Viewpoint: A Workers’ Comp Hard Market Is Coming to California

Word on the street is that California employers should start expecting higher workers’ compensation rates.

California employers have enjoyed a soft workers’ comp market for the last decade, but all indications are now pointing to the market hardening, entering a period of rates needing to go up to offset undesired financial results from carriers often in terms of increased expenses, medical inflation, deteriorating results and other factors.

The Workers Compensation Insurance Rating Bureau of California analyzes state-wide results for the workers’ comp system and provides meaningful loss analysis for the benefit of many stakeholders including carriers offering workers’ comp policies in the state. For many years the WCIRB has been recommending rate decreases as overall system results justified lower rates.

Rising costs in the system prompted the WCIRB to propose an 11.2% advisory pure premium rate increase for September 1, 2025. California Insurance Commissioner Ricardo Lara in July approved an average 8.7% increase in advisory pure premium rates. This reflects new emerging cost increases within the system, which carriers must reflect in the rates they charge to policyholders.

Insurance, like many other industries, can be cyclical, meaning rates may go down for many years until the evidence emerges that rates being charged are no longer adequate for a carrier to meet their financial obligations. In this case, rates may go up for several years. Agents that understand this and can explain this reality to their clients will see an increase in client retention and establish themselves as knowledgeable professionals in their industry.

Workers’ comp rates in California are increasing due to a combination of higher medical costs, more expensive claims, and changes in legal or regulatory requirements. When it costs more to treat injured workers or settle claims, insurers raise rates to cover those expenses.

Key Reasons Explained

Following are a few reasons that explain what is occurring. Some of these data come from the WCIB, which issued its Quarterly Experience Report on Aug. 5.

Medical Inflation: Even with some medical cost containment measures, the overall cost of medical treatment (surgeries, physical therapy, prescriptions) continues to increase. For example, the average medical cost per indemnity claim shows an average annual change of 3.7% between 2017-2023, however, the rate is 7.7% between 2023-2024.

Longer Claim Durations: Injured workers are staying off work longer, which increases indemnity (wage replacement) costs for insurers.

Litigation & Legal Costs: California has a relatively high rate of litigated claims. More legal involvement drives up the cost of resolving claims.

Regulatory Changes or System Adjustments: The California workers’ comp system is complex and heavily regulated. Changes like new benefit rules or fee schedules can impact insurer costs.

Rising Frequency of Certain Claims: While total claim frequency may be down, there’s been a rise in costly types of claims (such as cumulative trauma claims (CT), mental health claims), especially in certain industries. CT claims are at least 3% higher in California compared to all other states.

Fraud and Abuse: California has historically had issues with fraudulent or exaggerated claims, particularly in high-risk areas or professions.

Market Trends: Insurance companies set base rates on expected losses. If past years have experienced higher-than-expected claim costs, they may increase rates to ensure solvency and profitability going forward.

Combined Ratio at Historic High: The projected accident year combined ratio for 2024 is 127%. This is a zone of unprofitability for carriers and is not sustainable. The 2024 combined ratio of 127% is the highest in more than 20 years. Combined ratios in California continue to be above those for the rest of the country.

What A Broker Can Do:

Get Ahead of The Macro Reality: Proactively reach out to clients to prepare them for what is occurring. Educate them. Draw parallels between other similar and recent insurance challenges like the availability and affordability of property insurance. Similar to workers’ comp, when property insurers started seeing claim costs rise, they responded by increasing rates and/or tightening up underwriting guidelines. Waiting for an angry call from a client with a renewal rate increase may be too late.

Experience Rating: Focus on the services and support you can bring to clients to help them with efforts needed to lower their X-Mod. Most carriers provide a wealth of information on how the X-Mod can be managed lower with the right focus. While carriers are expected to offer fewer credits than they have in the past, the X-Mod continues to be a credit opportunity that can be achieved.

Safety Programs Focus: Safety efforts can also result in lowering a client’s X-Mod. However, it goes beyond that. As many carriers tighten up their underwriting standards, they will focus more on writing clients that perform well and focus on the reduction of claims. Clients with sustained poor loss performance will find fewer placement options in a hardening market and the options that are available may be exceedingly more expensive. Agents should work with their clients on building a narrative around their safety management efforts, as carriers will view this as a positive risk attribute.

Partner With the Right Wholesale Partner: Wholesalers become exceedingly important in a hard market, because they generally have access to many placement options and are in tune as to what the various markets are doing in response to a hardening market. They also have awareness of unique opportunities like program access that can provide additional rate reduction opportunities. Look for wholesale partners that have a reputation of integrity and have established access to quality admitted carriers.

Employers have a role to play as well.

What Employers Can Do:

Proactively Administer Hazard Awareness. Having a clean and organized workplace can reduce tripping and fall injuries. Some environments such as restaurants or manufacturing facilities can result in frequent spills, which become a slip-and-fall hazard. Employers in environments like this could invest in non-slip shoes and mats for their employees. Be diligent in establishing and enforcing safety practices such as wearing protective gear and letting employees know that it is a high priority.

Hiring practices. The basics here include driving and criminal background checks, as well as pre-employment drug testing. But finding the best candidate to represent the company is important and this takes time. Employees who like their jobs are less likely to get injured, return to work faster and will be good stewards that help to set up a culture of safety.

Maintain A Good Relationship With Employees. Make sure that employees feel valued, and that the company will do everything possible to help them get back to work as soon as possible if they experience an injury. Frequent involvement and contact with injured employees can reduce the risk of them getting an attorney.

Assist in Accident Investigations: Preservation of evidence is crucial. Take photos of accident scenes as soon as possible. Document witnesses and request hand-written statements. Ask supervisors to write a report on what happened while it’s still fresh in their memory. If a product or piece of equipment is involved, do not alter or continue use of the equipment until it has been inspected.

Prompt Reporting. Evidence critical to a claim will diminish or be lost as time passes. Each state has compliance requirements to ensure decisions and payments are timely. In some jurisdictions, employers can be fined for late reporting if their actions cause benefits to be delayed. Contact with an injured worker during the first 24 hours builds trust and a positive relationship between the worker, employer and your insurance carrier representative.

Be Creative And Offer Light Duty Work: Return-to-Work (RTW), or light duty work should still be meaningful where employees can feel valuable to the company’s success. Is there a desk job or similar tasks available while an injured worker can heal and are able to return to their originally assigned job? Employers who actively seek to find light duty work are rewarded with shorter periods of disability, less likely to involve attorneys and a stronger relationship between management and employees.

In the face of a hardening workers’ comp market, knowledge is more than power, it’s a competitive advantage. Brokers who proactively embrace the realities of the evolving California workers’ comp landscape will not only retain clients but build lasting trust and credibility. By staying informed, communicating effectively and proactively, and partnering strategically, brokers and employers alike can navigate these changes with confidence.

Bennett is the chief underwriting officer at BindDesk Insurance Services, a multiline, multi-state wholesale and distribution technology property/casualty distributor. He has more than 28 years of experience in underwriting, risk advisory, and insurance operations, including a tenure at W.R. Berkley Corporation.

Topics California Workers' Compensation Pricing Trends Market

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