The need for a fair and equitable system of workers' compensation evolved out of the industrial revolution. As economic and industrial activities flourished, the number of work injuries also grew. The increasing use of machinery, new concepts of producing goods, and the pressure of increased demand for products resulted in more injury problems without solutions for employers and employees. For the most part, workers who were injured on the job had no recourse other than to sue their employers at common law, an expensive and time-consuming process. The court system was crowded, causing long delays. Compensation for injuries was usually insufficient and uncertain. Employees sometimes were forced to bear the expense of injury or had to throw themselves on the mercy of welfare.

This problem was first addressed in Europe during the 1800s, and by the turn of the century the movement had spread to the United States and Canada. Laws were enacted to provide workers injured on the job with prompt, equitable, and guaranteed benefits. Injured workers received medical care and disability income irrespective of fault. Employers, in turn, were protected from potentially catastrophic loss by a stated amount of specific benefits for the injuries suffered by the employee. The worker was prohibited from filing suit while the employer was obligated to pay the mandated benefits.

Only a few large employers had sufficient resources to guarantee injured employees these mandated benefits without endangering solvency. Therefore, the vast majority of employers purchased insurance protection against these liabilities. Insurance was a necessity to stabilize the increasing mechanization of the business community.