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Beacon Mutual's scandal leads to questions about industry practices and what the role of an insurer of last resort should be.
The Rhode Island Department of Business Regulation finally released its market conduct examination on Beacon Mutual Insurance Company, with enough “scandalous” information to keep industry tongues wagging until the next controversy comes along. The report, the work of nearly two years (or 10, since this was the first detailed look at Beacon in a decade), painted a picture of fuzzy corporate policies, outrageous spending, a culture of playing favorites and problematic political ties. It must be admitted that a previous assertion of mine in this editorial space that Beacon would come off better under scrutiny was mostly erroneous.

“We can only speculate what might have happened had this behavior continued,” the DBR stated in the report. Frankly, had the actions described by Beacon employees persisted, the company might have been unable to maintain its solvency and someone, somewhere would have asked why Rhode Island regulators weren’t keeping a closer eye on the dominant workers’ compensation employer in their state.

Beacon seems to have gone overboard in trying to maintain its position as the workers’ compensation insurance provider of choice in the Ocean State. That’s the problem, of course, and it’s puzzling why an insurer of last resort with 90% of the market did not concern regulators. Residual markets aren’t traditionally  meant to compete for market share, particularly not the bulk of the business. Faced with stiffer competition in 1997, Beacon reportedly fought to keep the “good risk” business it had accumulated, rather than welcoming competition – which probably would have left the company with mainly true residual market business.

However, while observers are busy damning Beacon Mutual, one might wonder whether the microscope used for examining the Rhode Island comp insurer doesn’t need to be aimed at a wider slice of the industry. The insurance industry spends a vast amount of money on “rewarding” its agents and marketing its products in the name of achieving a competitive advantage. Should this be the case, and how outlandish were Beacon’s actions in the context of other industry players?

And although politics in Rhode Island unfortunately appears to play by a different rulebook than other states, the industry’s influence over political decisions nationwide is evident. One only needs to look at the politicization of auto insurance in Massachusetts or homeowners insurance in every coastal state to recognize that government tends to muck up business when it gets too involved. This, of course, is not the conclusion reached by Rhode Island Gov. Donald L. Carcieri, who has long advocated and has now achieved a tighter rein on Beacon. Time will tell whether this ultimately benefits the insurer.

Beacon has promised and, in many instances, has already cleaned up its act. It will be returning $7 million to its policyholders and hopefully, it will come to embody the role it appeared to play – that of a valuable company focused on loss prevention and fair prices for its policyholders.

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