Throughout most of its history, the Accident Fund has operated in relative obscurity. As expected, after the passage of the state workers' compensation statute in 1912, employers petitioned the Insurance Commissioner to organize an accident fund, which he did. Shortly after, additional legislation required the State to have its self-insured workers' compensation plan for state employees administered by the Accident Fund.

In 1917, a further step toward an independently operated Accident Fund was taken when the legislature created an "advisory board" to advise the Commissioner of Insurance on the Fund's operation. This Advisory Board consists of employers elected by policy holders at the Accident Fund's annual meeting. The governor "appoints" those Advisory Board members elected by the Fund's policy holders, but he does not select them. Hiring and compensation of Accident Fund personnel is subject to Advisory Board authorization, but the Board has little explicit authority vis a vis the Commissioner other than to "advise."[15]

During its first two decades of operation, the Accident Fund functioned much like a private mutual insurance company. The Fund's general manager functioned as chief operating officer, and the Advisory Board as a board of directors. As required by law, the governor issued appointments to elected Advisory Board members and the Commissioner, when required, certified actions and decisions of the Board.

Over 90 percent of employers in Michigan either self insured their workers' compensation or bought policies from private insurers. The idea that "these funds can be collected and disbursed more efficiently through the instrumentalities of the State" was discredited by actual experience. Like any private mutual insurer, the Accident Fund had to fund losses, keep reserves for incurred but not yet reported claims and growth, maintain a surplus for unexpected claims, and cover administrative expenses. If efficiencies existed, the Fund was unable to manifest those efficiencies in lower rates or increased market share.

The Fund was not, and currently is not, required by law to provide insurance to those unable to obtain it in the private market. Despite a broad perception to the contrary, the Accident Fund was not designed as an insurer of last resort. In this respect, too, it has always functioned as a private insurer, refusing those risks its underwriters deem unsuitable.

Through the late 1920s, the market was defined by free-wheeling competition and rate cutting by insurers hoping to increase market share. By 1930, rate competition, coupled with the growing national depression, had shifted the state's primary worry from the rates employers paid for insurance to the solvency of insurance companies in the state. In July 1934, the Commissioner of Insurance ordered all companies writing workers' compensation insurance to standardize classifications and rates. With the Commissioner's active support, a cartel system of rates evolved, effectively ending price competition in Michigan until 1983. Under the cartel system, the rates of all insurers, including the Accident Fund, were developed and filed by the Michigan Compensation Rating Bureau and its successor, the Workers' Compensation Rating and Inspection Association of Michigan (WCRIAM). (Michigan law requires all insurers to put their rates on file with the Commissioner prior to using them in the market. The Commissioner may disallow the use of "inadequate" or "excessive" rates.)[16]

It was also during the 1930s that the status of the Accident Fund emerged as a source of public debate. The catalyst that brought the issue to the public eye was not so much any action taken by the Accident Fund itself, but a related debate over the implementation of a civil service system in Michigan. Many politicians bitterly opposed civil service, and questioned whether Accident Fund employees should be subject to a civil service act. In 1935, Attorney General Harry S. Toy issued his opinion that the Fund was an independent insurer rather than a state agency. However, after adoption of the state Civil Service Act of 1937, Attorney General Raymond Starr ruled that Accident Fund personnel were state employees. Starr's successor, Attorney General Thomas Read countered Starr in an unpublished opinion issued in 1939. Read argued that the Fund was controlled by the Advisory Board, and its employees were not subject to civil service. This opinion was echoed in the 1941 opinion of Attorney General Herbert J. Rushton, issued after civil service was enshrined in the state constitution, and again in 1945 by Attorney General John R. Dethmers. Dethmers held that the Fund was not a state agency, its employees were not state employees, and its assets and liabilities were not the responsibility of the state.[17]

While the attorneys general argued among themselves, the Accident Fund's operations drew little attention. The Fund purchased a building and initiated a supplemental pension system for its employees. State insurance commissioners took a hands-off approach to the Fund. Examinations of the Accident Fund by the State House in 1955 and the insurance commissioner in 1958 were generally laudatory and encouraged the Fund's continued independence. Occasional publicity, such as that occasioned by Governor Romney's 1967 remarks, did little to raise public or legislative awareness of the Fund.

By the 1970s, the Accident Fund had developed into a peculiar entity with a lengthy history. Advisory Board members were not selected by the governor, but were given gubernatorial appointments to carry out their duties. Fund employees had their own pension plan, but were also eligible to participate in the state's civil service pension—provided the Accident Fund paid the state for their benefits plus an administrative fee. The Fund paid state and local taxes, but it did not have a federal tax number. It paid social security taxes for its employees to the state government, which in turn paid the federal government. These administrative facts remain true today.

In the marketplace, the Accident Fund was a significant but hardly dominant player by 1975. The Fund was not able to compete for most large employer accounts, since these employers would often require multi-state coverage the Fund could not legally provide. Thus the Accident Fund tended to develop a specialty, serving the small business market. The Accident Fund ranked as one of the ten largest workers' compensation insurers in the state, though its market share was generally under five percent. Its $16 million surplus was dwarfed by that of most private insurers.

Then, Attorney General Frank Kelley thrust the Accident Fund into the spotlight.