Starting from Scratch: The Evolution of ERM at the Workers' Compensation Fund
DAN M. HAIR
Senior Vice President, Chief Risk Officer, Workers Compensation Fund
Modern workers' compensation systems are children of the industrial revolution. The concept of a social insurance program protecting workers from job-related injuries and illnesses had its modem origins in the development of European factory, child labor, and mining regulations throughout the eighteenth and nineteenth centuries. In the United States there was a long gestation period leading to the adoption of similar schemes. In the nineteenth century accidents in the mining and railroad industries led to early regulatory structures in those areas. The Russell Sage Foundation's Pittsburgh Survey of 1907 along with the Triangle Shirtwaist Factory fire in 1911 were major factors in the adoption of the first state workmen's compensation laws from 1911 to 1915.
In 1917, the Utah legislature passed the Workers' Compensation Act, requiring all employers to obtain workers' compensation insurance coverage. The Workers Compensation Fund (WCF), then called the State Insurance Fund, was created to provide competitively priced insurance to Utah employers. In the same year, the legislature appropriated $40,000 from the state treasury for WCF to begin writing insurance. This loan was repaid by WCF in four years, and from that time forward WCF has operated financially independent of the state and has functioned largely as a state agency.
A formal organizational study of WCF was completed in 1987. It recommended autonomy from state administration by establishing WCF as a quasipublic corporation with a board of directors comprised of policyholders and individuals with expertise. In 1988 the Utah legislature again modified its statutes to protect the state from any WCF expenses or debts and to prohibit the state from accessing the Injury Fund. In 2005 the Utah Supreme Court ruled that WCF and all of its assets were solely owned by its policyholders.
Today, WCF operates as a mutual insurance company owned by its policyholders and governed by a seven-member board of directors appointed by the governor. WCF performs a public purpose relating to the state and its citizens. Specifically, WCF serves as Utah's carrier of last resort for workers' compensation insurance coverage. As such, any Utah employer, no matter its size, the riskiness of its business, or its prior loss history, can obtain workers' compensation insurance coverage from WCF.
WCF is under state regulatory oversight provided by the Utah Department of Insurance and Utah Labor Commission. WCF also receives annual rating agency financial oversight through the A.M. Best Company, which examines, among other things, solvency, operating performance, risk-based capital requirements, and enterprise risk management (ERM) capabilities. Currently, WCF is rated A or excellent. WCF has its headquarters in Sandy, Utah, and additional branch offices in central, northern, and southern Utah. It also owns affiliated companies that are licensed to write workers' compensation insurance and perform claims management services in other states as well.