Rhode Island’s Beacon Mutual Pursues Expansion Plan

July 14, 2004

Beacon Mutual Insurance Co., Rhode Island’s largest workers’ compensation insurance writer that was formed in 1990 as a state fund, is taking steps to write coverage outside of the state.

The Warwick company has put up $20 million to license and create a subsidiary, Castle Hill Insurance, which will sell workers’ compensation insurance to cover out-of-state employees of Rhode Island companies, according to Cynthia Lawlor, Beacon Mutual chief financial officer.

Beacon Mutual had been making available coverage for employees who work in other states through a fronting arrangement with another insurer, Fairfield Insurance, but after Sept 11 Fairfield indicated its unwillingness to continue that arrangement, Lawlor told Insurance Journal. So Beacon is looking to replace that capacity by creating its own insurer.

The company’s plans ran into a snag last fall at the insurance division within the Department of Business Regulation, which required the company to agree that its expansion would be limited to employees of companies from Rhode Island and would not include any other employees in other states.

Director of Business Regulation Marilyn Shannon McConaghy told Insurance Journal her agency has “serious issues” with further expansion by Beacon Mutual.

The company also sought legislation authorizing its expansion but gave up on that after some opposition. Lawlor said the insurer was seeking the legislation in order to make the process of getting licenses in other states easier but it does not feel a legislative change is necessary for it to proceed with its plans.

“We’re going to test the law,” she said.

Lawlor says the insurer does not have a problem limiting its expansion to out-of-state employees of the state’s employers as requested by state officials, at least for now. “It probably makes sense to go forward in other states at some point,” she added.

She said the company has no interest in writing lines other than workers’ compensation, however.

Under the expansion plans, Castle Hill will operate as a privately held stock company while Beacon will remain a separate mutual company owned by its policyholders. Castle Hill will be subject to state and federal taxes, guaranty fund assessments and residual market requirements. Beacon Mutual is exempt from taxes and guaranty fund assessments but is mandated to be the insurer of last resort for all risks, including residual accounts.

Beacon was started with $5 million from the state. It has grown into the leading workers’ compensation insurer with more than 75 percent of the workers’ compensation market and $160 million in premiums. About 60 carriers are licensed to write workers’ compensation in the state.

Lawlor indicated that Beacon would probably submit its first license applications in East Coast states, starting with Massachusetts, Connecticut and Pennsylvania. Part of the motivation is certain large Rhode Island-based accounts, including Citizens Bank and CVS, which Beacon now writes but which require coverage for out-of-state employees as well.

For the complete story, see the July 5 issue of Insurance Journal, East edition.

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