By Jay Chilton, CIJ

Insurance is easy to forget about until you need it, like when a building is damaged in a storm or a customer slips and sues. As an alternative to traditional insurance, some Oklahoma public school districts participate in a self-insurance program. Records show the program has a relatively weak financial posture, but is promoted by the Oklahoma State School Boards Association (OSSBA).

The schools’ self-insurance program is called the Oklahoma Schools Risk Management Trust (OSRMT). OSSBA promotes the program to school districts and gets royalty payments to administer the program. Shawn Hime, OSSBA’s executive director, is a member of the board for the trust.

CIJ has attempted to contact Hime at OSSBA to ask about the trust’s financial position and the possibility of a conflict of interest, but he has not returned numerous telephone calls.

The OSRMT provides a structure for school districts to share risk jointly among themselves. Other such entities, known as “interlocals,” operate in Oklahoma. Current participants in the OSRMT are mostly smaller, rural school districts. But some larger districts, such as Yukon, participate as well.

While Hime’s association promotes the OSRMT, the trust pays in excess of $200,000 annually in taxpayer funds to the school boards association. Hime has leadership positions in both organizations: executive director of the OSSBA and board member for the OSRMT.

Last year, records show the insurance cooperative paid $234,000 in royalties to the OSSBA. In 2015, the trust paid $225,000. A financial statement filed with the Oklahoma Insurance Department shows that payments of $37,000 (2016) and $39,000 (2015) are still owed by the OSRMT to the OSSBA. Previous financial filings show that in 2014 the trust paid OSSBA $165,000 with a remaining balance of $40,000. In 2013, the royalty payment was $148,394.

CIJ spoke with experts from the Oklahoma Insurance Department about interlocal insurance pools and their ability to secure the property of Oklahoma’s public schools and protect taxpayers from risk. State Insurance Commissioner John Doak said that officials and taxpayers need to be diligent in their assessment of an interlocal entity when considering using their services.

“School leaders need to know that these types of arrangements are not regulated and are not backed by a guaranty fund,” Doak said. “I urge them to look at the financial statements so they can make a well-informed decision about the financial strength of the interlocal. The last thing we want is for a natural disaster or a major lawsuit to leave multiple schools in financial ruin. It’s important for school leaders to verify that these interlocal insurance pools are adequately protected from a significant loss before they sign on the dotted line.”

In 2014, a failed interlocal, the Oklahoma Schools Property and Casualty Cooperative (OSPCC), sent assessment notices to 56 of its former member schools in an effort to collect $720,319 required to settle outstanding debts and anticipated future claims.

Some school districts were assessed less than $1,000 while others received bills for more than $65,000. Some district leaders said that if the assessments were upheld and required to be paid, the result would be detrimental to their schools.

In November of 2014, The Oklahoman reported that 42 district that were previously part of the failed interlocal switched to the OSRMT. Jerry Needham, then chairman of OSPCC’s board of directors and superintendent of schools in Oktaha, expressed remorse for the losses incurred by the school districts.

“We all joined OSPCC because we believed we were saving our district money while obtaining competent and comparable insurance coverage,” Needham said. “We are sorry it has turned out that the money you saved will have to be paid to satisfy the claim obligations of OSPCC. In my review of the records and contracts of OSPCC, I did not find nor do I believe any illegal activities occurred. Extreme losses and loss of participation resulted in this situation for the OSPCC participants.”

Needham remains superintendent of Oktaha Schools and now sits on the board of OSRMT with Shawn Hime.

The final report from OSPCC to the state insurance department states that OSPCC’s portfolio was transferred to OSRMT on May 30, 2016.

On May 15, 2014, eight months prior to the failure of the interlocal and cancellation of all policies by OSPCC, the insurance cooperative reported a negative net asset position of $832,721. OSRMT reported a net position of just $164,862 in 2016. In contrast, most interlocal entities have a far greater net position.

For example, the Oklahoma School Assurance Group reported a position of $5,964,544 in 2016. The Oklahoma Schools Insurance Group reported a net position of $12,666,432 at the same time.

Listed below are the 56 school districts that were billed in 2014 for portions of the $720,319 owed by the failed interlocal with the amount of the bill they were assessed.

Combined with the 43 districts that transferred their membership from OSPCC to OSRMT when the latter absorbed the former’s portfolio, the existing member districts for OSRMT totaled 190 as of 2016.