The Arkansas State Board of Finance has given the green light to submit an application to the state Insurance Department to establish a captive insurance company. This new entity will provide property insurance for the state’s public schools, higher education institutions, and state agencies.
Grant Wallace, director of the state’s Employees Benefits Division, informed the Board that the Insurance Department is expected to review and approve the application before July 1. Following approval, the state Board of Finance will review and approve the captive’s operational and investment plan. The newly renamed Department of Shared Administrative Services will then oversee the captive insurance program on a daily basis, effective July 1.
The creation of this captive insurance program is a result of Acts 560 and 779 of 2025, which aim to combine all state agencies, public schools, and higher education facilities into one property insurance captive. This legislative move follows a study by lawmakers on ways to mitigate rising property insurance premiums for public schools. The study was prompted by the Legislative Council’s approval in July 2023 of $11 million in one-time state funds to help school districts cope with increasing premiums.
Currently, the state self-insures all state agency property, higher education property, and about half of the public school district properties through the state Department of Insurance program. Wallace noted that these administrative functions will transition to the Department of Shared Administrative Services starting July 1. The State Captive Insurance Program will be funded with $136 million in one-time state funds.
The captive insurance company, owned and controlled by the state, will operate like a commercial insurance company without relying on third-party vendors. The state will cap its exposure to the first $50 million in claims. By dealing directly with the reinsurance marketplace, the program aims to secure competitive rates and pass the savings on to participants.
Wallace presented projections to the state Board of Finance, indicating a solid financial plan in place. The projections show total gross premiums of $101.7 million for each of the next two years, with total underwriting deductions of $88 million in the first year and $90.7 million in the second year. The program is expected to have a surplus of $150.9 million at the end of the first year and $164 million at the end of the second year.
A key highlight is that the rate charged to entities will remain flat from the current year to the next. Any premium increases will be due to the rise in property values reported in the March 2025 valuation. The program includes a phase-in for public schools on deductibles over the next two years. School districts with less than $100 million in total insured assets will have a $25,000 deductible per occurrence district-wide, while those with more than $100 million will have a $50,000 deductible. State agencies and higher education institutions will have a $250,000 deductible.
The goal is to avoid shocking the system while moving towards appropriate market and insured values. Wallace emphasized that the program will help maintain stable rates, expand coverage options, and secure more competitive rates for participants.
