02-13 Executive Memo

02-13 Executive Memo

Executive Memo

Painful decisions
 
By Bill Scott
KSBA Executive Director

By now, school board members and superintendents are beginning to digest the extremely difficult decisions by our trustees of the Kentucky School Boards Insurance Trust to move forward with premium assessments and discontinue KSBIT’s workers’ compensation and property/liability services. In addition to the communications you have received, I will be discussing KSBIT in detail in the coming weeks at meetings of regional educational cooperatives across the state and during our KSBA conference later this month.

However, before I spend the bulk of this column on the projected KSBIT deficit and the additional premium assessments, I’d like to make two points crystal clear:

KSBA and KSBIT are separate entities – organizationally, fiscally, legally. And KSBIT’s troubles have not and will not impair this association’s abilities and capacities to serve you – our members.

For example, even as the KSBIT trustees were announcing their decision last month, KSBA policy staff worked with district staff on board policy matters. KSBA attorneys answered legal, personnel and special education questions from superintendents and other administrators. KSBA board team development staff processed reservations for our 77th annual conference, while KSBA lobbyists attended legislative meetings. We’ve never allowed the KSBIT work to negatively impact the larger array of services this association provides our members.

Back in fiscal year 2005, KSBIT’s audited financials indicated a $5 million deficit. The KSBIT board was optimistic that a few well-placed operational improvements could create the kind of efficiencies that would return the fund to solvency.  It took a number of steps to cut costs and reverse the drain, including, but not limited to, outsourcing claims, expanding loss control, reducing staff, adding regional marketing partners, implementing case management and medical cost controls and, in 2010, contracting with the Kentucky League of Cities to manage the day-to-day operations of the pools.

The goal was always the same: keep the pools going to continue offering Kentucky’s public schools consistent and affordable insurance coverage tailored to their unique needs and providing competition to private carriers. In some years, these efforts reduced the deficit, but not enough to offset other factors.
 
No single factor created the large projected deficit that we’re now facing. From its inception in 1979 through the 2012 fiscal year, KSBIT successfully responded to 116,000 claims to its self-insured workers’ compensation and property/liability pools. Not surprisingly, we have had many questions from our members about how this recent deficit increase occurred. A KSBA colleague likened the KSBIT status to that of a farmer in a period of drought. The longer the drought, the tougher for the farm to produce. KSBIT’s “drought” has been marked by:

• An increase in the projected cost of specific claims – especially those workers’ compensation claims eligible under state law for lifetime medical benefits – as well as an increase in the ultimate cost of all claims.

• Competition by here-one-year, gone-the-next for-profit firms, reducing KSBIT participation.

• Revenue problems, including falling interest investment returns due to lower interest rates and less revenue available for investment because of the need to pay claims, coupled with the desire to keep KSBIT premiums as low as possible during years of state and federal school funding cuts.

• The transfer of all future liabilities related to the existing claims to another insurance company to eliminate any risk of a second assessment, which was the largest factor.
 
For a more detailed description of these factors, please review the Frequently Asked Questions document.

Because of this recent increase in the deficit our trustees have determined that the time has come for what has always been the last option: closing the workers’ compensation and property/liability pools and covering projected costs through an assessment of an additional premium contribution under Kentucky law. This unavoidable fact represents the biggest regret of my career. Please accept my deepest apologies for what has happened.

After months of discussions, the trustees have created a series of payment options for districts – a single, lump sum payment; installments paid over five years; or installments paid over the course of a 20-year bond through the KISTA (Kentucky Interlocal School Transportation Association). In the meantime, KSBIT is engaged in discussions with a commercial insurance vendor for endorsed coverage for districts as of July 1, 2013. Without the competitive pressure of KSBIT, my biggest concern is a return to escalating premiums and  inferior coverage. 

While more information will be forthcoming in the weeks ahead, I hope our members will contact me with their questions. I believe that the fullest possible transparency will enable both KSBA and KSBIT to continue to serve our members and the public education system of our Commonwealth.

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