While states like Florida are trying to shrink their state-backed insurance companies, Arkansas is considering starting one.
A consulting firm has recommended to Arkansas legislators that the state start its own captive insurance company in order to stem the tide of rising property insurance premiums for public schools and institutions of higher education, according to a report by The Arkansas Advocate.
Meadors, Adams & Lee Insurance Inc. recommended that Arkansas should combine its three insurance programs into a special-purpose captive, which would give it greater control over premiums than if it purchased insurance through another company. The firm made the recommendation after a months-long investigation into the issue of rising insurance costs, the Advocate reported.
“Let me tell you the most expensive thing about insurance: it’s giving it to an insurance company,” firm president Roberts Lee said, as reported by the Advocate. “There’s nothing more expensive than that, and it doesn’t get any less expensive – and the only way that we’re going to fix this is start our own.”
Lee said that if the captive charged sufficient premiums to cover annual expected losses and reinsurance costs, it should build a sufficient policyholder surplus for paying claims, the Advocate reported.
Lee recommended that the insurance company be controlled by a board that reports to the state’s insurance commissioner. He said such a system would add checks and balances and avoid conflicts of interest. The board, which would manage every function of the captive, could include members like an investment adviser, a risk manager and a reinsurance broker, he said.
Lee advised creating the captive quickly enough to begin operations by Oct. 1.
“I applaud you for the work you’ve done,” Republican state Rep. Howard Beaty told Lee. “This is one of the most commonsense things and business approaches that I’ve seen since I’ve been in the legislature.”
The recommendations are still under discussion, and state lawmakers have not yet taken action on them.
School insurance premiums are climbing nationwide thanks to issues like climate change, which is increasing the frequency of natural disasters that impact school operations, according to a report from Education Week.
The same issues are also causing homeowners insurance rates to skyrocket – to the point that disaster-prone states like Florida and California are in the midst of years-long insurance crises.
In Florida, which has the nation’s highest property insurance premiums (averaging $6,000 per year), state-backed Citizens Property Insurance has become the state’s largest property insurer as private insurance companies have hiked rates or dropped customers. Conceived in 2012 as Florida’s “insurer of last resort,” Citizens is now actively trying to offload policies, with state Gov. Ron DeSantis warning that the insurer is “not solvent” and could be in big trouble should a major storm hit.
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