Committee finds wrongdoings at Beacon Mutual

An independent committee, led by former Gov. Lincoln C. Almond, released its findings Wednesday regarding allegations of wrongdoing at Beacon Mutual Insurance Co.

“It is with profound regret that we must report that we have found instances of abuse, misjudgment, and seriously flawed operating systems,” stated Almond. “Rather than putting the interests of policyholders first, we have discovered a pattern of favoritism that has unfairly benefited the former chairman of the board, certain policyholders due to their relationships with key executives of Beacon and a select group of insurance brokers.”

In the wake of the findings, the committee recommended that the board of directors adopt sweeping changes to the company’s policies and procedures concerning pricing, conflicts of interest, financial controls and corporate governance.

“We believe the problems we have outlined can be fixed – and must be fixed – to ensure that Beacon remains a viable insurer for the employers and employees of Rhode Island,” the committee reported.

At a morning meeting to report its findings to Beacon’s board, the committee, supported by findings from the investigative team of Giuliani Security & Safety, outlined the details of questionable practices and activities including discriminatory practices that reduced the cost of policies for favored firms and inappropriately compensated certain agents beyond contractual requirements.

Among the committee’s findings were:

— That the former chairman of board and the CEO and the vice president of underwriting acted in ways that were, at times, contrary to their fiduciary responsibility to policyholders.

— That an inappropriate relationship existed between the company and a select group of insurance agents that resulted in the misappropriation of Beacon resources.

— That the former chairman, in cooperation with key executives, conducted the affairs of the company in a manner that was not transparent to certain members of the board, the Department of Business Regulation and policyholders.

— That management systems involving contracting, ethics, charitable giving, internal auditing, board development and training and corporate governance are weak or non-existent.

— That the Finance Department is not exercising sufficient control over cash disbursement approval or processes.

— That the consequence of these general findings is that Beacon Mutual was left exposed to potential abuse.

The committee’s report stated that: “We are profoundly disappointed to conclude that abuse did occur.”

The abuses identified in the report include favoritism in pricing policies for certain agents and companies, inappropriate entertainment of certain agents at company expense, and allowing the former chairman to refuse access to payroll records necessary to properly price his workers’ compensation policy.

The committee also recommended:

— That the practice of discriminatory pricing of policies be ended immediately.

— That a pricing review be conducted on all of the large policies at Beacon as it is in this class of policy where the review uncovered discriminatory and inappropriate practices.

— That the board adopts policies that require transparency in the conduct of all Beacon business.

— That the board itself engages the services of experts to train the board in how it must act.

— That the board comport itself in a manner that underscores that with the compensation they receive comes the duty of loyalty and care to the company and its policyholders.

— That a more substantial code of ethics and conflict of interest policy be adopted that is signed by all members of the board and senior management.

— That an office of internal audit be established within Beacon that reviews all corporate operations at Beacon and reports quarterly to the audit committee of the board.

— That the whistleblower policy be completely revised so as to encourage employees to openly share their views on corporate practices without fear of retribution.

— That an independent industry expert be retained immediately to oversee the implementation of the committee’s recommendations.

“Beacon Mutual’s 14,500 policyholders must receive fair treatment from their brokers and from Beacon,” Almond said. “As a mutual insurance company, policyholders legally own the company. About 82 percent of Beacon’s policyholders are small businesses in Rhode Island with premiums below $10,000. They are the backbone of our state’s economy and they deserve a level playing field when it comes to paying insurance premiums.”

The committee also includes Lt. Gen. Reginald A. Centracchio, adjutant general of Rhode Island, emeritus, and Edward M. Mazze, dean of the College of Business Administration at the University of Rhode Island. The panel examined allegations made on Beacon’s fraud hotline and other public criticisms leveled at the company.

For the committee’s 116-page report,
click here.