A consulting firm recommended to lawmakers Thursday that Arkansas start its own insurance company to combat rising property insurance premiums for public schools and higher education institutions.

Meadors, Adams & Lee Insurance Inc. presented its recommendations to the Arkansas Legislative Council’s executive subcommittee after a months-long study of the issue. 

Arkansas legislators choose school insurance premium consultant

Roberts Lee, president of the Little Rock-based consulting firm, said Arkansas should combine the state’s three insurance programs into a special-purpose captive, which gives the state more ability to control premiums than if it purchases insurance from another company. (A captive is a form of insurance where the insured party also owns the entity providing the insurance.)

“Let me tell you the most expensive thing about insurance: it’s giving it to an insurance company,” Lee said. “There’s nothing more expensive than that and it doesn’t get less expensive, and the only way that we’re going to fix this is start our own.”

Lee said the insurance company should charge sufficient premiums to schools to cover annual expected losses and reinsurance costs, which would create a policyholder surplus that could be invested and used to pay claims.

Jonesboro Republican Rep. Jack Ladyman agreed it’s the smartest approach to insurance, but said there’s often an issue with expertise in operating a self-insured program. 

To eliminate conflicts of interest and add checks and balances, Lee suggested the insurance company be governed by a board that reports to the Arkansas Insurance Commissioner. 

The board, which would include members like a reinsurance broker, risk manager and investment adviser, would manage every function of the insurance company, including risk finance and risk control, he said. 

Lee also advised beginning operations by Oct. 1.

“I applaud you for the work you’ve done, this is one of the most commonsense things and business approaches that I’ve seen since I’ve been in the legislature,” said Rep. Howard Beaty, R-Crossett. 

Lawmakers took no action on the report and will continue to discuss Lee’s recommendations, which also included charging the same rate for all districts. Lee said the move would benefit smaller schools, which the firm’s research found were paying much more than larger schools.

School insurance premiums are increasing nationwide, Education Week reports, because climate change is causing more frequent natural disasters that affect school operations and require insurance companies to pay out. 

A tornado that destroyed Wynne High School last March resulted in $122 million of the more than $147 million losses in the insurance program managed by the Arkansas School Boards Association. This is the largest loss of any school district in Arkansas history, lawmakers learned last year.

Last summer, the governor’s office estimated Arkansas school districts would see an average increase of 130% in insurance premiums this school year. Gov. Sarah Huckabee Sanders in July authorized the use of state funds to cover 30% of the cost increase.

Lawmakers approved the $10.8 million transfer of funds to be split three ways — $6.3 million for the 170 districts in the program managed by the Arkansas School Boards Association; $4.46 million for the 68 districts in the Arkansas Public School Insurance Trust, which is managed by the Arkansas Insurance Department; and nearly $118,000 for the Bentonville School District, which procures insurance directly through the open market.