IV. Summary and Conclusion

The Accident Fund was created in 1912 to provide workers' compensation insurance because no one knew if private insurers could or would provide such coverage, and because many felt that even if private carriers did enter the business, the state could offer the coverage more efficiently. These two assumptions have long since been proven invalid. After 75 years of experience, we now know that private insurance companies can and will write workers' compensation insurance. And although many state funds have proven quite successful, there is no evidence to suggest that a state-run fund is inherently, or even generally, more efficient than private insurers in a competitive marketplace.

Off and on since its inception, but in particular since 1976, Accident Fund officers and state government officials have battled over the degree of control the state should hold over the Fund. Since 1983, the dispute has spilled over into the issue of how best to provide effective open competition in workers' compensation. Evidence suggests that the presence or absence of a state-controlled fund will have little effect on rates in an open market. The presence of a state fund, however, does appear to have a negative impact on the number of competitors and capacity available in a market. Private insurers are reluctant to enter a market with a government carrier that may, for political reasons, write insurance at money-losing rates. Such a practice will lead to higher rates in the long term. Overall, it appears that open rating will be more effective in Michigan if the Accident Fund is privatized than if the status quo is maintained or if the state gains control of the Fund.

Maintaining the Accident Fund as a state agency subjects policy makers to constant temptations to use Fund assets for other purposes. This would be unfair to policy holders and injured workers and, when it has occurred in other states, has contributed to higher workers' compensation rates for employers seeking insurance after an appropriation.

The Accident Fund is not needed as an insurer of last resort. The state's attorney general and Accident Fund officers have spent upwards of $1 million in a fruitless struggle for power that appears to be damaging the state's business reputation and causing private insurers to leave, or refrain from entering, the Michigan market.

Privatizing the Accident Fund—severing its connections with the state and putting it finally on equal footing with mutual insurance companies—would improve the Fund's ability to service large accounts. It would stop the drain of legal fees on the state treasury. It would encourage more insurers to enter the Michigan market and would remove the barriers existing to the proper working of Michigan's open, competitive workers' compensation insurance market.

It is time to quit dickering over whether the Accident Fund is or is not a state agency and decide what it should be. The evidence suggests Michigan taxpayers would benefit most from a privatized Accident Fund.