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Wednesday, Jul. 08, 2009

Insurance regulators ask KACo about 'operational issues'

The Kentucky Department of Insurance is examining operations of the Kentucky Association of Counties' insurance program in the wake of Lexington Herald-Leader articles documenting the non-profit organization's expenses.

Three KACo officials and an outside lawyer met Tuesday for more than an hour with regulators, including Insurance Commissioner Sharon P. Clark and representatives from the agency's legal office and division of financial standards and examinations, said Ronda Sloan, spokeswoman for the department.

"We discussed some issues, and we'll be having some follow-up conversations," Sloan said

She declined to describe the nature of the issues and said that the talks were informal "fact-finding discussions" and not a formal investigation.

Brent Caldwell, a Lexington lawyer who has represented KACo's insurance programs since 1997, said the insurance regulators wanted basic information about "operational issues, how the programs run and how they operate."

KACo has programs for counties to buy liability, property and casualty, workers' compensation, unemployment and health insurance. Counties pay premiums into those funds, which are managed by KACo employees and overseen by separate boards made up of elected officials.

The Herald-Leader reported last month that the top five KACo executives spent nearly $600,000 in two years on travel, meals and other expenses. Much of that was spent on trips and large dinners involving county officials.

"I think there was interest after reading the series of articles the paper has published — just looking into any reasons there might be concerns," said Caldwell, who attended the meeting at the insurance department with KACo executive director Bob Arnold, director of insurance Joe Greathouse and KACo staff attorney Richard Ornstein.

Caldwell said state insurance officials didn't express concerns about the financial stability of any of KACo's insurance funds.

"They were very positive about that," he said.

Caldwell began working with KACo 12 years ago, after the organization's property, casualty and liability fund — called the All Lines Fund — nearly collapsed. The state insurance department found in the mid-1990s that the fund was running a $9.8 million deficit, prompting the fund to borrow $5 million and assess the counties an extra $4.8 million.

Since then, KACo's All Lines Fund has built up a $20 million surplus, compared to the $28 million it takes in each year from counties in premiums. Currently, 112 of Kentucky's 120 counties use KACo for liability insurance.

Regulators haven't scheduled a follow-up meeting, but Caldwell said KACo officials will continue to cooperate and take any advice the department might offer.

"If they have any concerns after our discussion today, or any suggestions about how things can be improved, obviously KACo will listen to that," Caldwell said.