Just a quick update since I've been hunting on the island the last couple of days - but the rumor that a fire elemental will spawn when you kill the beetles isn't entirely true. A fire elemental can spawn from seemingly random kills. I don't kill the beetles at all and I had a fire elemental spawn this evening. I had been killing willowisps, spiders, seahorses, snakes, bats and madmen when a fire elemental wandered down the hill where the kerran merchant and other kerran NPCs are. So, my guess is that the fire elementals are a random spawn, regardless of what mob you kill. Repeat: I did not kill any kerra isle beetles at all. I leave them alone since I don't want to fight all the kerrans.
Brandie, Halfling Ranger of Druzzil Ro (Xev)
(Shanater is my man.)