The State Compensation Insurance Fund is not an insurance company in the conventional sense; it can be likened to a separate State of California bank account or “enterprise.” The State Fund functions like an insurance company and, like private insurers, is funded directly through policyholder premiums rather than through taxes or other state revenues. However, it is mandated by state law to be non-profit.

From this short description, it is apparent that the State Fund has some characteristics of a public entity and others of a private company. In litigation by policyholders, such as for improper claims-handling, the State Fund is even subject to punitive damage awards, which state agencies generally are not. However, it is also the “insurer of last resort.” Since California requires all employers to purchase workers compensation (or be licensed to “self-insure,”) the principal purpose of the State Fund’s existence is to provide a guaranteed market from which employers may purchase the required insurance at a reasonable price.