Monopolistic vs Competitive State Funds
All competitive state funds are a hybrid sort of insurance carrier.
A few weeks ago, I posted on whether State Funds are necessary for Workers Compensation coverage. One of the blog readers posted a response which pointed out that State Funds should be analyzed by splitting the group into Monopolistic and Competitive. I think that was a great request.
Monopolistic state funds do not have competitors attempting to write Workers Comp coverage. Employers must secure policies from a quasi-governmental agency. Monopolistic state funds have fallen out of favor due to misappropriation or mishandling of funds such as in the case of the BWC in Ohio.
The remaining four states that are still monopolistic are North Dakota, Ohio, Washington, and Wyoming. Washington has recently passed new Workers Compensation legislation. Unless, I am mistaken, Washington did not open their market to the free market system.
I am not a big proponent of monopolistic state funds. This is likely due to the transformation of Nevada and West Virginia to open markets for Workers Compensation. These two states have been very successful in opening their Workers Compensation system to the voluntary insurance market.
Competitive State Funds compete with other insurers as part of a free voluntary market system. The states with these funds are Arizona, California, Colorado, Hawaii, Idaho, Kentucky, Louisiana, Maine, Maryland, Minnesota, Missouri, Montana, New Mexico, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas, and Utah.
They often function as the insurer of last resort when the employer has an E-Mod or X-Mod that is too high to place in the voluntary market. The other time a competitive state fund functions as the insurer of last resort is when the voluntary market will not write a certain group of employers such as trucking companies or temporary employment agencies.
California’s SCIF is the largest competitive state fund. At one time, SCIF was the largest writer of Workers Comp in the nation. One of the main complaints against competitive state funds from the voluntary market is that they are competing against the taxpayers of a state when trying to underwrite a quote for a certain employer.
One of the things that I have noticed about competitive state funds is they seem to be much more expensive than their voluntary market counterparts.
The bottom line is that Competitive State Funds do have their place in a voluntary free market Workers Compensation insurance system. I am not so sure of a monopolistic system due to the successes of WV and NV in converting to a free market system.
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I believe some state funds as listed in the blog are not tax payer supported. For instance in Maine MEMIC, Maine Employers Mutual Ins Co., was created by an act of the legislature but it is a mutual company owned by the policyhholders. Any surplus goes back to the policyholders and any deficit is made up by the policyholders. The State has no statutory right to its funds. I believe RI and Hi are the same but I am less familiar with them.