R.I. Senate to Vote on Beacon Mutual Bill Opposed by Governor Today

January 25, 2006

Legislation to amend the charter of the Beacon Mutual Insurance Co. to reduce the number of public appointees on the workers’ compensation carrier’s board and clear the way for it to write out-of-state accounts for in-state employers is scheduled for a vote in the Rhode Island Senate today.

The measure was unanimously passed by the Senate Labor Committee last week but has run into opposition from Gov. Donald Carcieri, who last year threatened to veto similar legislation and continues to argue that this year’s bill, even as amended from last year’s, would reduce oversight of the state’s near-monopolistic workers compensation carrier too much.

Sponsored by Sen. Roger R. Badeau (D- Dist. 20, Cumberland, Woonsocket), the bill (2006 – S2009) would implement numerous changes to Beacon Mutual, including a structural change in the selection of the board of directors, a transition allowing Beacon to cover employees of Rhode Island companies who work in other states, and a revision letting Beacon set its own rate structure.

“This is a landmark piece of legislation that is supported by the entire business community,” said Senator Badeau. “Chambers of Commerce statewide, from Newport to Greater Providence, testified in support of this bill. They all agree that, with the measures put into place by this legislation, Beacon Mutual Insurance Co. would thrive as an independent, nonprofit insurance provider and would be able to serve its policyholders much more efficiently.”

The insurer for 90 percent of Rhode Island’s employers, Beacon Mutual is currently governed by a seven-member board of directors, five of who are appointed by the governor. Senator Badeau’s bill proposes a board of directors with one member appointed by the governor, one by the President of the Senate and one by the Speaker of the House. Each member would serve a term of three years. According to the new legislation, the remaining board members would be “elected…from time to time by the policyholders.” These policyholders are comprised of three categories of people: the policyholders themselves, officers and employees of policyholders, and officers of Beacon Mutual.

But Gov. Carcieri and the Rhode Island Department of Business Regulation have voiced strong opposition. DBR Director Michael Marques has urged the General Assembly to avoid reducing public oversight of Rhode Island’s insurer of last resort, and to take more time to study the legislation in order to assess its potential impact on the workers compensation market.

The biggest concerns to the Carcieri Administration are the changes to its board structure.

“This bill makes fundamental and totally unnecessary changes to our state’s near-monopolistic workers’ compensation insurance carrier,” Governor Carcieri’s Deputy Chief of Staff, Jeffrey Grybowski told lawmakers. “Indeed, this bill removes the public from overseeing this important public insurer and places control of the company in the hands of insiders.”

He said Beacon has a “unique and vital” role in the state’s economy. “That is why the public has a strong interest in the corporate governance of Beacon. This bill significantly undermines that interest,” he claimed.

The Carcieri Administration has contrasted the General Assembly’s efforts to reduce public oversight of Beacon Mutual with their decision to increase oversight of Blue Cross/Blue Shield of Rhode Island in the wake of scandals involving its governance last year. Grybowski noted that similar governance had recently led to questions about the leadership of Roger Williams Medical Center.

“In this context, why weaken the corporate governance of Beacon? Why remove public oversight and place the company in the hands of insiders?” Grybowski asked.

However, supporters of the measure point out that it would give more control to policyholders over politicians.

Dennis Michaud, a Brown University professor Beacon hired for advice on governance issues, said the “current status quo” of control of its board by the governor, not policyholders, “runs against policyholder empowerment,” Michaud said.

Supporters point out that the revision to have one board member appointed by the governor matches the structure for Blue Cross Blue Shield.

The change in the number of public appointments is important to Beacon because, the company says, a number of states do not permit insurers that are “government controlled” with this many public appointees to write workers compensation. A major objective of the bill is to give Beacon leeway to cover employees of Rhode Island companies who work in other states. To do this, Beacon Mutual would use a wholly owned subsidiary, instead of using a separate company, to cover those out-of-state employees.

Under the bill, Beacon would remain a nonprofit mutual insurer and retain its mission in the residual marketplace as the insurer of last resort for employers. It would continue to have to “offer all employers in the state the opportunity to obtain workers’ compensation insurance at the lowest possible price.”

The bill would also grant Beacon Mutual authority to set its own rates, which Beacon Mutual says would allow it to be more flexible and accommodating to businesses in the state. For example, present restrictions prohibit Beacon Mutual from giving safety discounts to small employers that pay premiums of less than $5,000. The new legislation attempts to rectify such situations.

Last week, the insurer requested a 27.7 percent average loss cost decrease in a filing to the Department of Business Regulation. Rhode Island has not had an increase in workers’ comp insurance rates for 15 years.

“We believe this change allows for the best of all worlds, continued strong public oversight and responsive service to policyholders,” said Beacon Mutual CEO Joseph Solomon.

Beacon Mutual was created in 1990 during a time of skyrocketing claims costs in Rhode Island. That year, the General Assembly enacted legislation to create the State Compensation Insurance Fund, which was later changed to the Beacon Mutual Insurance Company in 1992. Since then, the company has become the largest writer of workers’ compensation insurance in the state.

Co-sponsors of the legislation include Sen. Dominick J. Ruggerio (D- Dist. 4, Providence, North Providence), Sen. Frank A. Ciccone, III (D- Dist. 7, Providence, North Providence), Sen. David E. Bates (D- Dist. 32, Barrington, Bristol) and Sen. John C. Revens, Jr. (D- Dist. 31, Warwick).

Topics Carriers Legislation Workers' Compensation Politics Policyholder

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