Arizona Considers Converting State Comp Fund Into Mutual Company

Arizona is considering converting its state workers' compensation insurer, the largest workers' comp writer in the state, into a mutual insurance company.

The Arizona House commerce committee unanimously endorsed a newly proposed bill that would covert the State Compensation Fund of Arizona into a mutual. Attempts to reach commerce committee Chairwoman Michele Reagan, R-Phoenix, were not immediately successful.

Under the proposed legislation, the state fund would operate as an independent mutual insurance company and no longer be an agency of the state. It would be subject to the same laws and regulations as any other mutual company in Arizona, according to the bill.

As long as the new mutual insurance company was treated the same as other insurers in the state, "we'd welcome the competition," said Joe DiGiovanni, vice president of public affairs for Liberty Mutual, the fourth-largest workers' comp writer in Arizona. "As long as they are playing by the same rules, that is fine with us."

DiGiovanni said other states have converted state-run workers' comp funds into private insurance companies, and as long as they lose any special federal or state tax breaks, and also have to participate in the assigned risk pool, Liberty Mutual takes a neutral position on the conversion.

The state Legislature created the SCF in 1925 to act as the "insurer of last resort" and provide the state-mandated workers' comp coverage to employers who couldn't find coverage in the commercial market, according to an Arizona Senate background brief.

Lawmakers in Oklahoma recently considered privatizing the state-established workers' compensation company, CompSource Oklahoma, but pulled the bill in March saying it didn't have the votes to pass the state legislature in this session (BestWire, March 17, 2010).

With a market share of nearly 50% by 2008 direct premiums written, SCF Insurance Group is the largest workers' comp writer in Arizona, according to BestLink, which provides online access to A.M. Best's Global Insurance & Banking Database. American International Group was the second largest writer, with a 7.2% market share; followed by Travelers Group, with 6.1%; Liberty Mutual, with 6.1%, and Hartford Insurance Group, with 6%.

(By Meg Green, senior associate editor, BestWeek: [email protected])