howardnlby Howard Stephenson
For years Utah’s business community has resisted proposals to privatize the state’s Workers Compensation Fund (WCF) because of fears that total privatization would raise premiums, remove it as Utah’s insurer of last resort, and open its $220 million in reserves to potential raiding by the Fund’s future officers. WCF was created by the legislature in 1917 and now writes more than 60% of Utah’s workers compensation insurance.

Governor Leavitt this spring urged policymakers and employers to look at various proposals including the option of selling WCF and allowing state government to retain up to $124 million of its reserves to be spent by the state on some type of legacy that would not otherwise be created. The idea was that if WCF is a quasi-governmental agency and therefore the state deserved to receive some sort of return on its initial founding interest in the company. The Governor, a former executive in his family’s insurance business, instituted a review process to examine the various proposals.

Now the results are in and based on the information, the Governor recommends that the state do nothing to change WCF. At the same time the business coalition representing Utah’s major business and trade associations, which for years has opposed changing WCF, is calling for what they call “mutualization” of the WCF.

The Business Coalition, headed by Utah Manufacturers Association President Tom Bingham, has issued a list of principles the Coalition says should guide the legislature in cutting WCF loose as a mutual insurance company, owned by the policyholders. The coalition says the fund should continue to be the insurer of last resort; required to write insurance for all applicants. In return, WCF should retain its federal income tax exemption, the State of Utah should continue as an “anchor client,” and no founder’s equity should be paid to the State of Utah.

For what it’s worth, I agree that state government should not get cash from the fund if it is mutualized. These reserves were created from premiums paid by the policyholders, and the policyholders should retain the reserves through their ownership of the mutual company. If, however, the state should get $50 million or whatever amount from the conversion to a mutual company, the money should not be spent on a “legacy” project. Instead it should go to offset the state’s liability for unfunded workers compensation coverage for injured workers who go back to work. This approximately $300 million in unfunded re-insurance liability currently requires a 10% premium tax on all workers compensation insurance written in the state of Utah.

The Coalition believes that WCF should be able to expand and grow by offering coverage for employees of Utah companies working in other states and also employees of non-Utah connected businesses in other states through the Fund’s wholly-owned for-profit subsidiary. The Coalition proposal calls for WCF’s board to be elected by policyholders, not appointed by the Governor.

While speaking before legislative caucuses earlier this month Bingham and Utah Retail Merchants Association President Jim Olsen described mutualization as the answer for ensuring that WCF continue to offer low cost coverage to Utah employers. They said that inability of the Fund to diversify their portfolio by ensuring employers in other states could jeopardize the viability of the fund. If not allowed to operate outside of Utah’s boundaries, Bingham estimated that the fund could lose approximately $18 million in Utah-based employer business and approximately $40 million in out-of-state non-Utah based business.

The Business Coalition’s proposal seems to accomplish the objectives of WCF officers who want the Fund’s subsidiary company to be able to continue to operate beyond Utah’s borders. They want to be able to serve Utah-based employers who have employees in other states and at the same time balance their risk pool by ensuring employee groups outside of Utah. As what Governor Leavitt has called “A magnificent asset, well managed,” WCF’s low insurance rates have helped rank Utah second best among the fifty states.

The Business Coalition is seeking to get the changes made in a special session of the Utah Legislature by September of this year. This would meet the deadline for enabling WCF to continue to write business in Idaho, whose courts have declared that a government controlled insurer from Utah can’t compete for workers compensation insurance in Idaho. The real sticking point under the Idaho interpretation is that the Governor of Utah currently appoints the board of directors of WCF. That appointment authority would be eliminated under the Business Coalition proposal.

Perhaps the biggest challenge to the Business Coalition’s proposal is the fact that only the Governor can call a special session of the legislature. What is the likelihood of that happening if the governor continues to oppose mutualization? The Coalition plans to convince legislative leaders of their proposal and get them to help work on the Governor.

Last legislative session Senator Curt Bramble sponsored Senate Bill 170 to essentially privatize the Fund, and charge Utah’s insurance commissioner with the responsibility of obtaining insurer of last resort coverage for Utah employers. Senator Bramble will likely be the sponsor of the Business Coalition’s bill. He has said that if WCF is restricted to writing Utah business only, insurance rates will go up for Utah workers.

The studies and recommendations of Deloitte & Touche, and Houlihan Lokey Howard & Zukin, along with the Governor’s own June 18, 2003 report are available on the web at


The Utah Business Coalition supports the following principles to guide the drafting of any bill considered by the Utah Legislature to alter how the Workers Compensation Fund operates:

1. The federal income tax exemption must be maintained to ensure the lowest possible rates to employers;

2. the Fund should continue to be the insurer of last resort to insure the residual market in Utah;

3. employees of Utah companies working in other states should be eligible for coverage by the Fund’s wholly-owned for profit subsidiary;

4. the new structure should be a mutual insurance company owned and controlled by policyholders, so emphasis is on costs to policyholders, not profits to stockholders;

5. the WCF Board should be elected by policyholders;

6. based on legal opinions, the State of Utah is entitled to no founders equity or other settlement for relinquishing its minor control over the WCF Board or its business practices;

7. the State of Utah should continue as an “anchor client” with WCF as an offset to the requirement that WCF continue as the insurer of last resort;

8. WCF, through its wholly-owned for profit subsidiary, should be allowed to insure non-Utah connected business in other states; and

9. Governor Leavitt should call a special session of the Utah Legislature no later than September 2003 to resolve this issue.