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Workers Comp Guaranty Funds – Safety Net For Injured Employees


Workers Comp Guaranty Funds – Silent Running

Workers Comp Guaranty funds become one of the most critical areas for employers, employees, and medical providers whenever the unthinkable happens in the claim process.

Some states refer to Workers Comp guaranty funds as guaranty associations.   Each state has its own specific rules/laws on the process of liquidating a failed insurer.

The National Conference of Insurance Guaranty Funds (NCIGF)  has a great video on how guaranty funds work overall.


What are Workers Comp Guaranty Funds?

Guaranty Funds are called many different names depending on the jurisdiction (state).   These organizations operate in the background until the unthinkable happens with a carrier.   According to the National Association of Insurance Commissioners (NAIC):

All 50 states, Puerto Rico, the United States Virgin Islands (property/casualty only), and the District of Columbia have a guaranty mechanism in place for the payment of covered claims arising from the insolvency of insurers licensed in their state. Before the creation of guaranty associations, a typical claimant could have waited for years for payment of a claim and then still receive only a fraction of what was due under the terms of the policy or contract. Guaranty associations, subject to statutory limitations, were created to alleviate these problems and ensure the stability of the insurance market.

How Are Guaranty Funds Funded?

The funding for these critical organizations comes from essentially every Workers Comp policy.   If you would like to see it, pull out your Workers Comp policy and look for State Fund assessment or similar language.   The surcharge is usually a small percentage of the policy.

How Do Claims End Up In A Guaranty Fund (Association)?

The usual process starts with a review of a carrier by a State Insurance Commissioner’s office.  These reviews occur at certain time periods.  The failing carrier sometimes will contact the Insurance Commissioner’s office in case of a serious default.

The Insurance Commissioner may put the carrier directly into rehabilitation.  Some carriers have come out of rehabilitation temporarily.  A few have returned to regular operations on a permanent basis.  Unfortunately, most carriers do not return from rehabilitation and are placed into receivership.

Receivership equates to the insolvency (bankruptcy) of an insurance carrier.   If you would like to see how many carriers have gone into receivership for just one state, check out this listing by Florida of where to find the Third Party Administrator (TPA)  that has taken over the claims handling for the Workers Comp Guaranty Fund.

Usually, the Guaranty Funds subcontract out their claims to a TPA for future handling.

Workers Comp Guaranty Funds = Safety Nets

Pic of safety net workers comp guaranty association
Public Use License – lienyuan lee

The safety net function provides necessary critical assistance for:

  • Injured workers – the benefit payments may be delayed for a short time.  The Fund’s choice of TPAs takes over as the carrier (of sorts) to pay applicable benefits on a file.  The injured worker will likely receive a letter from the Fund or TPA letting them know that their benefits are guaranteed even though the carrier is no longer in business.
  • Employers
    • company does not have to go “out-of-pocket” to pay benefits to their injured employees.
    • may receive a refund for part of their premium from the failed carrier
  • Medical and other providers – see the above-injured workers section.   The providers may not receive a letter from the guaranty fund depending on the state.

The workers comp guaranty funds are silent running organizations that sometimes do not receive enough credit for their very critical function in the claims handling process.

Also Read: What Is A Guaranteed Cost Program In Workers Compensation?



James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications


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