Central Arkansas Risk Management Association board members are considering dissolving the insurance group that caters to public entities such as the city of Shannon Hills and the Little Rock public transit system.
Since 2008, the number of the association’s members has dropped by more than half, plunging from 21 in 2008 to 10 today. Most recently, the Pulaski County Special School District pulled out of the group in September.
As the number of members declines so does the group’s revenue, said Tab Townsell, who sits on the group’s board as a representative of Metro-plan, which uses the Central Arkansas Risk Management Association for its insurance. Metroplan is central Arkansas’ planning group.
Members of the association pay annual rates, similar to insurance premiums, which are the organization’s main source of revenue. When the number of members drops, not as many organizations contribute to the risk management association via their rates.
The Central Arkansas Risk Management Association pools that money for its members, and when the members experience a loss — perhaps one of the agencies has an employee crash a car or a building burns down — the association pays for the repairs, in much the same way as an insurance company would, said Timothy Miles, the association’s risk administrator.
Because of this, there is a risk that one day, if members and revenue keep dropping, the Central Arkansas Risk Management Association would be unable to pay for members’ losses, Townsell said.
When Pulaski County Special School district left the group, the loss put the association in an additional lurch with its excess property insurance. Central Arkansas Risk Management Association uses Travelers Insurance to pay for particularly expensive losses that the association can’t cover. The association covers most of its members’ losses, but when financially devastating losses occur, the association covers smaller portions of the damage, and Travelers pays for the rest, Miles said.
After the school district left, Travelers faced fewer possible losses that it would have to cover, but to continue getting the same amount of money from the group, Travelers raised Central Arkansas Risk Management Association’s rates, Miles said. That added a financial burden to the association on top of its falling revenue.
The group formed in 1985 to offer insurance services to large public entities that had trouble finding insurance on their own. Traditional insurance companies sometimes refused to cover their organizations, or if they did, the rates were often expensive, Miles said.
“It’s just an alternative to the commercial insurance marketplace,” Miles said.
A board member proposed dissolving the group at a meeting Nov. 14.
Townsell presented the information in support of disbanding the Central Arkansas Risk Management Association. But the board voted instead to hire an actuary to assess the association as an insurance organization and estimate how long the association’s surplus money, which was built up over the years, could possibly sustain the members.
Wanda Crawford — who represented Rock Region Metro, the Little Rock public transit system, at the meeting — made the motion to hire the actuary. The actuary should report back to the board in 30-60 days.
“Clearly dissolving CAR-MA when there’s $14 million in reserves that can be made available to members is a problem for Metro,” said Becca Green, the transit agency’s director of public engagement.
Townsell is against relying on Central Arkansas Risk Management Association’s surplus money in the future because the money was built up by association members who left, he said. If the board members disband the group, those former members could possibly claim part of that surplus money, which the members would divide among themselves.
“Well, do we just want to enjoy this sugar high as long as we can?” Townsell said.
If the board does eventually disband the association, the members will have to look for different insurance, which will likely be more expensive, Crawford said at the meeting.
Most, if not all, of the organizations represented in the Central Arkansas Risk Management Association are public agencies that rely on tax dollars.
Central Arkansas Risk Management Association has dwindled to its 10 members after competitors began aggressively pursuing its members, Miles said. The Municipal League clamored after cities to join its organization, and likewise the Association of Arkansas Counties began going after counties.
“Between the more aggressive competition, our smaller program’s been kicked off,” Townsell said.