Security Requirements and Arrangements

Summary

In 1972, every state but Louisiana required most employers to provide workers’ compensation benefits to their workers. There are three insurance arrangements available to private sector employers in the U.S. that are used in various combinations depending on the state: (a) purchase insurance from a private insurance carrier; (b) purchase insurance from a state workers’ compensation fund; or (c) self-insure. As of 1972: (1) in four states employers were required to purchase insurance from a state fund (known as an exclusive state fund); (2) in three states, employers were required to purchase insurance from an exclusive state fund or to self-insure; (3) in 12 states, employers were required to purchase insurance from a private carrier, or to purchase insurance from a state fund (known as a competitive state fund), or to self-insure; (4) in Texas, those employers who elected to provide workers’ compensation benefits to their workers could purchase insurance from a private carrier or self-insure; and (5) in the remaining 30 states, employers were required to purchase insurance from a private carrier or to self-insure. (Over time, the numbers of states in the five categories have varied.) Nationally, in 1970 private carriers accounted for 84 percent of premiums and state funds for 16 percent.

This chapter discusses several aspects of the operations of private carriers, including the difference between mutual and stock companies and the use of reinsurance. The private insurance industry was highly regulated by state insurance officials as of 1972. Price competition among private carriers was limited by an administered pricing system. Most state funds were established before 1920. Self-insuring employers are generally large firms or members of a consortium of firms in the same industry. Only nine states require self-insuring employers to have reinsurance coverage.

C. Arthur Williams and Peter S. Barth, “Social Requirements and Arrangements,” Chapter 15 in Compendium on Workmen’s Compensation (Washington, DC: National Commission on State Workmen’s Compensation Laws, 1973).