In an effort to protect the state's school districts and theiremployees, the Kentucky Department of Insurance proposed a plan totake over the management of the troubled funds used for schoolboard workers' compensation and property and liability claims at amuch lower cost to the school districts. These funds have facedserious financial destabilization, with potentially significant andcostly impact to the school boards. This recommendation, ifaccepted, will save the state's school boards at least $21 millionover proposals submitted earlier this year.

Attorneys for the DOI filed petitions today in Franklin CircuitCourt asking that two of the Kentucky School Boards InsuranceTrust's (KSBIT) self-insured funds be placed in rehabilitation,which means DOI will directly manage the funds. If granted, DOICommissioner Sharon P. Clark and her staff will have full controlof the KSBIT funds as the workers' compensation fund transitions toanother entity and the property and liability fund is closedout.

The Insurance Commissioner is required by law to ask for arehabilitation order when an insurer, including a self-insuredgroup, meets certain conditions, including serious financialdifficulty.

KSBIT has been operating under an ongoing deficit. In spite ofdirectives and efforts to cure the deficit, the situation onlyworsened, triggering today's action. The funds stopped writing newor renewal business on June 30, 2013. Since 2010, the funds havebeen under the management of the Kentucky League of CitiesInsurance Services Association.

"The goal of this rehabilitation process is to ensure thatpayments to injured workers and coverage for property or liabilityclaims are met in the most cost efficient manner possible for ourschool districts," said Governor Steve Beshear.

"I am very pleased with the rehabilitation plan developed by theKentucky Department of Insurance. Their hard work has resulted in aplan that is much better than previously discussed options, andthat addresses liabilities while also providing savings to schooldistricts. I applaud their efforts to bring this matter to a close,and allow school districts to move on and remain focused on studentlearning," said Terry Holliday, Kentucky Commissioner ofEducation.

Recommendations from DOI

The petitions seek approval of assessment plans totaling $48.5million ($36 million for the workers' compensation fund and $12.5million for the property/liability fund). The Department expectsthe court to set a hearing on the plans within the next 90days.

Members (including certain former members) of self-insured fundssign agreements and are responsible by law to cure fund deficitsthrough the assessment process. The $48.5 million proposedassessment in the Commissioner's plan is $21 million less than anassessment proposed by KSBIT in July of this year.

"After months of review and discussion with all parties, we areconfident that this represents the softest landing possible for theschool districts and provides adequate funding for the protectionof injured workers and claimants," said Commissioner Clark. "Thereshould be no interruption in the service and handling ofclaims."

Under the proposed rehabilitation plans, the claims liabilitiesof the workers' compensation fund would be transferred to KentuckyEmployers' Mutual Insurance (KEMI) in a loss portfoliotransfer.

Clark said that assessment cost savings are realized becauseKEMI has agreed to handle the workers' compensation claims at costand it has claims payment and other systems already in place.

"I want to thank KEMI's management and board for being willingto provide its assistance," Clark said. "Without that partnership,the school districts would have been paying considerably more.Since KEMI has a relationship with many of the school districts,this adds a level of trust to the process."

KEMI President and CEO Jon Stewart said, "KEMI is pleased to bepart of a solution we believe is in the best financial interest ofschools across Kentucky."

Under the proposed plan, a claims administrator would be chosenfor the property/liability fund through the state's "request forproposal" bidding process. The entity selected will handle existingclaims until all activity is completed.

For the property/liability fund, Clark said this option seemedmost cost-effective since it is estimated that most claims in thatfund should be closed in about five years.

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