I. Introduction

To Frank Nerat, the issue is clear, "The Accident Fund of Michigan is a privately operated workers' compensation insurance company... The Accident Fund's success is exemplary of what private business can do without government control."[1]

To Harry Iwasko, however, the issue is equally clear. "They [The Accident Fund'; are a state agency. They are the tool to be used to create competition in the marketplace."[2]

Nerat, assistant manager and general counsel for the Accident Fund, and Iwasko, Michigan's assistant attorney general, are the point men in a battle that former Commissioner of Insurance Nancy 8aerwaldt termed "like nothing I've ever seen in state government before."[3] At stake in the battle is an enterprise with $310 million in assets and $85 million in surplus (capital)—an enterprise that is now Michigan's largest underwriter of workers' compensation insurance. The antagonists do not even agree on the name of the organization over which they wrestle for control—Accident Fund officers refer to it as "The Accident Fund of Michigan," while state officials know it as "The Michigan State Accident Fund."

To state officials, the Accident Fund is a state agency established by the legislature and operated under the auspices of the State Insurance Commissioner. They argue that a state-controlled Accident Fund is necessary to maintain competition and encourage low workers' compensation rates in Michigan. The current dispute, they argue, results from the state's attempt to reassert control over what rightfully and lawfully is its creation and property. Such control is necessary, they add, to improve Michigan's business climate.

To Accident Fund officers and their allies in the insurance industry, state efforts to gain control of the Fund are nothing less than state appropriation of private property. The Accident Fund, they argue, is a private organization, established by employers under enabling legislation that gave the insurance commissioner a minor role in facilitating the Fund's creation. They claim state efforts to control the Fund are eliminating competition by driving other insurers from the market, and may ultimately produce a monopolistic workers' compensation system operated more for short-term political advantage than for the long-term interest of employers and employees.

Both sides agree that the answer to the question, "Who controls the Accident Fund?" will profoundly affect the shape of the workers' compensation insurance market in Michigan for years to come. If the Accident Fund is brought under state control, politicians and bureaucrats will likely use the Fund to shape the state's workers' compensation market to meet political goals. Ultimately, state control of the Accident Fund could be the catalyst for the creation of a state-run workers' compensation insurance monopoly.

If the Accident Fund is made independent of state control, workers' compensation insurance in Michigan will for the foreseeable future be provided by private carriers competing with each other, and with employers' self-funding options, to provide the best price and service. Though the immediate focus of the battle is the courts, ultimately state policymakers in the legislature and the governor's office will have to decide which market configuration will best meet the needs of Michigan employers and injured employees.

This study attempts to shed light on the current debate by exploring the origin and history of the Accident Fund. It examines the role of the Accident Fund in the market to see what effect it has had in the state. Most importantly, it looks at the primary policy options available to state policy makers and suggests the possible effects of various courses of action on the cost and availability of workers' compensation insurance in Michigan.

This study does not attempt to resolve the myriad of legal issues now surrounding the Accident Fund. Instead, it attempts to clarify the options available to policy makers, and to identify the option most likely to meet the long-range goals of lower costs and greater availability in the workers' compensation market.