Facing increased scrutiny and criticism over its handling of a board member’s account, The Beacon Mutual Insurance Co. says it has appointed an “ad-hoc committee” to review its “corporate practices and procedures, including those related to pricing policies.”
Former Gov. Lincoln C. Almond, who also served as a federal prosecutor, will lead the committee, joined by retired Lt. Gen. Reginald A. Centracchio, former commander of the R.I. National Guard, and Edward M. Mazze, dean of the College of Business Administration at the University of Rhode Island. They are to report their findings “directly to the public.”
“Beacon is taking aggressive steps to get to the bottom of recent allegations surrounding favorable treatment toward certain policyholders, including our former board chairman,” Beacon CEO Joseph A. Solomon said.
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He added that the committee would hire “one of the nation’s most highly respected financial review firms … to determine what actually occurred and whether or not our procedures were correct and adequate in both identifying the problem and pursuing a solution.”
The PBN has learned that the firm in question is Giuliani Security and Safety, a division of former New York City Mayor Rudolph W. Giuliani’s consulting firm, Giuliani Partners.
Beacon is subjecting itself to all this scrutiny – and a “forensic audit” commissioned by the R.I. Department of Business Regulation, which also has a “market conduct” study of Beacon under way – because of irregularities uncovered through an internal “whistle-blower” system.
To provide a safe outlet for employees to draw attention to potential problems, Beacon has an anonymous “hot line” they can call that links them directly to Sansiveri, Kimball & McNamee, a Providence auditing firm.
When someone calls that hot line, Sansiveri takes a report and notifies the Beacon board’s audit committee, headed by Ed Braks, chief financial officer of Paul Arpin Van Lines. The first call ever to that line came on Nov. 15, Braks said in an interview.
The caller made “several allegations” involving multiple Beacon customers, Braks said, including misclassifications of worker class codes (important because the rates for a secretary, say, are different than for an office messenger) , policy premium credits that had not been earned, and an unwarranted experience modification.
Sansiveri reported the call to Braks, and he authorized an audit. On Dec. 12, Sansiveri returned with a preliminary report, and then on Jan. 9 it came back with the conclusion that “there was no evidence … of any wrongdoing by Beacon or any of its employees,” except possibly in one case: Manpower Temporary Services, owned by Beacon board Chairman Sheldon S. Sollosy.
Beacon requires detailed payroll records to justify the worker class codes assigned to a company’s staff, Braks explained, and from 1996 to 2003, Sollosy had provided only summaries. Beacon’s rules allow for penalties and even a policy cancellation for that.
“We don’t know whether Beacon was denied its rightful premiums or not,” Braks said, and since Sollosy has sold the company, the relevant records aren’t even in Rhode Island anymore.
But just failing to abide by Beacon’s rules was enough that the audit committee decided “it would be in everyone’s best interest” if Sollosy was quietly persuaded to resign, Braks said.
In the ensuing three weeks, Beacon management and board members discussed the issue, and Braks went on vacation for several days. In the meantime, audit committee member Adelita Orefice, director of the R.I. Department of Labor and Training, wrote a letter to Gov. Donald L. Carcieri notifying him of the situation.
Carcieri had been fighting against proposed legal changes that would reduce the state’s relative control over Beacon and give policyholders a stronger voice, among other things. The problem with Sollosy immediately became fodder for his cause.
“While contained in a draft internal audit, these allegations are very serious, and strike at the very heart of Beacon’s conduct in the marketplace,” Carcieri said in a news release. “At the very time that the General Assembly is considering legislation to reduce public oversight over Beacon Mutual, it now appears that current levels of public oversight may not have been sufficient to prevent serious misconduct.”
Sollosy resigned Feb. 2. On Tuesday, Carcieri named former R.I. State Police Maj. Brendan P. Doherty to take his place on the Beacon board. Meanwhile, at Carcieri’s request, the DBR has launched a forensic audit of Beacon.
Separately, Beacon has turned over its records on the Sollosy matter to the Department of Labor and Training’s Workers’ Compensation Fraud Prevention and Compliance Unit.
“Willingness to embrace scrutiny from outsiders is a hallmark of well-managed companies,” new Beacon board Chairman Carl I. Hayes said.
