Workers’ Compensation Monopolistic States
August 10, 2023
Workers’ compensation is one of the most important insurance coverages that businesses can have. It protects them in case an employee gets injured while on the job, helping to pay for any medical bills and loss of wages that the employee incurs as a result of the injury.
This type of insurance doesn’t work the same way in every state, though, so it’s important to understand what the rules are in your state if you want to be protected — and make sure that your workers and your vendors are protected.
Four states are referred to as monopolistic states. North Dakota, Washington, Wyoming, and Ohio all prohibit private insurers from selling workers’ comp insurance plans. Instead, all employers must purchase this type of coverage through an insurance fund that’s operated by the state government.
There are many key differences between workers’ comp plans in monopolistic states versus open market states. We’ll detail some of those below.
Understanding Workers’ Comp Coverage in States without an Open Market
In almost all states, workers’ comp policies are purchased through private insurers, just like other insurance coverage such as general liability, commercial auto, and product liability.
This is not the way it works in the four monopolistic states, though. Instead of an open market for workers’ comp policies, these state governments operate a workers’ comp fund that employers must purchase the policies through.
Monopolistic vs. Competitive Funds
Many states operate a workers’ compensation insurance fund. However, in most of these states, the funds are considered competitive funds, in that they must vie to do business with a private insurance company.
States such as New York and California, for instance, have competitive workers’ comp funds that administer the “assigned risk” portion of the state’s plans.
The big difference between monopolistic funds is that they are the only provider of workers’ comp insurance in that state. It’s considered monopolistic because there isn’t any competition, since private insurance companies aren’t allowed to sell workers’ comp policies in that state.
Competitive funds are more flexible and personal to businesses since you can shop around for the plan and price that meets your needs best. This isn’t an option with monopolistic funds.
Understanding Monopolistic State Funds
Each of the monopolistic states outlines specific coverage that all businesses must purchase, by statute. This doesn’t cover all liability that a business might have, though, so businesses have the option to purchase additional coverage (more on that in a bit).
Each monopolistic state requires that every company that does business within that state purchase workers’ compensation insurance from the monopolistic state fund. If a company does business in multiple states, it is still required to purchase workers’ comp insurance from the monopolistic fund for all employees who work in that state.
For instance, if a company has employees in California, New York, and Ohio, the company must purchase a separate workers’ comp insurance policy from the monopolistic state fund for all employees who work in Ohio. It’s possible that the company’s other private workers’ comp policy could cover all their employees in California and New York.
Stop Gap Coverage
There are two parts to all workers’ compensation insurance policies, but the monopolistic state funds only provide one of these coverages.
The first is the liabilities that are listed under the state’s workers’ comp laws. This is also referred to as the statutory liabilities that employers hold. These policies will help pay for costs for a job-related injury such as associated medical bills and potentially even lost wages.
However, these monopolistic state funds don’t provide coverage to employers if they are found to be negligent. All employers are required to provide their employees with a healthy and safe work environment. If someone is injured on the job because an employer didn’t provide this environment, they could face what’s known as an “employer’s liability.”
This liability is the second part of workers’ comp insurance policies, but it’s not provided under the monopolistic state funds. Employers in the states do have the option of purchasing a separate policy to give them this coverage.
This is called Stop Gap Coverage, and it is provided by a private insurance company. Stop Gap Coverage is actually an endorsement that is attached to a company’s general liability insurance policy. It adds an extra level of protection so that employers aren’t susceptible to costly claims that could come as a result of a negligence claim.
What is Self-Insurance?
Two of the monopolistic states (Ohio and Washington) offer certain businesses to self-insure their workers’ comp policies. In this scenario, the business will provide the insurance itself, rather than purchasing it from the monopolistic state fund.
Businesses must be approved to self-insure, though, and the requirements for qualification do vary from one state to the next.
How to Secure Coverage
Employers must purchase their workers’ comp insurance directly from a state fund in each of the four monopolistic states. Here are some more details about each.
North Dakota: Workers’ compensation insurance is offered through the North Dakota Workforce Safety and Insurance. Applications for the policies are available online and have to be submitted to the WSI’s Employer Services Division.
Washington: All policies are offered through the Washington State Department of Labor and Industries. This agency also oversees the state’s occupational and safety program that’s approved by OSHA.
Wyoming: Workers’ comp policies are offered through the state Department of Workforce Services’ Workers Compensation Division. All businesses have to register with this department before they can buy a policy.
Ohio: Workers’ comp policies are offered through the Ohio Bureau of Workers Compensation. Businesses can apply online or through a paper application.
Why Do State Agencies Offer Workers’ Comp?
State agencies offer workers’ comp policies as a way to ensure that all employees in the state are protected by a minimum level of insurance for work-related injuries or illnesses. By forcing all companies to purchase insurance policies directly from a monopolistic state fund, these states are able to provide a certain level of protection for all employees who work in the state.
Some of the monopolistic states may also do this to prevent potential predatory insurance policies from private insurers.
Track the Status of Workers’ Comp Insurance Easier with Evident
Where your business and vendors are located is a key component in knowing what type of workers’ compensation must be purchased and where it must be purchased from. For businesses that deal with a lot of vendors in multiple states, it can be difficult to keep a handle on all this information.
Working with Evident can help simplify the process of requesting Certificates of Insurance (COIs), as well as tracking and managing compliance. Whether it’s understanding if vendors are compliant with their workers’ comp policies in monopolistic states or staying on top of expiration dates of a vendor’s general liability policy, Evident’s impressive COI tracking software can do it all.
Contact us today to find out more.