State WC funds growing, represent significant share of market

Workers' compensation state funds have achieved a significant share of the overall insured market in recent years, according to a study.

The report, by insurance analyst Conning Research and Consulting, found that state funds write approximately 25 percent -- $11.3 billion in net premiums written -- of the comp market, and that the market share of these funds is increasing in many of the states in which they write.

The study, Workers' Compensation State Funds: Evolution of a Competitive Force, examined the role of state funds and their competitive positioning versus the traditional workers' comp marketplace and alternative forms of workers' comp risk financing. Researchers analyzed state funds' financial and market share results, their effect on the overall market, and the prospects for future growth.

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Mark Jablonowski, vice president of insurance research and analyst for the study, said he was surprised by the findings that state funds are now the largest writers of workers' comp in many states.

"Workers' compensation state funds now control a quarter of the insured workers compensation market, despite the fact that they only write in 25 states," he said. "In comparison to the industry as a whole, state funds' loss ratios are higher, but they compensate with lower expenses and increased investment income. Overall, operating results are on par with the rest of the workers' compensation industry."

Stephan Christiansen, director of research at Conning, said there are many reasons why state funds have become a competitive force in the workers' comp market.

"While state funds have strong financial results, there is more to the story of their successful growth," he said. "Our research indicates that a key to the state fund success may well be their dedicated approach to loss prevention and control. Their mission often includes shared responsibility for health and safety with other state agencies, and so they often incorporate state-of-the-art loss prevention initiatives with financial rewards tied to the insured's loss performance."

Jablonowski said that despite the fact that state funds' reserves have been relatively stable, the current economic conditions may take a toll in the short term.

"Some of the biggest challenges they face are by being state-specific," he said. "This means they are subject to the economic conditions of their state, and therefore subject to increased losses."

Read more at the WORKERSCOMP Forum^TM homepage.

October 19, 2009

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