You asked how much the state spends annually on (1) state employee workers' compensation and (2) the third party administrator contract for workers' compensation. You also asked for a description of Rhode Island's state-sponsored workers' compensation fund, why it was created, whether it is successful, and whether it paid Rhode Island back for the initial funding.

In recent years the state has spent between $ 75 and $ 80 million a year to cover state employee workers' compensation (WC) claims. This does not cover the cost of contracting with a third party administrator (TPA) to administer the system for the state. The state pays the TPA $ 5. 3 million a year.

Rhode Island faced a WC insurance crisis for all employers in the state in the early 1990's. The state legislature created a compensation fund backed by the state to sell WC policies and function as the carrier of last resort for assigned-risk employers. The fund was originally called the State Compensation Insurance Fund; later legislation changed it to the Beacon Mutual Insurance Company. The state provided $ 5 million from a 20-year bond to start the fund, and Beacon was able to repay the money within three years, according to company officials.

Beacon definitely helped resolve the WC crisis in Rhode Island, but some analysts believe this government-created entity discourages competition that could produce competitive efficiencies in the WC insurance marketplace.

Table 1 shows the state's cost for state employee WC claims for the last three fiscal years and the appropriation for FYs 06 and 07.

Table 1: State Employee Workers' Compensation Claim Costs

The state is self insured for worker's compensation, but it contracts with a TPA, GAB Robins of North America, Inc. to administer the claims for state employees including accepting, reviewing, and investigating compensation claims and provide general customer service to the state and its employees.

GAB Robins is under contract with the state until June 30, 2008. The state has budgeted $ 5. 3 million for each year of the current biennial budget (FYs 06 and 07).

Rhode Island faced a WC insurance crisis for all employers in the early 1990's. Claim costs were skyrocketing and virtually all WC insurance policies were written on an assigned-risk basis. Many employers could not find any carrier to write a WC policy.

The National Council on Compensation Insurance (NCCI), the nation's largest provider of WC and employee injury data, recommended to the Rhode Island Insurance Department in 1990 that WC premiums in the state be increased by 123%. The state refused to act on this

recommendation and instead the state legislature enacted a bill in 1991 that created a compensation fund to sell WC policies and function as the carrier of last resort for assigned risk employers.

The law created what is known today as, The Beacon Mutual Insurance Company. The state provided $ 5 million from a 20-year bond to start the fund, and Beacon repaid the money within three years, according to Michael Lynch, Beacon's vice president of legal affairs.

By Rhode Island law, Beacon is a nonprofit, independent public corporation created specifically for insuring employers against employee injuries under WC law (R. I Public Laws 2003, Chapter 410). It is organized as a domestic mutual insurance company and required to operate as the WC carrier of last resort.

When first formed in 1993, Beacon filled a void and took the lion's share of the WC market in Rhode Island. According to an article in Insurance Journal, Beacon had, in 2004, over 75% of the Rhode Island WC market.

Beacon's 2003 annual report states:

• Its average WC premium decreased from $ 3. 93 per $ 100 in paid payroll in 1993 (the first year of writing policies) to $ 2. 10 per $ 100 in paid payroll in 2003.

• In 2003, its net written premiums grew to $ 149. 8 million, an 11% increase over the previous year.

• The company is seeking permission to insure out-of-state employees of Rhode Island employers.

The company is governed by a nine member board of directors, four of whom are appointed by the governor and three elected by the company's policyholders. The state's director of labor and Beacon's chief executive officer serve on the board as ex officio members.

For more information on Beacon see its web site: http: //www. beaconmutual. com/.

JM/CP: ro