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Types of State Funds
While state funds operate exclusively or on a competitive level,
depending on the laws under which they were created, they share
basic concepts and principles. Naturally, there are certain points
in which these two types of operation differ.
States with exclusive funds require all employers to procure their
workers' compensation insurance from the state fund, or, in some
jurisdictions, to self-insure. All Canadian provinces have boards
or commissions with complete jurisdictional and administrative powers
related to workers' compensation. These boards are similar in concept
and organization to exclusive state funds.
Exclusive state funds develop their own rates and experience by
using the services of in-house actuaries or actuarial firms. Administrative
costs are low because they do not issue renewal policies and have
no marketing programs.
Competitive funds provide a ready market to employers for this
insurance. Depending on the state, employers may insure with the
state fund, a private carrier, or be self-insured. Competitive state
funds offer an available market that is not dependent on the size
of the employer's premium, nature of business, or loss history.
Most competitive funds pay dividends to policyholders. Overhead
expense ratios of both exclusive and competitive funds are consistently
lower than expense factors for private carriers.
Washington was the first state to adopt the state fund approach
in 1911; Michigan followed in 1912. By the end of 1916, six states
had established exclusive state funds and seven states had established
competitive state funds. At present, state funds exist in the following
states and territories:
- Exclusively by state fund: North Dakota, Puerto Rico and Wyoming.
- Exclusively by workers' compensation board: each Canadian province.
- By either state fund or authorized self-insurance: Ohio, Washington,
and West Virginia.
- By private insurance, state fund, or authorized self-insurance:
Arizona, California, Colorado, Hawaii, Idaho, Kentucky, Louisiana,
Maine, Maryland, Minnesota, Missouri, Montana, New Mexico, New
York, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina,
Texas and Utah.
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