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State Funds Emerge
The role of state funds is as longstanding as workers' compensation
systems. With enactment of state workers' compensation laws, the
need for workers' compensation insurance created its own set of
problems. Employers feared they would be forced out of business
if refused coverage by insurance companies. They were also fearful
that insurance carriers might impose excessive premium rates that
would be a financial burden. High premium rates could negatively
affect a state's economy and ultimately limit opportunities for
employment. Another fear was that insurance rates might soar, enabling
insurers to reap unfair profits. Legislators addressed these concerns
by establishing state workers' compensation insurance funds. These
funds were created to provide a stable source of insurance coverage,
thus protecting employers from underwriting uncertainties by making
it possible to have continuing availability of coverage.
Since state funds were designed to be nonprofit, premiums could
be kept at the lowest possible cost for employers consistent with
financial solvency. In addition, the funds were established solely
to provide one type of insurance: workers' compensation. This specialization
allowed the funds to concentrate resources, knowledge and expertise
in this field of insurance. Since the early 1900s, availability,
affordability, and service have been the key benefits of state funds.
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