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Workers’ compensation state fund

Some states have workers’ compensation state funds that provide insurance for employee injuries and illnesses and protections for business owners.

What is a workers’ compensation state insurance fund?

Workers’ compensation state insurance funds are government-funded organizations that provide workers’ comp insurance to employers and employees in a specific state.

States use workers’ compensation state insurance funds in different ways:

Monopolistic state insurance fund

A monopolistic workers' comp state insurance fund refers to states that require employers to buy workers’ compensation insurance only through a state insurance fund. If you own a small business or have employees in that state, you don’t have the option to purchase a policy from a private insurer.

These four states require that all workers’ comp policies be purchased through a state fund:

In limited cases, businesses in Ohio and Washington can self-insure through an authorized arrangement.

Competitive state insurance fund

States with a competitive state fund allow the option to purchase a policy from the state or from a private carrier. In other words, state and private insurance organizations compete for your business.

It usually costs more to buy workers' comp from the competitive state fund. However, even businesses declined by other insurers can secure coverage.

Several states offer a choice of purchasing a policy through a private insurer, a state fund, or self-insurance, including: Arizona, California, Colorado, Louisiana, Maryland, Missouri, New York, Pennsylvania, Rhode Island, and South Carolina.

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What are the pros and cons of monopolistic and competitive workers’ comp funds?

The main advantage of monopolistic and competitive funds is they provide a stable source of workers’ compensation insurance for all employers in a state – even hard-to-insure professions.

However, there are disadvantages specifically related to monopolistic funds:

  • With only one source of coverage in a state, it’s impossible to compare quotes from several insurers to find the best policy and price for your business.
  • State agencies may have difficulty providing consistent customer service.
  • Workers’ compensation class codes might not conform to national workers’ comp class code (NCCI) standards.
  • There is no provision for covering your out-of-state employees, and you’ll need to find insurance for them from another carrier outside your state.
  • Monopolistic fund workers’ comp does not offer employer's liability coverage, which could potentially be added as stop-gap coverage through a private insurer.

Competitive workers’ comp funds vs. private insurers

In theory, competitive workers’ comp state funds may avoid some of the disadvantages of monopolistic funds because they have to compete with private insurers for business.

However, competitive funds often become insurers of last resort, used when business owners can’t find workers’ compensation insurance in the private market, where coverage is often more comprehensive and cost-effective.

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Updated: April 10, 2023
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