Minnesota Insurance Scholastic Trust

Transcription

1 Executive Committee DeeDee Kahring, Eastern Carver ISD#112 Greg Hein, Elk River ISD#728 Sandra Linn, New Prague ISD#721 Dan Tait, ACGC ISD#2396 Robert Moeller, New London Spicer ISD#0345 Kristi Anderson- Maple Lake ISD#881 Wayne Kazmierczak, White Bear Lake ISD#624 March 31, 2015 Dear Minnesota School Districts, Over the past few years, numerous Minnesota school districts have evaluated their insurance program needs and made the decision to separate from their traditional insurance program to join insurance pools. These districts spent considerable time weighing their options, investigating the pros and cons of each program, and made a decision to change providers. We understand that some information has been distributed to school districts by traditional insurance providers which may cause school districts to misunderstand the actual structure and operation of pools. This is understandable, as many traditional insurance companies and agencies do not have significant experience in pooling. The attached document is intended to help you better understand pooling and clear up questions that you may have. We believe that once you understand how cooperative insurance pooling programs work, you will see that they are a viable alternative insurance product. There is no cost to get a quote from MIST. By getting a quote, your district will most likely save money through a more competitive process. We encourage you to take the time to learn about the MIST program from both sides of the aisle in order to make an informed decision. Sincerely, The MIST Board of Directors Ms. Kristi Anderson Maple Lake Public Schools #881 Mr. Greg Hein Elk River Area School District #728 Ms. DeeDee Kahring Eastern Carver County Schools #112 Mr. Wayne Kazmierczak White Bear Lake Area Schools #624 Ms. Sandy Linn New Prague Area Schools #721 Mr. Robert Moeller New London Spicer Schools #345 Mr. Dan Tait ACGC Public Schools #2396

2 Public Entity Insurance Pools Facts 1. Pooling became a popular form of insurance for public entities, including K-12 schools, in the 1980 s as insurance became difficult to obtain in the traditional market. From there it has evolved into a very popular way public entities insure their risks today. 2. The formation of pools across the country for public entities was guided by many insurance professionals dedicated to the Public Risk Insurance Management Association (PRIMA), including the development of bylaws, pricing, exit provisions, and general operating standards. K-12 school pooling spread from state to state as districts began to realize the enhanced coverage, consistent stable pricing, and control it provided them. 3. Until the formation of Minnesota Insurance Scholastic Trust (MIST) in 2013, Minnesota school districts have only had access to traditional insurance programs since the dissolving of the Minnesota School Board Association Insurance Trust (MSBAIT) pool in Minnesota is one of the few states where K-12 pooling for property/casualty & workers compensation is not the main form of insurance. 4. Pooling has become such an excellent form of insurance for K-12 schools, and all public entities, that the Association for Governmental Risk Insurance Pools (AGRIP) was formed in This forum provides public entity professionals the opportunity to exchange information, enhance programs and obtain the best services available in the marketplace to create comprehensive risk management programs. From the AGRIP website - Public Entity Risk Pooling is the single most successful example of interlocal cooperation in North America and beyond, saving billions of taxpayer dollars and thousands of lives. Beginning in earnest some 30 years ago, it is a success story that grew organically from the inability and unwillingness of much of the traditional insurance industry to understand and address the changing risk dynamics of governmental entities. If we exclude large school districts (which can self-insure to a great extent, even without pooling) about 70% of all other school districts in the USA are members of one or more insurance pools. 5. While each pool is unique, most share certain key characteristics. Intergovernmental risk pools are formed under state-specific legislation allowing for joint pooling of resources to address risks ranging from property loss to employee benefits, tort liability, workers compensation, and more. Pools are owned and governed collectively by their member entities, which share in the costs and savings that derive from their activity. They are non-profit and mission-driven, with the goal of improving safety and reducing risk and its related cost. This provides budgetary stability and predictability for the member entities and, ultimately, their constituents and taxpayers. For a more detailed report on Public Entity Pooling, please view Public Entity Pooling - Built to Last", a paper submitted in achievement of an Associate in Risk Pool Management (ARPM) designation by Karen Nixon, CPA, ARM, with the Public Entity Risk Sharing Authority of California.

3 Question/Concerns about Pooling 1. Question/Concern Pools fail a. Clarification - Pools, like traditional insurance companies, are only as sound as their management and client base. Pools can dissolve, be played in abeyance, or fail just like insurance companies and while a pool can fail, most are successful. Typical pools that are used as examples of when pools fail are Kentucky School Board Insurance Trust (KSBIT), which dissolved, or Worker s Compensation Self Insurance Trust (WCSIT), which assessed members additional premiums to stay solvent, and of course, the Minnesota School Board Association Insurance Trust (MSBAIT) program. Each of these programs has their own individual explanations as to what transpired within their program. We would be happy to share with you what we know about these programs to compare them to MIST. MIST is a fully transparent, conservatively managed program administered by proven professionals that are accountable to your fellow Minnesota school districts that comprise the MIST board and represent the membership as a whole. b. The same is true for insurance companies when it comes to failing. Take a moment to think about how many insurance companies have failed or gone under or even needed to be bailed out by the U.S. government despite how large they were. Insurance companies can fail or exit a market of business rapidly, choosing to walk away from an unprofitable market segment. A great example of this is when Nationwide Insurance wrote virtually every school district in Ohio for many years. In 2002, Nationwide elected to drop all of their schools from their insurance portfolio, leaving administrators struggling to find coverage. e=all c. From there, Ohio schools formed pools such as the Southwest Ohio Educational Purchasing Council (EPC), which is also currently managed by Arthur J. Gallagher & Co. Today, the intense competition for school business in Ohio has generated lower premiums across the board for Ohio schools without reductions in coverage or services to its members. df

4 2. Question/Concern Being in insurance pools exposes your district to catastrophic risks a. Clarification MIST retains a small portion of risk, currently no greater than $75,000 per occurrence, this is known as a self-insured retention. This self-insured retention is funded by each member contributing to a claims fund to pay claims within this layer of risk. Each member s contribution to the claims fund is shown on their proposal and bill. This contribution is a maximum/fixed amount because if the claims fund is exhausted, MIST purchases aggregate stop loss insurance from A-rated insurance carriers as rated by AM Best. Aggregate stop loss insurance pays the pools self-insured retention in the event the claims fund is exhausted. After the self-insured retention is paid on any claim, MIST purchases excess insurance from A-rated insurance carriers as rated by AM Best to pay catastrophic claims. Any claims fund dollars that are not needed for pool claims payments can be returned to the pools members in the form of a surplus return. 3. Question/Concern No regulation by the Minnesota commerce department and not backed by any claim guarantee fund if bankruptcy occurs. a. Clarification - All insurance coverages within MIST are written by insurance companies that are either backed by the Minnesota Guarantee Fund, Lloyd's of London, and/or are A rated insurance companies as rated by AM Best. All MIST insurance carriers are subject to the insurance laws imposed by the state of Minnesota, the federal laws imposed by the USA, and any applicable International laws. In Minnesota, MIST was established under Minnesota code chapter 504, to administer a local government risk pool pursuant to Minnesota Rule MIST also files annual status updated with the department of commerce pursuant to Minnesota Rule Subd. 4. In addition, every year, MIST conducts a fiscal audit that is delivered to every member district showing the detailed financials that display the financial integrity of the cooperative and where every dollar is spent on the program. MIST is fully transparent and shows each member where every dollar is spent, including premiums for each line of coverage, as well as amounts paid for agent services. In fact, Minnesota highly regulates pools and has a whole rules section dedicated to their regulation which starts in Minnesota Rule Section through Minnesota Rule Section MIST s main insurance carrier currently is Brit, which is owned by a Lloyds of London syndicate. Lloyds of London has its own version of a guarantee fund known as the Lloyds chain of security which comes in to play in the event any Lloyd s syndicate fails. We have more information on this chain of security if you would like to know more.

5 4. Question/Concern Pools are assessable and contain joint/several liability for all members. a. Clarification The MIST property/casualty programs are structured to be non-assessable as they are fully funded programs that purchase aggregate stop loss. That being said, the state of Minnesota requires, amongst numerous other regulations, that pools have provisions in their bylaws require all members to be joint and severally liable for all claims and expenses of the pool. This requirement can be found under Minnesota Rule Subd. 1.Joint and several liability is typically in pool bylaws to protect all pool members. This ensures that if a pool ever was not properly funded to pay claims within their self-insured retention, that the pool would be able to collect claims funds from its members and ensure no portion of any claim goes unpaid. MIST does not run the risk of not being properly funded as they are fully funded and purchase aggregate stop loss insurance in the event their claims fund is exhausted. b. At every MIST meeting, financial reports showing claims incurred to claims funds collected is distributed to the MIST members in addition to the annual fiscal audit. In addition, MIST employs an actuary to project future claim trending and development, which is also shared with the membership. c. In their first years of the program MIST is currently projecting a healthy surplus of claims funds that can eventually be returned to their membership. 5. Question/Concern What is the initial obligation when a school district joins the program? A school joining the program must maintain coverage in the program for a minimum period of 3 consecutive years, unless the Cooperative is terminated prior to the expiration of such period. a. Clarification - A three-year commitment to an insurance pool is required by Minnesota Rule , Subd. 4. A. 2.and therefore is required per the bylaws of the MIST cooperative; which were voted on and approved by the founding members. The three-year commitment is required by the state for the stability of the pool and longevity of the pool providing quality insurance services to the member districts in the cooperative. Compared to many insurance companies, an insurance cooperative like MIST has historically provided unmatched stability in rates/pricing year over year and are a long-term investment for school districts. This stability, which is supported by the three-year commitment, provides districts the ability to better budget for premiums in the following years, as they are generally more stable and less likely to fluctuate compared to traditional insurance programs.

6 6. Question/Concern What is the withdrawal process? a. Clarification The withdrawal process, similar to the three year commitments, was instituted to protect the members of the cooperative and provide time to adequately and more accurately work with insurance carriers when obtaining coverage quotes each year. MIST requires a 6- month withdrawal notice to protect the stability and integrity of the renewal process for the member districts in the cooperative as MIST s renewal process starts in January and all members receive their renewals by early May. Summary: As stated above, insurance pools have been around for over 30 years in the United States. Pools can fail just as insurance companies can fail. Insurance pools are only as good as their management, vendors, insurers, and membership. MIST contracts with Arthur J. Gallagher, one of the countries most experienced pool administrators. In fact, Arthur J. Gallagher manages over 100 insurance pools nationwide. In addition, MIST purchases insurance from well-known and respected, A-rated insurance companies. We encourage you to learn more about pooling and both MIST from your fellow school districts that are members. Please feel free to contact any of us for more information. Sincerely, The MIST Board of Directors Ms. Kristi Anderson Maple Lake Public Schools #881 Mr. Greg Hein Elk River Area School District #728 Ms. DeeDee Kahring Eastern Carver County Schools #112 Mr. Wayne Kazmierczak White Bear Lake Area Schools #624 Ms. Sandy Linn New Prague Area Schools #721 Mr. Robert Moeller New London Spicer Schools #345 Mr. Dan Tait ACGC Public Schools #2396