Monopolistic States vs. Private Workers’ Comp Insurance: What’s the Difference?

If your business operates in North Dakota, Ohio, Washington, or Wyoming, you’ll hit a rule that surprises almost every out-of-state owner: you cannot buy workers’ comp insurance from a private insurance company there, no matter how good your relationship is with your usual carrier. These four states run what’s called a monopolistic workers’ comp system, and understanding how it actually works — and what gap it leaves open — matters even if you’re not based there, because it’s easy to get caught off guard the first time you hire an employee in one of these states.

Quick answer: In the four monopolistic states (North Dakota, Ohio, Washington, and Wyoming), workers’ comp coverage must be purchased through a state-run fund rather than a private insurance company — there is no competitive private market for the base coverage. This affects how rates are set, how claims are administered, and — importantly — it typically leaves a gap in employer’s liability protection that most businesses fill with a separate product called «stop gap» coverage, usually added to a general liability or umbrella policy.

What «Monopolistic» Actually Means

In the other 46 states, workers’ comp is sold in a competitive private insurance market — dozens of carriers compete for your business, quote different prices, and offer different service levels, even though they’re all working from broadly similar class code and rating systems (see how workers’ comp premiums are calculated). In a monopolistic state, that private market doesn’t exist for the base coverage at all. Instead, every employer is required to buy their workers’ comp policy directly from a single state-run insurance fund:

Ohio — administered by the Ohio Bureau of Workers’ Compensation (BWC).
Washington — administered by the Washington State Department of Labor & Industries (L&I).
North Dakota — administered by Workforce Safety & Insurance (WSI).
Wyoming — administered by the Wyoming Department of Workforce Services, Workers’ Compensation Division.

There’s no shopping around for a better rate from a competing private carrier for the base policy — your rate and coverage terms come from that state’s fund, based on its own classification and rating system, which doesn’t necessarily match NCCI’s codes and rates used elsewhere.

How This Changes the Buying Process

If you’re used to working with an insurance broker to compare quotes across carriers, the monopolistic-state process feels different:

You register directly with the state fund (often required as part of registering your business in that state at all) rather than requesting quotes from multiple insurers.
Premium calculations still generally follow a similar logic to what’s described in how workers’ comp premiums are calculated — a rate applied to payroll, tied to a job classification — but the specific classification codes, rates, and adjustment mechanisms are set by that state’s own fund, not by NCCI.
Claims are filed with and administered by the state agency itself, not by a private insurance company’s claims adjusters.

The Coverage Gap Most Employers Miss: Employer’s Liability

This is the detail that catches even experienced business owners off guard. In the other 46 states, a standard workers’ comp policy typically bundles in a second, related coverage called employer’s liability insurance — which protects the employer if an injured employee’s family member or a third party sues over the workplace injury in a way that falls outside the standard workers’ comp claims process (for example, a «loss of consortium» claim brought by an injured employee’s spouse). Monopolistic state funds generally provide the core workers’ comp benefits but do not include employer’s liability coverage as part of that state fund policy.

That gap is typically filled with a separate product called stop gap coverage (sometimes called «stop gap liability» or an «employer’s liability endorsement»), which is usually added onto a business’s general liability or umbrella policy rather than purchased as its own standalone policy. If you operate in one of the four monopolistic states and only have the state fund’s base workers’ comp coverage, you may be operating with this specific liability gap open without realizing it — it’s worth confirming directly with your insurance agent whether your general liability policy includes a stop gap endorsement if you have any employees working in Ohio, Washington, North Dakota, or Wyoming.

Do You Need Stop Gap Coverage If You’re Only Occasionally in a Monopolistic State?

This is a genuinely common scenario: a business based in, say, Illinois sends an employee to a Washington job site for a few weeks, or a growing company opens its first Ohio location. The general answer is that if you have even one employee working in a monopolistic state, you’re typically required to carry that state’s fund coverage for that employee’s work there, and the stop gap gap applies the same way it would for a business headquartered in that state. This is one of the more common compliance blind spots for multi-state businesses — don’t assume your existing out-of-state workers’ comp policy automatically extends coverage into a monopolistic state, because it generally doesn’t.

Are Monopolistic State Funds More or Less Expensive Than Private Insurance?

There’s no universal answer — it depends heavily on your industry, claims history, and the specific state. Because there’s no competitive pressure from multiple private carriers, pricing in monopolistic states is set entirely by the state fund’s own rating formula, which can be more or less favorable than what you’d find in a competitive private market depending on your specific situation. What’s generally true is that you lose the ability to shop your coverage across multiple insurers to find the best price or service fit — a tradeoff that exists regardless of whether the state fund’s rates happen to be higher or lower than a comparable private-market state.

Is Self-Insurance an Option in Monopolistic States?

In some monopolistic states, larger, financially qualified employers can apply to self-insure instead of using the state fund — meaning the business covers its own claims directly (typically with reinsurance for catastrophic claims) rather than paying premiums to the fund. This is generally only practical for larger, well-capitalized businesses that meet specific state financial and safety requirements, not typical small businesses. We cover the broader concept, including when it starts to make sense, in self-insured workers’ compensation.

What If You Operate in Both a Monopolistic State and Other States?

This is common for growing multi-state businesses: you’ll typically need the monopolistic state’s fund coverage for employees working there, in addition to your standard private-market workers’ comp policy (with a different carrier) covering employees in your other states. These aren’t unified into a single nationwide policy the way some other insurance products can be — expect to manage them as genuinely separate coverages, each following that state’s own rules, and budget administrative time accordingly.

Frequently Asked Questions

Can I buy workers’ comp for my Ohio employees from my regular out-of-state insurance carrier? No. If you have employees working in Ohio (or any of the other three monopolistic states), you’re required to obtain that state’s fund coverage for those employees specifically, regardless of what carrier covers your other states.

Is stop gap coverage legally required, or just recommended? It isn’t a separate state mandate in the same way workers’ comp itself is, but without it, a real coverage gap exists for employer’s liability claims that would normally be covered elsewhere. Most insurance agents strongly recommend it for any business with employees in a monopolistic state, and many general liability policies can add it as an endorsement fairly easily.

Does being in a monopolistic state change what benefits an injured employee receives? Not fundamentally — injured employees in monopolistic states still receive medical care and wage-replacement benefits similar in structure to what’s described in what does workers’ comp insurance cover, just administered by the state fund’s claims process instead of a private insurer’s.

If my business is only briefly sending one employee to Washington for a project, do the same rules apply? Generally, yes — the requirement is typically tied to having an employee working in that state, not to the duration of the work or the size of your overall business. Confirm the specific rule with the state fund or a licensed agent before the work begins, since penalties for uncovered work in these states can be significant.

Are Ohio and Washington’s requirements identical to North Dakota’s and Wyoming’s? The core monopolistic structure is the same across all four, but each state’s fund has its own classification system, rates, and administrative processes. See our dedicated guides for Ohio and Washington State requirements for specifics.

This article is for general informational purposes only and does not constitute legal, insurance, or financial advice. Monopolistic state fund rules, rates, and stop gap requirements vary and change over time. Before making coverage decisions, consult a licensed insurance agent familiar with the relevant state fund.