Premiums expected to drop 16% on average
A probe of The Beacon Mutual Insurance Co. is still at least a month away from completion, a state official said this week, but the R.I. Department of Business Regulation expects to rule within days on the insurer’s proposal to adopt a national group’s loss-cost guidelines.
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If approved, Beacon Mutual’s plan would reduce premiums by an average of about 16 percent, company spokesman Bill Fischer said – though each job classification would be affected differently, and some could see rate increases.
Beacon Mutual had sought to have its new rates become effective Oct. 1, but state Insurance Superintendent Joseph L. Torti III said that is unlikely because even if new rates are approved this week, as he anticipates, policyholders would still have to get due notice.
In the meantime, Beacon Mutual is facing stiff competition in the marketplace, said one insurance agent who does substantial commercial business.
Despite months of bad publicity over allegations of favoritism, corporate splurging and other improprieties at the company, and the ongoing probe, very few business owners are asking to switch to another carrier, said David White, of Butler & Messier Insurance in Pawtucket.
“What’s interesting,” White added, is how aggressively other carriers are trying to grab Beacon Mutual’s business, offering rates that can be 5 to 30 percent lower than Beacon’s.
“Carriers are smelling blood and are actively soliciting us agents for the business,” he said. “The marketplace has definitely opened up quite a bit.”
White said “major national players” – such as Travelers, The Hartford and Zurich North America, all of which have a solid Rhode Island clientele in other insurance lines but not in workers’ compensation – are seizing the opportunity to gain market share, and they’re making inroads.
Beacon Mutual writes about three-quarters of the workers’ compensation premiums in the state, and it covers about 90 percent of employers.
When Butler & Messier recommends a switch, White said, “we preface it with our clients that Beacon does have a rate filing pending – and going forward, a year from now, we may move them back to Beacon, because by then they may have lower rates.”
And for many “higher-risk” job classifications, White said, Beacon Mutual remains the only option. The other carriers are “not willing” to cover building contractors, for example, and they are reluctant to cover manufacturers. “They’re really looking for the offices and certain other lower-risk classes.” For example, he said, for restaurants, The Hartford has been offering “excellent rates.”
Beacon Mutual hasn’t updated its loss costs – the foundation of workers’ comp rates – since 1998, when the market was very different and injury and disability costs were higher. In late 2004, when the NCCI, a national trade group, filed updated loss-cost guidelines (the approved version included an average 20.2-percent rate cut), Beacon Mutual declined to adopt them.
When, on Jan. 5, another update cut average loss costs by another 4.2 percent, Beacon Mutual wanted no part of that, either, saying the NCCI figures didn’t reflect Rhode Island realities because they blended local figures with national ones.
But within days, following orders from the DBR, Beacon Mutual filed its own rate plan, with a 27.7-percent average cut in loss costs and several other changes – deviations from the NCCI standards – that would have cut premiums for small employers even more.
Soon afterward, however, Beacon Mutual was enveloped in scandal.
Amid an investigation by the DBR that all knew would last several months, and with the company trying to correct major internal problems, going through an extensive rate review process seemed like too much. So in May, Beacon withdrew its filing.
Companies that adopt the NCCI’s loss costs undergo a much less in-depth review. They just file a loss-cost “multiplier,” to reflect administrative and other costs unique to each specific company; they may also request approval of specific discount programs, though Beacon Mutual has not done that this time around, Torti said.
Fischer said Beacon Mutual had acted in the interest of “efficiency,” and for the benefit of its roughly 14,500 policyholders, who are expected to save about $9.2 million after the NCCI loss costs are adopted.
As for the probe, Fischer said he believes all materials requested by the DBR have now been surrendered, and Torti suggested nothing different – though he said he couldn’t comment much on the investigation until it is completed.
Separately, Beacon Mutual is working on internal reforms, Fischer said, and it expects to make some announcements on that front after its scheduled Aug. 12 board meeting. The company is also expected to hire, within days, a national headhunting firm to search for a new president to replace Joseph A. Solomon, who was forced out earlier this year.
