The Arkansas House of Representatives has declared an emergency related to property insurance costs for educational institutions and passed legislation that would establish a state-owned captive insurance company. The bill, HB 1821, now moves to the state Senate for further consideration.
If enacted, the bill would authorize the state insurance commissioner, the director of the risk management division, the secretary of the Department of Transformation and Shared Services, and other relevant entities to coordinate with the State Captive Insurance Program.
The program would provide coverage for buildings, structures, and facilities owned by state agencies, public schools, and state-supported higher education institutions.
According to the legislation, the General Assembly must take both immediate and long-term actions to address increasing premium costs.
AM Best reported that in addition to short-term measures, lawmakers must develop a sustainable insurance solution to ensure coverage for state-owned properties and educational institutions.
A 2023 consultant report indicated that forming a captive insurer could help Arkansas save up to $12 million annually while also improving the adequacy of insurance coverage for schools.
That assessment was provided by Meadors, Adams & Lee Insurance Co., which noted that traditional insurance markets have become less viable for large property schedules, including those with "first-dollar" coverage, due to rising costs and tightening capacity.
The property insurance market for schools and universities in Arkansas has faced significant strain over the past year, prompting a legislative subcommittee in 2023 to recommend hiring a consulting firm.
The firm was tasked with developing strategies to manage rising premiums and establish more stable coverage frameworks for state-owned education facilities.
Outside of its educational institutions, Arkansas experienced significant challenges in its property insurance sector, marked by soaring premiums and heightened loss ratios.
In 2023, the state reported a loss ratio of 144%, the second-highest in the nation, indicating that insurers paid out $1.44 in claims for every $1.00 collected in premiums.
Homeowners in Arkansas faced substantial rate hikes in 2024. For instance, American Economy Insurance Co. implemented a 29.9% increase, while Auto Club Family Insurance Co. raised rates by 29.3%.
The state has been increasingly susceptible to severe weather, including tornadoes and hailstorms, leading to higher claims. Notably, the March 31, 2023, tornado in Little Rock caused extensive damage, contributing to the elevated loss ratios.
Arkansas lawmakers are exploring mitigation programs similar to those in Alabama, offering financial incentives for homeowners to strengthen their properties against severe weather, potentially leading to insurance discounts.
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