On March 29, 1990, more than 2,000 Rhode Island business leaders marched on the State House, demanding change. They’d come by the busloads, organized by the Greater Providence Chamber of Commerce, and carried banners that read, “Everybody out of the pool!”
The pool was the workers’ compensation assigned-risk pool, which had sucked in 90 percent of Rhode Island employers as insurers refused to cover them. Premiums were so high that they were devastating businesses, and they kept rising rapidly.
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In 1989, the R.I. Department of Business Regulation had approved a 32-percent rate hike – and now carriers wanted another 123 percent. The National Council on Compensation Insurance had called Rhode Island’s system “probably the most out-of-balance” in the United States.
Some companies just left: A 90-year-old truck body manufacturer moved to Pennsylvania, anticipating $500,000 in annual workers’ comp savings. Those who remained were done waiting. Small reforms in 1982 and 1985 clearly hadn’t worked; they wanted major action.
“There were cynics at the State House who said, ‘The business community will never show up for a protest,’ ” recalled John C. Gregory, president and CEO of the Northern Rhode Island Chamber of Commerce, but then membership director of the Providence Chamber.
But “we did,” Gregory said. “Literally thousands of people.”
That year, Rhode Island got on the path to real workers’ comp reform – and while it wouldn’t come easily, the results continue to benefit employers.
The first set of reforms was front-page news in the July 16, 1990, issue of Providence Business News. Stories inside described months of wrangling between business and labor, Republicans and Democrats, over what should be the priority: cutting benefits or revamping the system.
George Nee, lobbyist for the Rhode Island AFL-CIO, had fought fiercely against benefit cuts, noting that Rhode Island’s payouts were “about average” for the nation.
Ultimately, the reforms did include benefit cuts for the partially disabled, but they also provided incentives for injured workers to take new jobs. They added anti-fraud measures, and they got rid of a major cause of problems – a hearing process that could stall cases for years.
“Back then, everything was contentious,” recalled Joseph A. Solomon, now president and CEO of The Beacon Mutual Insurance Co., but at the time employed elsewhere. “If you were an employee, you wouldn’t accept what the employers said, because you could sit around for two years and collect.”
The fourth part of the reforms was the creation of the State Compensation Insurance Fund, financed with a $5 million loan from the state and meant to compete with commercial carriers and offer coverage to employers who’d been wrongfully put in the assigned-risk pool.
The NCCI, which represented insurers, dismissed the reforms as insignificant. “Do not be deluded into thinking that this legislation is going to have a meaningful impact on system costs,” an NCCI official said at the time. And indeed, within months, the remaining market crashed.
It happened after the DBR approved a 55-percent rate hike in September 1991 – nearly two years after the NCCI’s initial 129-percent request. The new governor, Bruce Sundlun, accused insurers of collusion and ordered a rate freeze. Already, Liberty Mutual, Hartford Insurance Group, Cigna and others had left. This was the last straw for the carriers.
Sundlun and his top policy adviser, Sheldon Whitehouse, whom he’d appointed to chair an advisory committee to help fix workers’ comp, turned to the state fund, making it the centerpiece of a second wave of reforms.
The fund was renamed The Beacon, and it became Rhode Island’s workers’ comp insurer of last resort. Its mission specifically included promoting workplace safety; its board reflected the mix of people who’d designed it: government, labor and business all together at the table.
The new reforms also finished revamping the administration and hearing systems, and created a new medical advisory board.
It was a more complex approach than just cutting benefits, Whitehouse said, “but we thought that while this incredibly wasteful and perverse system existed, it was frankly immoral to cut the benefits that injured workers needed while we weren’t doing our own job.”
When they were done, an actuarial firm said the reforms would cut costs enough that no further rate hikes would be needed. Rhode Island has not seen a workers’ comp rate hike since. In fact, from 1993 to 2003, The Beacon says, the average premium per $100 of payroll dropped from $3.93 to $2.10 – primarily because workplace accidents have declined sharply.
And now The Beacon, which has gone from covering nearly all of the market in 1992, to facing competition again by the late 1990s, to a 76-percent market share as of last year, is proposing a 27.7-percent cut in its base rates, plus several other reductions in employer costs. It’s also pushing for legislative reforms that will give it more freedom to adapt to the market.
But not all controversy over workers’ comp has ended. The NCCI has re-emerged in the last couple of years as a tough critic of The Beacon, and Gov. Donald L. Carcieri strongly opposes The Beacon’s plans.
Looking back at the 1990s reforms last week, James G. Hagan, the now-retired Providence Chamber president, said they were “probably the most visible show of force by the business community that I remember.”
But Hagan also said that to this day, many Rhode Island businesses pay high workers’ comp premiums. And while The Beacon has done “a good job overall,” he added, “I think it has to be closely monitored going forward.”
