US State Workers Compensation Funds See Market Share, Performance Gains

Despite declining prices, 13 out of 16 competitive US state workers compensation funds reported year-over-year growth in net premiums written, buoyed by economic recovery and payroll growth, A.M. Best revealed in a special report.

The report, titled Consistent Market Share for Workers' Compensation State Funds, indicates that these funds' aggregate direct premium reached $6.9 billion in 2023, marking the third consecutive year of growth. Premiums rose each year from 2021 to 2023, a rebound from the pandemic-induced dip in 2020, attributed to improved economic conditions and rising payrolls.

These competitive state funds operate in markets with private insurers while acting as guaranteed market providers within their states. The report focuses on 16 active competitive funds, excluding monopolistic programs in North Dakota, Ohio, Washington, and Wyoming.

"State funds aim to create an inclusive marketplace for all workers compensation risks, including ones that may have difficulty getting placed in the private market," said David Blades, associate director, Industry Research and Analytics, A.M. Best. "In a competitive state, the state program may offer comparable rates to better compete with private carriers; however, businesses typically use the state fund if they can't get coverage through an insurance company."

The report also highlights that many state funds maintained lower loss ratios than those of the property-casualty industry's workers compensation segment, though the funds also pay higher dividends to policyholders than private insurers, which has led to underwriting losses in several years. In 2023, the competitive state funds posted a combined ratio of 105.8 percent after policyholder dividends, with 10 out of 16 funds recording combined ratios above 100 percent. Without dividends, their combined ratio was a more favorable 89.7 percent, close to the industry's 88.7 percent for the workers compensation line.

"When general competitive market conditions are harder or more restrictive, the appeal of purchasing coverage from competitive state funds increases," said Christopher Graham, senior industry analyst, A.M. Best. "The higher dividends also could entice some businesses to seek insurance from the state fund, as the dividends may be enough to offset an initially higher premium."

Copyright © 2024 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.