State workers’ compensation funds currently face several challenges that result from the overall state of the workers’ compensation insurance market and their standing as quasi-government entities. Their status can create tension with state legislatures and competitive disadvantages that other workers’ compensation carriers do not experience.

These challenges have prompted many state workers’ compensation funds to explore privatization. Even if privatization does not occur, many state funds have decided to modernize in order to become more competitive and efficient.

Most states require employers operating within their borders to maintain workers’ compensation insurance coverage. As a result of negative market forces and other factors, certain employers—especially small employers, those in high risk sectors, and those with poor safety records—are unable to obtain workers’ compensation insurance in the private market.