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.