Arizona Privatizes Workers’ Compensation Insurer

Arizona Gov. Jan Brewer signed into law Senate Bill 1045, which repeals and amends state statute, directing the State Compensation Fund — known as SCF Arizona — to privatize and become a mutual insurance company, regulated by the state Department of Insurance. The new law directs SCF Arizona to transition to fully private status by January 2013.

The bill’s sponsor was Senate President Bob Burns, who will be retiring after his term expires at the end of the year. The State Compensation Fund, which traces its roots back to the earliest days of statehood, was due for its 10-year “sunset” review this year. Instead, Burns moved to privatize.

“SCF has weaned itself from state oversight and I just think the time is right for making them a private company and removing the state from any expenditures or liabilities that we have inherited over the years,” Burns said. “This action reduces the role of government and it bolsters the private sector.”

SCF Arizona is the state’s largest workers’ compensation insurance company, headquartered in Phoenix and with offices in Tucson, Prescott, Flagstaff, Yuma, Lake Havasu and Show Low. The company employs approximately 500 people, and covers more than 40,000 Arizona businesses and nearly half a million employees.

“This is a case of extraordinary bi-partisan cooperation and common sense good government,” said SCF Arizona President and CEO Don Smith. “It was not controversial, so it has not gotten the attention some other issues do, but the businesses of Arizona will be well-served by Senate Bill 1045 and people ought to know that their elected officials came together and did something that will help all businesses in Arizona.”

“We look forward to fully competing in the private marketplace and continuing to be Arizona’s workers’ compensation insurer of choice. We have a long commitment to this state and this only will strengthen our ability to perform on behalf of our customers.”

SB 1045 enjoyed the support of a strong and diverse bi-partisan legislative coalition. The bill passed the House 37-19, and cleared the Senate 26-1.

SCF Arizona was created by legislative act in 1925, but has been gradually moving in the direction of privatization since state since legislative action in 1968 separated the State Comp Fund from the Industrial Commission. For the past several years, SCF Arizona has been a hybrid company — neither fully private, nor fully public. The company has paid both premium and property taxes and has not received state money since the Legislature loaned it start-up money in 1925. Those funds were paid back in 1938, two years early.

Rick Jones, SCF Arizona’s senior vice president of sales and business development, said the bill will enable SCF Arizona to provide stable rates and broaden its services, previously prohibited by state statute, and will free the company to be more responsive to its policyholders. Under Arizona insurance laws, a mutual insurance company is owned by its policyholders. Like a credit union, the policyholders are “members” and they govern the company through a board of directors that they elect.

“SCF Arizona policyholders will not notice anything different in their day-to-day dealings with the company,” Jones said. “But over time, what they will experience is a more diversified company that can better serve their needs in Arizona and elsewhere.”

Workers’ compensation, mandated in the state of Arizona, requires employers to protect their workforce by providing insurance to cover medical and indemnity payments for employees injured on the job.