State Fund vs. Private Insurer: Which Workers’ Comp Option Is Better?

When you shop for workers’ comp, you may see a name that does not look like a normal insurance company: a state fund, or a company the state created by law. Whether that option is “better” depends first on which state you are in, and only then on price. This guide walks you through the decision in four steps.

The short version: in four states the state fund is the only place to buy coverage, so there is nothing to compare. In some other states a state-created carrier competes with private insurers and also takes businesses nobody else will write. In many states there is no state fund at all, only private carriers plus a residual market for hard-to-place employers.

Step 1: Find out what “state fund” means where you operate

The phrase gets used for three very different things. Sort your state into one of these groups before you do anything else.

Group A: the state fund is the only option

North Dakota, Ohio, Washington and Wyoming are the monopolistic states. Private carriers cannot sell standard workers’ comp there. Washington’s law is blunt: under RCW 51.14.010, every employer must insure with the state fund or qualify as a self-insurer. Washington also works differently on cost. Premiums are charged per hour worked in each risk class, and RCW 51.16.140 requires employers to withhold one-half of the medical aid premium from workers’ pay. Employers may not deduct any other part of the premium. Our Washington guide covers how that works on a real payroll.

Group B: a state-created carrier competes with private insurers

Some states set up a carrier by law that sells policies in the open market next to private insurers. Texas is a clear example. Chapter 2054 of the Texas Insurance Code creates Texas Mutual Insurance Company and gives it three jobs: be a competitive force in the market, guarantee that workers’ comp coverage is available in Texas, and act as the insurer of last resort. Under its last-resort rules, the company may not refuse to insure a risk that tenders the necessary premium and any applicable accident prevention service fee. The same chapter also says the company is not a state agency, and that it is regulated like a private mutual insurer.

Arizona shows that these setups change. Its old state fund was converted into a private mutual insurer and renamed CopperPoint Mutual in 2013, so it now competes as one carrier among many. See our Arizona guide.

Group C: no state fund, only a residual market

Michigan has no state fund that sells policies. Employers buy from private carriers, and those who are turned down go to the Michigan Workers’ Compensation Placement Facility, the state’s assigned risk pool. Wisconsin works the same way. The Wisconsin Department of Workforce Development states that the State does not write workers’ compensation coverage. Employers who are refused can get a policy through the pool run by the Wisconsin Compensation Rating Bureau, which is not a state agency.

North Carolina is another private-market state. Under G.S. 97-93, employers either insure with an authorized carrier or self-insure with approval from the Commissioner of Insurance.

If you are not sure which group your state is in, check the 50-state comparison table or your state’s workers’ comp agency.

Step 2: If you are in Group A, focus on the gap, not the choice

There is no carrier to pick for your base coverage. Your decisions are about what sits around it.

Open the account before your first hire. In Washington, for example, you set up workers’ comp through the state business license process.
Budget the way the fund bills. An hourly premium in Washington behaves very differently from a premium based on payroll dollars. The bill follows hours worked, not wage dollars, so track hours by risk class carefully from day one.
Ask about employer’s liability. A standard private policy in most states has two parts: workers’ comp benefits and employer’s liability, which defends you if someone sues over a work injury. State fund coverage in Ohio does not include that second part, and the same gap is the general pattern in the monopolistic states. Most employers fill it with “stop gap” coverage, often an endorsement on a general liability policy from a private insurer. Our Ohio guide and monopolistic states guide explain this in more detail.
Check self-insurance only if you are large. It is the one legal alternative in Washington, and it is aimed at big, financially strong employers. See self-insured workers’ comp.

Step 3: If you are in Group B, treat the state carrier as one more quote

A state-created carrier is not automatically cheaper or more expensive. Rates for your class code, your experience mod and your payroll drive the price, the same as with any other insurer. A few things are different, though.

Dividends. Texas law allows Texas Mutual to pay a cash dividend or a credit on the renewal premium, based on criteria its board approves (which may consider your safety record), and only with prior approval from the Texas Department of Insurance. That makes a dividend possible, not promised. The law also excludes policyholders written under the last-resort rules from that dividend provision. Private mutual carriers may pay dividends too. Either way, budget on the quoted premium and treat any dividend as a bonus.

Availability. If you have been declined by private carriers, a last-resort carrier gives you a way to get legally covered. That is often the main reason a high-risk business ends up there.

Service. Compare how each option handles audits, claims reporting and certificates of insurance. These details matter more day to day than a small price gap.

An illustrative comparison

The numbers below are made up to show the math. They are not real rates.

A small landscaping company in a competitive-fund state gets two quotes for the same payroll. Private Carrier X quotes $9,200 a year with no dividend program. The state-created carrier quotes $9,800 a year and has a dividend program that may or may not pay out.

If no dividend is paid, the state carrier costs $600 more.
If a 10% dividend were paid on $9,800, the owner would get $980 back, and the net cost would be $8,820, or $380 less than Carrier X.
The dividend would arrive after the policy year, so the owner still needs cash for the full $9,800 up front.

If cash is tight, the cheaper sure thing ($9,200) may be the better choice. If the business can absorb the higher up-front cost and wants a chance at a lower net cost, the state carrier may be worth it. Both are reasonable. The mistake is counting the dividend as guaranteed.

Step 4: If you are in Group C, know where the residual market fits

Start with the voluntary market. Get quotes from several private carriers through an independent agent or directly. Our guide to getting the cheapest quote explains how to prepare.

If every carrier says no, you are not stuck. In Michigan you go to the Placement Facility; in Wisconsin, to the pool run by the rating bureau. Residual market coverage is legal coverage, but it usually costs more and is meant as a bridge. After a year or two of clean claims and good safety habits, ask your agent to try the voluntary market again.

Quick decision checklist

Is my state monopolistic? If yes, buy from the state fund and add stop gap coverage.
Does my state have a competing state-created carrier? If yes, get its quote next to two or three private quotes.
Have private carriers declined me? If yes, look at the last-resort carrier or the residual market pool.
Am I counting on a dividend? Budget without it.
Do I work across state lines? A monopolistic state’s work may need its own state fund account, even if the rest of your coverage is private.

One more point that often gets missed: the type of carrier does not change what an injured worker receives. Benefits are set by state law, whether the policy comes from a state fund, a state-created mutual or a private insurer. What changes is who pays the claim and how it is handled. See what workers’ comp covers for the benefit basics.

This article is general information, not legal or insurance advice. Rules and market structures change, so confirm your state’s current setup with its workers’ comp agency or a licensed agent.

Related guides

Sources

Last checked against the sources above on October 2, 2026.

Written by Kevin Garcia de Paz

Independent researcher, not a licensed insurance agent or attorney. Every article on WorkCompByState is based on official sources listed on the page. How I research · Report an error