CHAPTER X

CLASSES OF INSURANCE CARRIERS

Under the New York workmen's compensation law, an employer must adopt one of three methods of guaranteeing compensation for industrial injuries to his employees:

1. . . Insuring and keeping insured the payment of such compensation in the state fund.

2. . . . Insuring and keeping insured the payment of such compensation with any stock corporation or mutual association authorized to transact the business of workmen's compensation insurance in this state.

3. . . . Furnishing satisfactory proof to the Commissioner of his financial ability to pay such compensation for himself . .

1

In other words, he may insure in an insurance organization established, administered and (since 1922) guaranteed by the state, he may insure in one of two forms of private insurance companies (stock or mutual) authorized by the Insurance Department to write workmen's compensation insurance or he may, on submission of satisfactory proof of financial responsibility, carry his own risk. Failure to provide for the payment of compensation by one of these methods constitutes a misdemeanor punishable by a fine of not more than $500 or imprisonment for not more than 1 year, or both. Furthermore, if the employer fails to secure compensation to his employees in the approved manner and an injury occurs, the injured employee or his dependents have the choice of claiming compensation under the Act or of suing for damages under the law of employers' liability. If the latter course is pursued, the employer cannot use any of the three common law defenses.

1 New York Workmen's Compensation Law, Sec. 50.

A situation similar to that in New York is found in most other compensation states, where some form of compulsory guarantee is usually a feature of the law. There is, however, considerable divergence in the provisions of the laws relating to the methods of insurance. In some states, the organization established by the state is given a monopoly of all the business. In other states, this is the case except that individual employers whose financial strength is sufficient are permitted to carry their own risk or "to self-insure." There is, also, a group of states where the state insurance organization competes with private companies. In these states, there may or may not be a provision for selfinsurance. Finally, there are states in which the state has refrained entirely from entering the insurance business. Here, free competition among private insurance companies is permitted either with or without the additional privilege of self-insurance. In some states, where private insurance companies are allowed to operate, there is, in addition to stock and mutual companies, a class of insurance organizations known as "reciprocals" or "interinsurance exchanges."

It is, therefore, customary to compel insurance in one of the following classes of carriers:

State Funds

1. Monopolistic

2. Competitive

Private Carriers

1. Stock

a. Participating

b. Non-participating

2. Mutual

3. Reciprocal or Interinsurance Exchange

The following table taken from the Digest of Workmen's Compensation Laws (1923, Workmen's Compensation Publicity Bureau) indicates the various state compensation insurance requirements:

1 Requirements apply to private employments only.

2 Section 22 of the Louisiana Act, making insurance or security compulsory, has been declared unconstitutional in In Re Southern Cotton Oil Co., 86 So. 656.

3 No insurance or security required of employers of farm labor or domestic servants.

4 Requirements apply to the State and to private employments only.

1 Employers may be permitted to carry their own risks, contributing nevertheless to the surplus of the state fund, but may not thereupon secure indemnity through private insurance. 2 Employers may be permitted to carry their own risks, contributing nevertheless to the expense of administering the state fund, and may thereupon secure indemnity through private insurance.

3 These state funds, although competitive in general, are given a monopoly of insurance on public employments.

The state fund is administered by the same authorities who administer the compensation law.

Ditto in part; but the tribunal which decides disputes is not interested in the state fund.

6 The state fund is administered by an independent management.

7 The state fund is subsidized and tax exempt.

8 The state fund is self-supporting but tax exempt.

The state fund is self-supporting and subject to some state taxes (all the state funds are exempt from Federal taxation).

10 An elective state-managed fund has been created to provide insurance for coal mining.

ance.

Self-insurance. Self-insurance is not really a form of insurThe employer does not join with other employers in establishing a cooperative arrangement to share his losses with others. He handles the problem himself and, with no outside assistance, guarantees that his workmen when injured will receive the benefits to which they are entitled under the workmen's compensation law. Naturally this practice is not permitted without restriction because workmen's compensation laws deal with a class of beneficiaries who are, as a general rule, greatly in need of protection and to whom it would be a hardship if there were any failure of compensation benefits because of the inability of the employer to pay. For this reason, the employer is usually required to convince the state industrial board or commission or some state official that he is financially able to meet the obligations which may arise under the law. He must deposit securities of a certain aggregate amount so that payment of compensation will be guaranteed, he must file a bond for the same purpose, or he must in other ways furnish definite and concrete evidence of his ability to meet his responsibilities for compensation.

Many large corporations which carry their own risks, enter into a separate and distinct compensation agreement which affords to employees greater benefits than those allowed by law. In these cases, the employer is required not only to furnish proof of his financial strength to cope with the problem but also to guarantee that the benefits of his system are at least equivalent to those defined by the workmen's compensation law. Where the benefits exceed those provided by law, the entire excess cost may be borne by the employer or it may be shared by the employer and employee but, in the latter event, the employer must prove that the employees' contributions are paid in return for benefits beyond those specified in the law. No workmen's compensation law permits the employer to reimburse himself by collecting any part of his workmen's compensation cost from his employees, except in a few states where the employees share in the cost of medical benefits.

Self-insurance may have its advantages under certain conditions. A large corporation with operations at many points and with thousands of employees may have a spread of exposure