State Compensation Fund

The State Compensation Fund audit report presents information about the Fund’s efforts to adjust to a highly competitive workers’ compensation insurance market. Although the Fund remains the major provider of workers’ compensation insurance in Arizona, competition has reduced the Fund’s market share and premium earnings. In 1995, the Fund collected approximately $334.5 million in premiums, or nearly 50 percent of the total $671.6 million paid to all workers’ compensation carriers. Since then, premium rates have steadily declined as have total premiums paid to all workers’ compensation carriers in the State. In 1997, employers in Arizona paid workers’ compensation premiums of approximately $563 million. Of that total, the Fund collected approximately $228.7 million, or about 41 percent.

In response to the current competitive market, the Fund is taking several steps to attract and retain policyholders. Specifically, the Fund reduced its premium rates in July 1998 and has developed programs to improve services offered to current policyholders. The Fund is also working to reduce its budget by 25 percent, or approximately $11.7 million, between 1998 and 2000. Finally, the Fund is reviewing each of its major functions, and this review is expected to result in further savings through improved efficiency. Because the Fund has implemented, or is in the process of implementing, a number of process improvements and operational changes, no recommendations for additional actions are offered in this audit report.