Glenn

Former Executive Director

A ‘spirited’ Kentucky wants make up ground in the race for captives

Glenn Jennings replaced Martin J. Koetters as Executive Director of the Kentucky Office of Insurance in April 2005. In June of this year, Jennings himself was replaced by Julie Mix McPeak, an attorney, when Gov. Ernie Fletcher called upon Jennings to be the state’s commissioner of Medicaid services.

Jennings has more than 20 years of experience in the health care field, specializing in financial management and information processing. This interview with Insurance Journal’s Andrew Simpson was conducted just before Jennings left KOI to take on his new job.

Kentucky has modernized its laws on captives. Tell us about what’s changed.

Jennings: Be glad to, Andy. Kentucky passed our first set of captive laws patterned almost entirely after Vermont in 2000. We’ve had some success with attracting captive insurers, particularly as an alternative to some hard markets like medical malpractice. We have seven captives as of now, but we realized our laws have not been modernized since 2000, so we put together a package in the last legislative session that did a couple of things. It made it easier to become a captive in Kentucky. We also got an allocation from the Legislature to allow us to create a captive unit. We’ll start modestly but this will allow us to team with the economic development in our state and go around, advertise and talk about the merits of forming a captive for some of these entities in our state, particularly with an eye to the horse industry.

The hope is to make Kentucky an even more attractive place for captives?

Jennings: That’s right. We’ve looked to our neighbors in South Carolina and D.C., and they’ve had very good success with that. Of course, Vermont is the nation’s leader with over 500. We would hope that our goal would be to get at least 100 captives through the course of the next several years.

Kentucky has had some workers’ compensation issues and the responsibility for overseeing self-insurance trusts has been shifted to your department. Could you update us on the progress there?

Jennings: That’s correct. It was two sessions ago. Implementation of Senate Bill 86 took the regulatory and oversight responsibility and gave it to the Office of Insurance. There are currently seven self-insured funds in Kentucky. One of those funds, AIK, was in financial trouble. We moved that into receivership. Of course, we have joint and several as the main backstop for financial solvency for our self-insured funds. That hole turned out to be $92 million. Approximately 3,800 employers were involved in AIK. We’ve gone through several assessments. We now have a court approved method of collections and a court approved rehabilitation plan. We have successfully collected approaching $72 million, and we have callable notes for most of the rest. Although we still have a large, hard road in front of us, we’ve assured ourselves for years now to come that the claims of injured workers will be paid. We hope to be more inventive as we go forward and get more maturity in that book of business, perhaps even looking to put it on the market for some type of loss portfolio transfer, perhaps next summer.

What about the other self-insurance trusts in the state? Are they in good shape?

Jennings: Yes, they are. We also got the responsibility to start monitoring them financially. We have a very robust financial analyst and financial examiner staff. We’ve been through all the funds at this point. They’re in good shape, so we’ll continue to watch those very closely. I would hate for Kentucky to have to go through another AIK comp rehabilitation.

Have Kentuckians been feeling the effects of rising property reinsurance costs and, in some cases, insurer pullbacks?

Jennings: There are a couple of answers for that. Right now we’re enjoying a fairly soft market in P&C in Kentucky, so insureds are enjoying a lot of choice. Some rates have even been going down for auto… filed by some of the major insurers. But the other side of that, yes, the hurricane season of last year, the capacity in reinsurance. One of the activities the Office of Insurance is we have a division called State Risk. In that division we’re responsible for insuring all the state properties in Kentucky. That’s over 8,000 properties valued over $14 billion. We take the first layer of $500,000 and then we procure excess insurance up to over half a billion dollars. I was very concerned as that renewal cycle was up and I had to renew by July 1st. We’ve been in the market place; we’ve been seeing what’s been happening with the reinsurers. We were fortunate we had a modest increase this year. We locked in; we’re a very stable program, so insurers like us, so we were able to reinsure for the state risk plan at about a four to four and a half net increase. Now, there are other factors, but that’s about what happened.

What are some of the initiatives your department is involved in regarding modernization of regulation?

Jennings: That’s a very important element for us because that’s where you get productivity increases, as people might be leaving state government it’s difficult to recruit sometimes. We’ve been very active in automation. For example, there’s 28,000 plus resident agents in Kentucky, with over 50,000 non-resident agents. Those agents can have their interaction with us almost completely through our website. It’s a not a pretty picture and flowery website. It’s a productive one; it’s a 24/7. You can pay by credit card; you can pay by wire transfer. We interact with companies. We now have it set up so the annual filing fee that companies — over 1,500 of them — can send in that payment electronically. We’re speed to market state; we have all the facilities in place for that.

Do you get a chance to work with agents and brokers on a regular basis?

Jennings: Yes. We’ve found that if we want to change the statutory framework of insurance regulation in Kentucky, it’s better to bring everybody to the table outside of the legislative session instead of waiting until then. We meet regularly with all insurers. I have monthly meetings with the Kentucky Association of Health Plans. I have quarterly meetings with the agents. I have quarterly meetings with all the other insurers in our state. Then, we often will form a task force and bring everybody to the table as we work through initial drafts of proposed legislation.

We’re doing such a thing now, where we’re debating the whole concept of fees versus commission. Now, I don’t know what the outcome of that will be. We might have to agree to disagree, but we are bringing all the interested parties to the table trying to get some resolution of that very difficult problem.

Does that tie into the issue of broker compensation and disclosure?

Jennings: That hasn’t come up yet because the contingent commissions and fees are at a higher level on the food chain. We’re dealing with these individual agents at this point, who might be dually licensed. We have a unique situation: you can a consultant and you can be licensed as an agent in Kentucky, but you have got to make the decision at the front end of the transaction whether you’re going to be taking a fee or a commission. Working through that is pretty difficult, and we don’t want to change the balance of the marketplace when we do that.

How does the branding by Kentucky with its “Unbridled Spirit” slogan tie into your department’s work?

Jennings: Now everybody is on the same page with the logo … and the slogan of “Unbridled Spirit” that speaks to the entrepreneurship of Kentucky, the work ethic of Kentucky and the free thinkers of Kentucky. Now we use it everywhere. It’s very nice as I go out, for example, to market captives, I will have a brand that we’ll use and that’ll be readily identifiable.

Do you consider it part of your job to attract more insurers to your state?

Jennings: Absolutely. We want to be as business friendly as we can be. It’s that knife edge because we’re a consumer oriented organization.

…Companies which maybe do business in five or six states don’t want to change their business model for some unique desk drawer rules of another state, so uniformity is very important. Modernization is very important. If we can break down administrative barriers, certainly a company is going to look at Kentucky much more favorably if they don’t have to change their business model very much to come in and market, sell and service their product.