance department for renting office space he owned in Georgetown to one of the League's main adjustors, Collins and Co., and for using his League credit card at a Las Vegas strip club.

However, he has kept his job. Hackworth is currently running day-to-day operations.

Former Marion County Superintendent Roger Marcum, who bought insurance from the school boards' association insurance arm, said he was "surprised" by the news of a possible merger between the two groups.

"I would hope they would continue to find a way to provide a way within KSBIT to provide insurance to schools ... until the issues that KLC is currently trying to address have been effectively addressed," he said.

John Price, a Fayette County school board member and KSBIT board member, said the group is looking at all possible options, but the number of non-profits in the insurance business is limited in Kentucky.

"My concern is that if KSBIT were to disappear, the school districts would be at the mercy of for-profit companies," he said. "If we're not a competitive option, the cost to school districts is likely to go up."

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