"This means that employers can ... keep costs down and provide adequate treatment for employees and establish a safe work place," Cayetano said on Wednesday.

Workers compensation reform was a key issue for lawmakers last year after insurers proposed an 80 percent increase for many small businesses who had been placed in a pool for hard-to-insure policies, also known as the assigned-risk pool. While the 80 percent rate increase was rejected by the state, many small businesses complained that they were placed arbitrarily in the assigned-risk pool.

The bill signed into law by Cayetano on Wednesday creates a nonprofit mutual insurance fund to replace the costly assigned-risk pool.

The fund, known as the Hawaii Employers' Mutual Insurance Co., would be owned and operated by small businesses who, in turn, would have an incentive to keep costs down and provide a safe work environment, Cayetano said.

The governor will appoint a nine-member board by Aug. 19 to run the fund. The board, in turn, will hire an administrator. The fund should start providing workers comp coverage by about Jan. 1.

The governor also signed into a law a bill that would create a workers comp ombudsman within the state Labor Department who would cut red tape so that injured workers could be treated and returned to work quicker.

Norman Sakamoto, chairman of the Haku Alliance, a workers comp reform group, called the new laws a step in the right direction.

But he said the state needs to do more. "It's like a new bus on a bumpy road. Just because you change the bus, the road conditions don't get any better."