More than two weeks after a bill to transform The Beacon Mutual Insurance Co. into an independent commercial carrier was approved in the General Assembly, the workers’ compensation giant remains in limbo, with a veto threat by the governor but still no action.
The Beacon overhaul, proposed only in late May, squeaked through the House by a 33-to-29 vote on June 24, then cleared the Senate, 23 to 11, on June 29. It can’t become law, however, until it’s transmitted to the governor, and that hadn’t happened as of Thursday.
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Gov. Donald L. Carcieri, who has called the bill “horrendous,” plans to hold a “very public” veto ceremony when he gets it, spokesman Jeff Neal said. Legislators could override the veto with a three-fifths majority in each chamber – still possible but, Carcieri hopes, unlikely.
In the meantime, both sides continue to duke it out in the court of public opinion.
“Our efforts have been concentrated on trying to educate the General Assembly and speak to business owners and policyholders,” Beacon President and CEO Joseph A. Solomon said in an interview. “The amount of misinformation that’s out there is disturbing … (but) we’re feeling very good about the response of people we’re speaking to.”
Solomon is also taking on his fiercest critics, going on the Steve Kass radio show and, last Wednesday, having lunch with Arlene Violet – “not that I think I can change their opinions.” And in print, a team of Brown University experts who consulted on the Beacon overhaul published an article arguing “free-market” principles should prevail; state Economic Development Director Michael McMahon promptly countered with an argument for “transparency” and “good government.”
At the R.I. Department of Business Regulation, which oversees The Beacon, Insurance Superintendent Joseph L. Torti III has kept a relatively low profile, making his concerns known to the governor and legislators but staying out of the fray.
In an interview, however, Torti said to change The Beacon so dramatically and expose it to new market risks without “real thoughtful consideration” is “not a prudent thing to do.”
Created by the state in the 1990s to help pull Rhode Island out of a workers’ comp crisis, The Beacon has come to dominate the market, with 76 percent of premiums and 90 percent of employers. But for a while now, the company has been trying to spread its wings.
Even just to cover all the workers of its Rhode Island clients – which is all The Beacon says it wants – the company has to be licensed in other states. Its current charter forbids that, and it’s become harder to keep fronting arrangements with other companies. With the state’s permission, The Beacon formed a for-profit subsidiary, Castle Hill, expressly to serve Rhode Island employers’ out-of-state workers, but being a quasi-public entity, Solomon has said, made it impossible for Castle Hill to get licensed anywhere.
This year, the company had yet another incentive to seek a major overhaul: Carcieri’s 2006 budget eliminated its exemption from the state’s 2-percent gross premiums tax, valued at $3.1 million (plus another $2.1 million in federal tax liability, according to Solomon). The General Assembly signed off on the change.
“Here’s a company that made $4.1 million last year, and you want to give it a new $5.2 million tax liability,” Solomon said. “Nobody seems to be concerned about that issue.”
As originally written, the overhaul bill would’ve relieved The Beacon of its mission to ensure “that all employers in the state of Rhode Island have the opportunity to obtain workers’ compensation insurance at the lowest possible price,” and of its governor-dominated board.
The only part of its original mission that The Beacon would’ve kept was its role as insurer of last resort, but in exchange, it got one major advantage: Rather than base its rates on guidelines set by the National Council on Compensation Insurance, which undergo close DBR scrutiny, public hearings and an analysis by the attorney general, The Beacon could file its own guidelines and rates, with no DBR approval needed for hikes below 5 percent. For larger hikes, the DBR could intervene, but only the carrier itself could request a public hearing.
Legislators amended the bill to partly restore The Beacon’s mission, adding a clause that it “shall offer all employers in the state of Rhode Island the opportunity to obtain workers’ compensation insurance at the lowest possible price.” But the file-and-use provision stayed.
“No one else has that rating freedom,” Torti said. “And we have no idea what they’re going to propose under this thing. … We have no idea how the market is going to be affected. It’s quite troubling.”
The Beacon side, however, focuses on the company’s track record so far: a stabilized market, no rate hikes in more than 12 years, strong finances, and extensive workplace safety programs that have helped to sharply reduce lost workdays and job-related injuries in Rhode Island.
“Is there any evidence that we want to do anything differently?” Solomon said.
