A special review committee reported yesterday that the management of Rhode Island's state-created workers' compensation insurer was involved in a variety of abuses, including a litany of cozy deals with favored employers and agents.
The panel's investigation of The Beacon Mutual Insurance Company, based in Warwick, R.I., was sparked by an anonymous whistleblower whose allegations led to the resignation of the previous Beacon chairman, Sheldon Sollosy, in February.
The committee's 116-page report, which made no statement regarding criminal wrongdoing, was turned over to the State Attorney General's Office and U.S. Attorney in Providence.
Members of the Beacon board appointed the Ad Hoc Review Committee, which used the services of former New York Mayor Rudy Giuliani's firm, Giuliani Security & Safety LLC, to investigate. The committee's review looked at nine companies. They recommended that every major policy be examined.
Also recommended was a beefing up of auditing, training and a variety of controls, as well as the hiring of an ethics officer to create a code and conflict-of-interest policy for the non-profit company that insures 90 percent of the state's employers.
The committee was chaired by former Republican Gov. Lincoln C. Almond, who had appointed Mr. Sollosy to his post.
Despite authorizing the committee examination, the Beacon board has continued a court battle to prevent the state's Department of Business Regulation from examining the contents of computer hard drives of 22 Beacon employees as part of a forensic accounting exam.
Beacon came under tough scrutiny after a whistleblower to an auditor's hotline tipped off accountants that certain companies were obtaining insurance at artificially low rates and with employees' job risk classifications improperly reduced.
Among the businesses getting an "inappropriately low premium" was a temporary help firm owned by Mr. Sollosy, who kept premium auditors from looking at his books, the committee said.
The committee also examined an allegation that a construction company that did work on the home of Beacon's chief executive officer, Joseph Solomon, got favored treatment. It found that the building firm Kenneth Castelluci & Associates had excessively high loss ratios, but still received high premium credits up to 58 percent.
Documents surrounding the Solomon house stonework provided little detail, and the builder said the bill was less than the cost of material and labor supplied, the committee found.
But while the contractor received an "inappropriate" break on his insurance rate, the committee said it found no evidence of a quid pro quo arrangement with Mr. Solomon.
The committee report found that agents with larger books of business wielded "significant direct and indirect influence over Beacon employees' actions and decisions." It found that between 2001 and 2004, agents were paid $2.5 million more in commissions than required under contract.
Beacon's board is pushing legislation to privatize the company, which would eliminate state regulatory oversight and the ability to replace board members.
"If there are recommendations in the report that will move the company forward and be productive to our policyholders, then by all means we want to adopt and implement those recommendations as soon as possible," said Beacon's current chairman, Carl Hayes Jr.
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