Workers' Compensation in the U.S. began in 1911 during the Progressive Era when Wisconsin passed the first statutory system. Other U.S. jurisdictions followed suit. In general, statutory Workers' Compensation systems strike a compromise, guaranteeing workers medical care and payment for lost time on a no-fault basis. Prior to the enactment of Workers' Compensation laws, injured workers had to file suit against employers, and such legal actions had significant drawbacks for workers. At the same time, a successful suit could impose very large and unpredictable costs on an employer. Statutory Workers' Compensation systems provide for prompt payment of medical, rehabilitation, and lost time costs to injured workers, while placing limits on the cost of the system for employers. This trade-off became known as the "workers' compensation bargain"; that is, the worker traded his/her right to bring a tort suit against their employer in exchange for prompt medical care and disability payments. Thus workers compensation is the original "Tort Reform."
In many states today, Workers' Compensation represents a major cost of business for employers, and there is ongoing political maneuvering by both business and labor groups to shift the compromise balance struck by Workers' Compensation statutes. In general, business groups seek to limit the cost of Workers' Compensation coverage, while labor groups seek to increase benefits paid to workers.
For the commercial insurance market, Workers' Compensation represents a major line of business, although one that is sometimes problematic for the insurance industry. Premiums are large, but many insurers find it difficult to turn a profit in many states, as benefit costs sometimes exceed premiums. This line of insurance is regulated fairly closely by most states, although in recent years many states have allowed insurance companies greater flexibility in pricing this line of coverage. The hope has been that by encouraging price competition among insurers for Workers' Compensation insurance, employers would benefit by being able to obtain lower overall premiums. However, the introduction of competitive pricing for Workers' Compensation insurance has also led to significant swings in cost, as the insurance market moves between 'hard' and 'soft' markets. Employers often benefit from lower premiums in 'soft' insurance markets, only to see their premiums increase exponentially during 'hard' insurance markets.
Injured Workers sometimes complain that insurance companies do not treat them fairly or in compliance with the law, while employers often complain about their costs of insurance being driven up by exaggerated or fraudulent claims. Thus, the field engenders a considerable amount of controversy and litigation. These disputed areas include both claims and premium computations.