Superintendents Webcast graphic(FRANKFORT, KY) – Representatives with the Kentucky Department of Insurance provided an overview of insurance for school district leaders, including how self-insurance works, during the Kentucky Department of Education’s (KDE’s) Superintendents Webcast on March 12.

Russell Coy, general counsel for the Kentucky Department of Insurance, said the agency has received several questions about self-insurance and how it works from school leaders. He explained self-insurance is a risk management strategy where people or entities such as government agencies set aside funds to cover potential losses instead of paying premiums to an insurance carrier.

Coy said self-insurance is best suited for managing predictable, lower-level risks or by entities that are financially strong enough to absorb major losses.

“Instead of transferring risks, you’re assuming full financial responsibility,” Coy said. “You’re on the hook for all of those losses and all of those claims.”

Coy also explained that self-insurance claims are not covered by the Kentucky Insurance Guaranty Association, meaning one fewer option for assistance that districts would have in emergencies.

Jeff Gaither, chief financial examiner at the Kentucky Department of Insurance, explained assessments, which happen when there is not enough funding within a self-insurance group to cover legal liabilities and other obligations, including maintaining required reserves, according to KRS 304.48-250.

Gaither provided information on what can lead to an assessment of self-insurance group members – when catastrophes happen and the claims exceed what the group has available to cover them and the coverage provided by excess insurance carriers – along with additional concerns, including how poor financial management of the self-insurance fund can be detrimental.

He said the Department of Insurance isn’t trying to deter districts from entering into a self-insurance group, but it wants to emphasize the risk associated with membership in one.

“Self-insuring can expose school districts to significant unpredictable financial liability, potentially creating major cash flow challenges for the district,” Gaither said. “Self-insuring requires robust financial reserves for both the school district being insured and the self-insured fund, and it risks draining necessary funds for education.”

The presentation also included background information on the now-defunct Kentucky School Boards Insurance Trust Fund, which ran negative annual fund balances for all but two years between 1995 and 2013. Despite corrective action plans and changes in management, the trust fund ceased writing business and went down the path of assessing member schools, but members could not agree on a plan and the fund was placed in what’s known as rehabilitation.

Coy explained how after the rehabilitation process, which he said works similarly to how bankruptcy works for businesses and individuals, a Franklin County Court approved a $48.5 million assessment plan: $36 million for workers compensation claims and $12.5 million for property liability. Ultimately, by the time the collection process on these claims ended in December 2022, the plan was resolved after a total of $34.6 million was collected from member schools.

“(The Kentucky School Boards Insurance Trust Fund) is a basic example of what can go wrong with self-insurance and there are a lot of elements you need to consider when you’re doing a self-insured program,” Coy said.

Q&A

Two districts submitted questions following the presentation:

Q: Has the Kentucky Association of Counties insurance program been a good long-term solution for counties when transferring risk?  If managed well, can a school district benefit from self-insuring and pooling just like Kentucky cities and counties?

A: “The Kentucky League of Cities and the Kentucky Association of Counties have both successfully operated workers’ compensation and property self-insurance funds for many years. All of these funds currently have significant positive equity (i.e., fund balances) and are in good standing the Department of Insurance. In the mid-90s, the Kentucky Association of Counties experienced excess losses in certain individual fund years that resulted in member assessment, including litigation over the assessments and with excess/reinsurance carriers. Strong responsive management and diligent oversight by self-insuring members of the fund are both keys to the success of a self-insurance program.” – Russell Coy, Kentucky Department of Insurance General Counsel

Q: Can you share if any cities that are members of Kentucky League of Cities Insurance programs have expressed concerns recently with the validity of their program?

A: “In the history of the Kentucky League of Cities’ insurance programs, there has never been an assessment to its members, nor has there been related litigation. Although they have had some years where losses have been significant, they structured their insurance programs with strong reinsurance partners and responded appropriately with year-over-year rate changes based on indications provided by 3rd-party actuarial rate studies. This has helped them maintain strong financial health, long-term rate stability, and high member-retention rates.” – Russell Coy, Kentucky Department of Insurance General Counsel

Editor’s Note: This article has been edited with clarifications issued by the Kentucky Department of Insurance in the Q&A section.

Kentucky Legislative Session

Brian Perry, director of government affairs for KDE, provided an overview of several pieces of education-related legislation the department is watching during the 2026 Kentucky General Assembly session.

The presentation included information on House Bill 500, the main two-year budget bill which is currently under consideration in the Senate after House lawmakers approved their version on Feb. 26.

The current budget bill increases SEEK program funding to $4,626 per pupil for the 2026-2027 school year and $4,792 for the 2027-2028 school year. The bill also restores SEEK transportation funding to 2025-2026 levels, meaning transportation would be 81% funded under the current proposal. Commissioner of Education Robbie Fletcher said KDE continues to meet with budget negotiators in both the House and Senate to advocate for full transportation funding to help districts fund a vital service.

“I do want to thank our legislators. We’ve had a lot of input on a lot of bills and there have been a lot of things that we’ve been able to partner with legislators on,” Fletcher said.

The presentation also included updates on a variety of other bills KDE is following, including:

  • Senate Bill 41: A bill changing how ad valorem taxes established by local boards of government, including school boards, can be put to a recall vote.
  • Senate Bill 46: Regulations for non-school bus passenger vehicles designed for 10 or fewer passengers.
  • Senate Bill 4: Establishes a new five-year principal training and mentoring program.
  • House Bill 1: Creates a new section of KRS Chapter 14 to elect for the Commonwealth to participate in the qualified elementary and secondary education scholarship federal tax credit.