If you're starting a business in Ohio, North Dakota, Washington, or Wyoming, here's something that might surprise you: you can't just call up any insurance company to get workers' compensation coverage. These four states operate what's called a "monopolistic" workers' comp system, which means there's only one place to buy coverage—the state government itself. No private insurers allowed.
This setup is different from the 46 other states where insurance companies compete for your business. And while it might seem limiting at first, there are some advantages to the monopolistic approach—along with a few quirks you need to know about. Let's break down how workers' comp works in these states and what it means for your business.
What Makes a State "Monopolistic" for Workers' Comp?
In a monopolistic state, the government runs the entire workers' compensation system. There's one state-operated fund that handles everything: registering businesses, setting premium rates, collecting payments, and processing claims when workers get injured. Private insurance companies aren't allowed to sell workers' comp policies in these states—period.
Each of the four monopolistic states has its own agency handling workers' comp: Ohio has the Bureau of Workers' Compensation (BWC), North Dakota operates Workforce Safety & Insurance (WSI), Washington runs the Department of Labor & Industries (L&I), and Wyoming manages coverage through its Workers' Safety and Compensation Division. These agencies function like insurance companies, but they're government entities accountable to state lawmakers rather than shareholders.
The monopolistic system ensures that every worker in the state receives the same level of coverage regardless of which company they work for. It also means you don't have to spend time comparison shopping between different insurance carriers—there's only one option anyway. Whether that's a good thing or not depends on your perspective and your specific situation.
How Coverage Requirements Work in Each State
While all four monopolistic states require employers to carry workers' comp, the specific rules vary. In Ohio, you need coverage as soon as you hire your first employee, whether they're full-time, part-time, or seasonal. North Dakota has a similar requirement—you must have a policy in place before your employees even start working. Wyoming requires every business to register with the state to determine if they need coverage, even if you think you might be exempt.
Washington's requirements depend on your industry and employment situation, but generally, if you have employees, you need coverage. There are some exemptions in each state for specific types of workers—like certain agricultural employees, independent contractors, or business owners—but these exemptions are narrowly defined. Don't assume you're exempt without checking with your state fund first.
If you're an out-of-state employer with workers in a monopolistic state, pay attention. Ohio requires coverage if your employees work in the state for 90 consecutive days or more. The other states have similar provisions for temporary or traveling workers. You can't just rely on your home state's workers' comp policy—you need to get coverage from the monopolistic state fund.
The Big Gap: Employer's Liability Coverage
Here's where monopolistic states get tricky. In most states, when you buy a workers' comp policy, it automatically includes something called employer's liability coverage. This protects you if an injured employee decides to sue you directly, claiming you were negligent or didn't maintain a safe workplace. It's Part B of a standard workers' comp policy, and it's crucial protection.
But monopolistic state funds don't include employer's liability coverage. At all. This creates a significant gap in your protection. If an employee sues you—say, arguing that you knowingly allowed a dangerous condition that caused their injury—your state fund workers' comp policy won't defend you or pay any judgment against you.
The solution is called stop-gap coverage, and you'll need to add it as an endorsement to your general liability insurance policy. Stop-gap coverage essentially fills the employer's liability hole left by the monopolistic state fund. Most insurance agents familiar with these states will automatically suggest it, but if you're buying insurance on your own, make sure you specifically ask for stop-gap coverage. It's not expensive—typically adding just a small amount to your general liability premium—but skipping it could cost you everything if you face a lawsuit.
How Premiums and Rates Are Determined
In competitive states, insurance companies set their own rates and adjust them based on market conditions, their claims experience, and how badly they want your business. In monopolistic states, the state government sets all the rates. You pay what they tell you to pay—there's no negotiating, no shopping around for a better deal.
That said, monopolistic states do reward safe employers. Each state uses an experience rating system that adjusts your premiums based on your claims history. If you maintain a safe workplace and have few or no claims, your rates go down. If you have a lot of claims, expect to pay more. Ohio uses an experience modifier similar to the national NCCI system. Washington has its own classification and experience rating system. North Dakota uses a unique employer classification system, and Wyoming employs NAICS codes combined with experience modifiers.
Some states also offer premium discounts or even refunds for employers with excellent safety records. These programs vary by state and change periodically, so check with your state fund to see what incentives are currently available. The bottom line: even though you can't shop for lower rates, you can still influence what you pay by prioritizing workplace safety and managing claims effectively.
Special Considerations for Multi-State Businesses
If your business operates in multiple states, monopolistic states create extra complications. Let's say you're based in California but have employees in Washington and Oregon. You can buy one workers' comp policy to cover California and Oregon, but you'll need a completely separate policy directly from Washington's Department of Labor & Industries for your Washington employees.
This means more paperwork, more premium payments to track, and more administrative hassle. You might have three or four different workers' comp policies if you operate in multiple monopolistic states plus some competitive states. Each monopolistic state requires direct enrollment and separate premium payments—you can't bundle them together. Make sure your payroll and accounting systems are set up to handle this complexity, and consider working with an insurance broker who has experience with multi-state coverage.
Can You Self-Insure in Monopolistic States?
In most cases, no—you must buy coverage from the state fund. However, Ohio and Washington do allow some larger companies to self-insure their workers' comp obligations. The requirements are strict: you typically need to demonstrate significant financial resources, post substantial security deposits, and meet ongoing reporting requirements. For most small and mid-sized businesses, self-insurance isn't a realistic option.
Even if you qualify financially, self-insuring means you're directly responsible for paying all workers' comp claims, managing the claims process, and handling all the administrative requirements. Unless you're a large corporation with dedicated risk management staff, the state fund is almost certainly the better choice.
How to Get Started with Coverage
Setting up workers' comp coverage in a monopolistic state is straightforward. Start by contacting your state fund—you can find them online easily by searching for your state's workers' compensation agency. Most have online registration systems where you'll provide basic information about your business: what you do, how many employees you have, your payroll, and your industry classification.
The state fund will assign you a classification code based on your type of work, calculate your premium, and issue your policy. Make sure you get your coverage in place before your first employee starts work—operating without required workers' comp coverage can result in hefty fines, stop-work orders, and personal liability if someone gets hurt.
Don't forget about that stop-gap coverage for employer's liability. Contact an insurance agent who can add this endorsement to your general liability policy. If you don't have general liability insurance yet, this is a good time to get both—most businesses need general liability anyway, and adding stop-gap coverage is simple once the base policy is in place.
Working in a monopolistic state might feel restrictive if you're used to competitive insurance markets, but the system has its advantages: stable rates, universal coverage standards, and one less decision to make when you're already juggling a million things as a business owner. Just make sure you understand the employer's liability gap and get that stop-gap coverage in place. Your workers' comp policy protects your employees when they get hurt—stop-gap coverage protects you when they decide to sue.
