Many Rhode Island businesses that get workers’ compensation coverage in other
states through The Beacon Mutual Insurance Co. could be forced into those states’
assigned risk pools if Beacon can’t get licensed to write policies in those
states by Dec. 31.
Beacon President and CEO Joseph A. Solomon said the Warwick-based company is seeking licensure in 14 “key states,” including Massachusetts and Connecticut, so it can continue to provide coverage for about 350 Rhode Island-based policyholders. Those customers now get their coverage through a fronting arrangement with Fairfield Insurance because Beacon is limited by law to the Rhode Island market.
Connecticut-based Fairfield, a subsidiary of General Re Corp., will stop offering workers’ compensation at the end of this year. Solomon said many insurers have pulled out of the market since Sept. 11 because, unlike other insurance types, by law, workers’ compensation policies cannot exclude terrorism coverage or add a surcharge for it.
“It’s created havoc in our industry,” Solomon said.
Large and small clients will be affected, Solomon said, but Beacon’s biggest concern is for the small ones, who may find it harder to get replacement coverage. Large corporations are attractive clients to most insurers, Solomon said, but a house-painting contractor, for example, would likely end up in the assigned risk pool.
Bill Warburton, Rhode Island president for USI New England, a major insurance broker, and chair of Beacon’s agent advisory group, said the difference in rates might not be very big, but the difference in speed and convenience would be.
Many of his clients, Warburton said, need a quick turnaround, and if they’re already locally insured with Beacon, getting out-of-state coverage is quick. Having to seek new coverage, especially through the assigned risk pool, could be “a matter of weeks.”
“Ease of doing business is critical,” he said. “Money is being tied up when you have to wait for things.”
Beacon has changed dramatically since its creation in 1991, amid a workers’ compensation crisis that had put more than 90 percent of employers in the risk pool and made rates prohibitively high. It was set up by the state specifically to address the problem, and exempted from state taxes and other obligations in exchange for serving as Rhode Island’s insurer of last resort.
The company wrote its first policy in 1992, and by 1994, the market had improved enough that it began actively competing, lowering rates by 6 percent that year, then 17.5 percent in 1996 and 7.8 percent in 1998. While the dividends paid to preferred customers have dropped in recent years, premiums have not risen since Beacon’s founding. As of last year, policyholders paid an average of $2.10 per $100 of payroll, down from $3.93 in 1993, according to Beacon’s annual report.
Today, though more than 100 other companies do business in Rhode Island, Beacon has 76 percent of the market – 14,635 policies worth about $154 million, according to Cynthia L. Lawlor, Beacon’s chief financial officer.
The policies through Fairfield account for just under $6 million, Solomon said, down from a peak of about $13 million before the Sept. 11 attacks, when the company had almost 600 out-of-state policies. About 60 percent are in Massachusetts, he said.
As it became clear that Beacon would not be able to count on a reinsurer for the future, the company decided to form a subsidiary, Castle Hill Insurance, to provide out-of-state coverage. Beacon has put $20 million into the endeavor, but Solomon said the goal isn’t to grow outside Rhode Island.
“It doesn’t add any additional premiums, any additional exposure,” he said. “It doesn’t add any additional jobs. We’re just replacing the coverage we have.”
Beacon began seeking licenses for Castle Hill “well over a year ago,” Solomon said, but the legal restrictions on Beacon created an extra layer of difficulty to the process. State regulators want “hassle-free” applicants, he said, plus in some cases, insurers are required to take a part of the assigned risk pool – meaning new, non-Rhode Island clients.
State Director of Business Regulation Marilyn Shannon McConaghy has objected to any further expansion of Beacon, and only gave Castle Hill the green light after getting a commitment from Beacon to limit its out-of-state business to Rhode Island companies. The insurer tried to get legislation passed this year to eliminate the geographic restriction, but the bill died after encountering opposition in the General Assembly.
Asked whether Beacon expects Castle Hill to get licensed by year’s end at least in Massachusetts, Solomon said it had taken Beacon 11 months to get licensed in Rhode Island when it was first created, and it may take longer elsewhere.
“We’re very hopeful that we can get some sort of approval, but unfortunately this is such a long process,” he said. “It’s very frustrating, to be honest with you.”
