Workers Comp Monopolistic Funds
Why do states create monopolistic funds? As I posted yesterday, there are quite a few state-created Workers Comp funds that are having many troubles.
The reason for these problems might be the softening of the Workers Comp market. I think there are many problems with state-created funds including:
- Poor customer service: If you are backed by the government, why does a fund need
to have customer service, as there are no investors to answer to whatsoever?
- The state will prop up a failing fund, but a private company will go under.
- The funds are usually very large with departments not communicating.
- Some funds attract and hire employees who could not make it in the private world. The pay rate is usually lower than the market average, which means the talented claims people or other insurance personnel will leave for more $.
- The funds receive favorable loan rates which lowers the motivation to turn a profit to pay back the loans.
- The state-backed funds “take on all comers” as they are sometimes the insurer of last resort. This means underwriting expertise will be sacrificed to write risky policies.
The states do not keep any of the control over the funds once they have been started. I have seen this harm funds as they have no one to answer for in their practices.
- Their rates are usually higher than most carriers, which causes employers to go elsewhere to find Workers Comp coverages.
- Internal fraud such as in CA, OH, and others.
There are many more, but I think you may be able to see a trend in these nine. Please note that there are great employees in many of these funds. I am mainly questioning the management of those funds internally and externally by the states.