Workers' compensation insurance presents a set of institutional charac-
teristics that are unique. For every other form of insurance, both the
insurer and the coverage provided under the policy are completely
controlled either by the federal or a state government, or by an
arrangement between the insured and a property-casualty insurer.
Unemployment insurance, Social Security, and bank-deposit insurance are
examples for which a legis- lative body sets the benefits. and a
government agency prescribes the in- surance premium. By contrast, the
coverage and premiums for automobile, homeowners, and fire insurance are
individual contractual arrangements between a policyholder and one of
the more than 1800 U. S. property- casualty insurance companies.
Workers' compensation insurance, however, is a hybrid in which state
legislatures stipulate the terms of coverage, while regulated
competition is the major determinant of prices. State legislatures enact
statutes that prescribe the replacement rate and duration of indemnity
benefits, as well as full reimbursement of medical expenses. And
although the manual rates for workers' compensation insurance continue
to be administered by a prior approval process in most states, the
competitive-market price for coverage is achieved through a variety of
price-modification plans (Appel and Borba, 1988).