D. The Accident Fund in a Competitive Market

In addition to endeavors to gain control over the Accident Fund, a major thrust of state policy since 1983 has been an effort to force the Accident Fund to lower its premiums. After the insurance commissioner's 1934 policy that all workers' compensation insurers should file their rates jointly, price competition had been largely lacking in the market. Under the joint pricing system, rates for all insurers were filed by WCRIAM. The primary reason this system was established, with state government approval, was to protect the solvency of insurers by preventing price wars. By 1981, however, the cost of workers' compensation insurance was so high as to be viewed as a major stumbling block to business expansion in Michigan. The legislature chose to shift its emphasis away from protecting insurers and toward protecting employers, and tried open price competition as a means to reduce workers' compensation costs.

Legislative reform, adopted in December 1981, left the joint pricing system intact for a full year, but required insurers to reduce rates by at least 20 percent. Beginning in 1983, the reform opened up the market, requiring each insurer to file its own rates with the Commissioner. The Accident Fund was specifically included in this requirement.

The act that re-established market price competition in workers' compensation is one of the most successful pieces of legislation in Michigan history. In 1983 alone, the first year under open rating, competition accounted for an estimated 28.4 percent decline in workers' compensation premiums in Michigan.[19] Open competition is generally recognized to have saved Michigan employers over $1 billion since its inception.

Despite this success, state officials maintain that the Accident Fund will not compete under the new system unless the insurance commissioner can require it to lower its rates. Private insurers, they say, will also avoid price competition unless such competition is initiated by the Accident Fund. The insurance commissioner has made repeated efforts to force the Accident Fund to lower its rates, and to block rate increases proposed by the Fund. The commissioner's efforts have not succeeded. The rates charged by the Accident Fund since open rating was initiated have been those rates determined by the Fund's actuaries.

The Accident Fund has been among the most successful competitors under open rating. Table 1 charts the explosive growth of the Accident Fund since open competition.

Table 1

Growth of Accident Fund
1982 to 1986


Policies in Force



State Premiums

Accident Fund

Accident Fund


at Year End

 Fund Written*


Written* (000s)

Market Share

Surplus (000s)










































*"Premiums Written" is that amount paid by policy holders to keep policies in force, and is compared by insurers to a "claims paid" figure to determine the profitability of an account. The "State Premiums Written" figure includes assigned risk premiums written.

Source: Compiled by the author from figures supplied in April 1987 by the Accident Fund. "Total State Premiums Written" figures and "Surplus" figures derived from "Final Report on the State of Competition in the Workers' Compensation Insurance Market," issued annually by Michigan Commissioner of Insurance.

At the close of 1982, the Accident Fund's market share as a percentage of voluntarily written premiums in Michigan was 3.4 percent, its lowest level in several years. By the close of 1986, however, the Accident Fund's market share had increased over 400 percent to 15.6 percent of total market. Its written premiums (not including those written as a part of the state's assigned risk facility, described later) had increased from just under $20 million to over $100 million.

It may be argued that state efforts to manipulate the Fund have led to the Fund's success, at least in part, by causing private insurers to withdraw from Michigan. This is discussed in some detail in Part III. Even with these withdrawals, however, competition exists in the Michigan market. The Accident Fund has filled a gap left by withdrawals, but it has had to compete on its merits for the new business. That the Fund has competed successfully—while ignoring government attempts to control pricing—should give pause to those who argue that, without state control, the Fund would not compete in the market.