R.I.’s Beacon Mutual to Expand into Other States for Workers’ Comp

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’ comp 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.

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 said 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’ comp, 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’ comp insurer with more than 75 percent of the workers’ comp market and $160 million in premiums. About 60 carriers are licensed to write workers’ comp in the state.

First states
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.

Beacon Mutual expects Castle Hill’s premiums during its first three years of operation to increase from $3 million in the first year to $10 million to $12 million by the third year, according to the company.

The Beacon Mutual move is reminiscent of action taken by Maine Employers Mutual Insurance Co. (MEMIC) several years ago as it expanded into neighboring states. Today, those expansion plans are embodied in MEMIC Indemnity Company, a fully owned subsidiary of the MEMIC Group. MEMIC Indemnity has been granted licenses to write insurance in New Hampshire, Vermont, Massachusetts, Connecticut and New York.

At the time MEMIC was expanding, the insurer faced opposition from some private carriers who felt it was unfair they should have to compete against an insurer that was started with state funds and was exempt from taxes and assessments.

“There has always been an outcry,” Lawlor acknowledged of the potential opposition to Beacon Mutual’s plans. “Our response is: ‘Come and take the residual business.'”

Trade groups contacted by Insurance Journal had no comment on possible opposition to the licensing of Beacon Mutual in other states at this time.