Insureon Blog

What Is a State Compensation Insurance Fund?

29. May 2014 08:42

So you’re on the market for Workers’ Compensation Insurance. Depending on where you live, you may have a sea of options – or you may only be allowed to purchase coverage through the state’s insurance fund.

About 22 states have their own competitive Workers’ Comp fund, which means you can purchase from a private insurance provider or through the state program. State funds write approximately 25 percent of all Workers’ Compensation Insurance policies (according to A.M. Best’s article). California and New York’s funds are the sixth and seventh largest writers in the United States.

In a handful of states, you can only purchase Workers’ Comp through the state’s monopolistic fund. Read on to learn more about these two kinds of state-run Workers’ Comp funds.

Competitive State-Run Workers’ Comp Funds

The state’s department of labor, commerce, or industrial relations usually operates Workers’ Comp funds. Though these funds are often considered insurers of last resort, many of these state systems are A-rated insurance providers (meaning they are financially solvent).

Small-business owners are guaranteed a policy from these funds if they can’t receive coverage from private insurers whose rates are typically more competitive (to learn more about what affects Workers' Comp costs, read our Workers' Comp Insurance Cost Analysis). But state funds can compete in private markets, too. Some funds are fully independent, while others opt for the nonprofit status and tax breaks that come with it. Some nonprofit funds return surplus money to policyholders after paying off claims and operating costs.

Currently, there are 22 states with state-run Workers’ Comp funds:

Note: most of these funds only write Workers’ Compensation polices for employers in their home state. If a claim is made on your state-provided Workers’ Comp plan, benefits will be paid out by the state department responsible for administering the fund.

Monopolistic Workers’ Comp Funds

If you live in Ohio, North Dakota, Washington, or Wyoming, know that your state’s laws require you to purchase Workers’ Compensation Insurance from their designated programs. In other words, you can’t purchase insurance through private companies.

Employers who live in these four states can purchase coverage from…

Monopolistic programs can run into solvency issues because they don’t necessarily have to maintain surplus funds like private companies do. Instead, these programs rely on a “pay as you go” system because they can fall back on taxpayers’ money and other state resources if the pool runs low.

Here are a few other issues you may run into when you must purchase Workers’ Comp from a monopolistic state fund:

To learn more about your state’s Workers’ Comp quirks, be sure to check out our guide Workers' Compensation Insurance Laws by State.

This post is part of an ongoing series on Workers’ Compensation Insurance and the high cost of occupational injuries. Stay tuned for more on how to handle work injury claims, adhere to state Workers’ Comp laws, and find affordable coverage!


Risk Management | Small Business | Small Business Risk Management | Tips for All Small Businesses | Workers' Compensation Insurance

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