The Advanced Insurance Management ®
Guide to Workers Compensation Insurance for
Workers' Compensation is regulated by each state,
and the rules regarding this business obligation can
vary significantly from one state to another.
Most states utilize a system where employers purchase insurance
from insurance companies to
meet this statutory obligation, but some states,
like California and New York,
maintain a state-run fund that competes with private
And a few jurisdictions, Ohio, Washington, Wyoming,
North Dakota, Puerto Rico, and the U.S. Virgin
Islands, require employers to use
only their state fund and do not allow private
insurance. For the details on each state, check our
State by State directory.
If your company purchases Workers' Compensation
insurance, from either an insurance company or a
competitive state fund, your premium is calculated according to a
Some of the fine details of that
format can vary from state to state, but there is
also a considerable degree of uniformity from state
to state regarding how premiums are calculated.
Each state sets its own rules about Workers
Compensation coverage and about when employers are
required to get WC coverage.
In some states, an employer needs to have more than
a couple of workers before mandatory coverage is
imposed. In other states, as soon as a business has
any workers other than the sole proprietor or the
partners, Workers Comp coverage is required.
Workers Compensation is a specialized form of
insurance that is explicitly designed to insure
whatever the employer's statutory liability is under
a particular state's Workers Compensation Act.
No other policy can satisfy an employer's
obligations under a state's Workers Compensation
Act, not General Liability, not an Umbrella
A few states have created exceptions to this,
allowing employers to meet statutory requirements if
they can cobble together an "equivalent" coverage
package from other kinds of insurance, but this can
be a trap for employers--if the alternative program
is found by a court to not really provide the same
benefits as a Workers Comp policy, the employer can
be held liable for really serious financial damages.
And many states are stepping up their enforcement
activities over mandated WC coverage, and applying
significant penalties to employers they catch who
don't carry approved WC coverage when the law says
In a lot of states, small employers or new employers
almost invariably end up insured through some kind
of state-sponsored "insurer of last resort". For
states that maintain a state fund, these funds are
that "last resort" source of WC coverage.
In states without a state fund, the insurer of last
resort is something called an Assigned Risk
Plan--which is a pooling mechanism, often run by the
insurance trade organization called the National
Council on Compensation Insurance, or NCCI.
Often it can be difficult for an employer to easily
spot if a Workers Comp policy is an Assigned Risk
policy, because it looks pretty much the same as a
regular WC insurance policy, issued by an insurance
But a policy from a "last resort" source, such as an
Assigned Risk Plan, almost always has significantly
higher rates and premiums than the same coverage
would cost in the so-called "Voluntary Market"
(which just means a policy voluntarily written by an
insurer outside of the "last resort" mechanism.
We've included on our website a number of pages
containing information about the details of Workers