The Kentucky League of Cities said Tuesday that its insurance arm will take over administration and management of the financially troubled insurance pool that protects Kentucky school property and employees.
KLC Insurance Services will infuse $8 million into the school boards' insurance pool — $5.5 million for the workers' compensation fund and $2.5 million for the property/liability fund.
Bill Scott, executive director of the Kentucky School Boards Association said the move "eliminates the deficit and leaves a modest surplus in both of those pools."
"Public school districts owe a great debt of gratitude to the League of Cities," Scott said. "But that will require the school districts to support the pool, going forward."
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The Kentucky School Boards Insurance Trust, known as 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 law requires that school districts carry insurance for school property, boilers, auto liability, workers' compensation and unemployment 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.
The $8 million eventually will have to be paid back to the KLC insurance arm, Scott said. He said insurance operations would be run from KLC's Lexington office rather than KSBA's Frankfort office, with a board including school officials as well as city officials to oversee the school insurance operation.
The Kentucky League of Cities' Insurance Services, or KLCIS, will take over the running of KSBIT, including all policy issuance, claims, loss control, underwriting and investments. Six KSBIT staff members have been laid off.
The arrangement benefits both organizations, according to a news release announcing the takeover. KLC's insurance pool could provide cost savings of as much as $500,000 initially "through joint contracts and economies of scale," it said.
KLCIS Chairman Arthur Byrn, the mayor of Mayfield, said both groups will continue to sell insurance independently to cities and school districts.
"It's like buying a lot of commodities," he said. "When you take everything together, there are considerable savings."
For example, even with two insurance trusts, the groups can share costs on buying re-insurance, or on contracts for claims adjusting.
Interest from the $8 million infusion will continue to support KLCIS but will help KSBIT stabilize so it can create a bigger pool and pay back the loan.
Byrn said he sees the agreement as long-term.
"I think it's an opportunity both for the trust and our membership," he said.
Scott said state Insurance Commissioner Sharon Clark "made it clear to us that she wanted us to eliminate the deficit."
"If we had not found a partnership like this ... the most likely alternative would have been an assessment," basically, splitting the bill among participating school districts, Scott said.
A spending scandal earlier this year forced KLC Director Sylvia Lovely to resign. State auditor Crit Luallen is expected to issue an audit of the organization this month.