State Workers’ Comp Fund: Government-Created Solution for No Problem

State government could expand into Connecticut’s private insurance marketplace through an Insurance Committee proposal that would create a nonprofit fund for workers’ compensation insurance. It’s a government solution for a problem we don’t have in Connecticut.

CBIA and others submitted testimony to the Insurance Committee this week to oppose HB-5308, which would create a nonprofit carrier for workers’ compensation insurance “as a last resort” for businesses.

The problem is, there is no need for a “last resort” option in Connecticut, because we have a healthy and stable insurance market with about 100 companies competing for business and coverage in the voluntary market readily available.

Typically, government-created workers’ compensation funds have been created only as last-resort, short-term solutions during times of crisis.

Their job is to address a dysfunctional insurance market with no foreseeable expectation of improvement. Rhode Island found itself in that position in the 1990s. Chronically high system costs, combined with suppressed rates led to a collapse of the voluntary market.

This resulted in 85% of all insurance policies being issued through the assigned risk pool, and both insurers and employers left the state in droves due to the high cost of workers’ comp insurance. Within a year, every insured employer in Rhode Island went to the state-decreed carrier, after every other carrier had fled the state.

The result was essentially a state monopoly that handed numerous unfair advantages to the exclusive underwriter of workers’ comp policies in the state fund.

“We had a virtual monopoly, not by choice, but [as] a result of the carriers pulling out of the state because our system was such a mess,” said a company representative in testimony to the Insurance Committee a few years ago, when a similar bill was proposed.

There is no comparison between Connecticut’s current market and the Rhode Island market that was in crisis. Both the voluntary and assigned risk markets in Connecticut are stable and healthy, and employers benefit from competition in the insurance marketplace.

Connecticut’s state legislature enacted a sweeping package of workers’ comp reforms in the 1990s that brought our costs more in line with those of other states and streamlined the system’s administration.

Since then, costs remain relatively steady, while benefits remain generous — among the best in the United States. Creating a state fund could lead to a monopoly here, making it extremely difficult to maintain a competitive market for workers’ compensation insurance in the state. CBIA urges the Insurance Committee to reject HB-5308 as an unnecessary risk to Connecticut’s economy.

For more information, contact CBIA’s Kia Murrell at 860.244.1931 or kia.murrell@cbia.com.