Minn. Passes Bill Denying W/C Entry to Tax-Advantaged Entities

May 27, 2003

In a move insurance groups say will prohibit unfair competition in the state’s workers’ compensation insurance market, the Minnesota Legislature has recently taken action to prohibit state workers’ compensation funds of other states from providing coverage in the state.

Legislators quickly passed House File 1 during the first days of a Special Session (May 20). The Alliance of American Insurers drafted this legislation and worked to educate the legislative leadership and members on this critical issue. The bill is now on its way to the governor, whose signature is expected, according to an Alliance representative.

HF 1 prohibits the licensure of any insurance company whose voting control or ownership is held in whole or substantial part by any government or governmental agency having a tax exemption. This prohibition also applies to an insurance company that is operated for or by any government or governmental agency or entity having such tax exemptions. The provision does not apply if the insurance company’s sole purpose in the state is providing workers’ compensation coverage to an employer principally located in the insurer’s state of domicile.

This legislation will reportedly effectively thwart the North Dakota exclusive state fund’s attempt to establish an insurance subsidiary in Minnesota.

“This legislation was necessary to prevent tax-advantaged entities, such as the North Dakota state fund, from competing with private Minnesota-licensed insurers,” said Bill Schroeder, vice president of the Alliance’s Midwest Region. “By signing this bill into law, Gov. Tim Pawlenty (R) will prevent these entities with special privileges from disrupting the Minnesota workers’ compensation market.”

“Twenty-four states already recognize the inherent unfairness of competition from governmentally owned insurers and have attempted to limit their licensure with similar provisions. The Alliance is pleased that Minnesota legislators recognize the value of a level playing field in free-market competition,” said Judy Grimes, a policy manager in the Alliance’s workers’ compensation department.

“Minnesota’s workers’ compensation market currently is stable, with no capacity or availability problems,” she added. “However, if tax-advantaged entities were allowed to enter the state, they would be able to unfairly undercut private insurers, ultimately weakening all of the players in the market and undermining the balance that currently exists.”

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