Best’s Special Report: US State Workers’ Compensation Funds Maintain Market Share, Improve Performance

Despite pricing declines, 13 of the 16 competitive U.S. workers’ compensation state funds generated year-over-year growth in net premiums written due to improved economic conditions and strong payroll growth in many states, according to a new AM Best special report.

The Best’s Special Report, “Consistent Market Share for Workers’ Compensation State Funds,” states that the aggregate direct premium of $6.9 billion in 2023 represented a third-straight year of growth following 2020 when premium levels dropped due to the pandemic. The increase in premiums during 2021-2023 is attributable to improved economic conditions and strong payroll growth in many states.

These state funds compete with private carriers while also serving as their state’s guaranteed market. The focus of this report is on the 16 active U.S. competitive state funds; it does not include the monopolistic state funds that operate 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, AM 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.”

According to the report, many of the state funds have lower loss ratios than the property/casualty industry’s workers’ compensation segment. However, state funds pay their insureds much higher dividends on average than private carriers writing workers’ compensation, consequently leading to net underwriting losses in many years. The competitive state funds posted a combined ratio after policyholder dividends of 105.8 in 2023, compared with 88.7 for the workers’ compensation line, with 10 of the 16 funds recording a combined ratio above 100. Without policyholder dividends, the 2023 combined ratio for the state funds was 89.7.

“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, AM 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.”

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=347394.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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