Viewpoint: California Workers’ Comp Outlook And What Stakeholders Need to Know

Workers’ compensation insurance premium rates in California have been in a steady decline for many years, after a series of reforms to the system reduced claim payouts, and subsequent changes to the experience modification rating calculation decreased the impact of severe claims on employers.

However, earlier this year, the California insurance commissioner approved a pure premium rate increase of 8.7% for the first time in a decade. This rate increase is advisory, and insurance companies can charge their own rates in California. But at the same time, the industry reported a combined ratio of 127% for 2024. This means that for every dollar in premium charged, $1.20 is being spent. This is unsustainable and likely means that rate increases are likely on the way. At Cavignac, we are telling most policyholders to anticipate a renewal quote ranging from flat to plus-10% this year. There are many factors contributing to these proposed rate increases, most of which are laid out in the Workers’ Compensation Insurance Rating Bureau’s 2025 State of the System report.

Let’s examine some of these factors and what steps employers should take to maintain control.

Claim Frequency. After decades of decreasing frequency, claims are now on the rise in California. This trend began around 2009 and is most significant among cumulative trauma claims in the Southern California region—in particular the Los Angeles, Long Beach and Inland Empire areas. California claims tend to be reported later and stay open longer than claims in the rest of the country. Often these types of claims come in after notice of termination or layoff via letter of representation. CT claims can be filed as a companion to a specific date of injury, but this is not always the case.

The WCIRB data does not show as steep of a rise in specific injury trends, so employers should be particularly mindful of the risk of repetitious injuries sustained over a prolonged period. Investing in office and industrial ergonomics programs can lower the risk of cumulative injuries, while cross training and task rotation can help avoid the over-specialization that exposes employees to a single narrow set of risks repeatedly for years. Utilizing best practices while recruiting, onboarding, and managing the workforce is also key. A post-offer, pre-hire physical can help determine whether a candidate can do the job they are being hired for, with or without reasonable accommodation. This can help weed out a candidate who may already be too injured to perform the essential functions of the position without running afoul of discrimination laws.

During the employee life cycle, it is critical for employers to communicate about safety and performance expectations, provide all necessary training needed to perform the job properly and safely and cultivate an environment that encourages communication. Employee performance should be managed, but that applies to supervisors as much as it does to staff. Most often, when a claim becomes litigated, it is because an injured worker either does not trust their supervisor, or they do not understand the workers’ comp system and they fear they will lose their job or no longer be able to meet their financial obligations. In both instances, the solution is communication.

Medical Costs. Claim costs are also on the rise. While the data shows that California is closer to the middle of the pack in terms of indemnity costs, medical costs continue to increase and drive claim severity up. The increase can be seen both in the number of medical transactions and the cost per transaction. It is critically important for employers to control the portion of the claim that can be controlled. This is typically the early portion of the claim.

We strongly recommend the use of medical triage companies, whether telephonic or in-person, to help assess injuries and determine if a worker needs medical care. Oftentimes more minor injuries can be treated onsite with first aid care, or a telephonic triage company can direct an employee in self-care. These options can keep an incident out of the workers’ comp system entirely. If an injury is significant enough to need medical care, trained professionals will assess the situation and direct the injured worker to a preferred Occupational medical clinic that already has an established relationship with the employer and is a verified Medical Provider Network provider. Emergency rooms and hospitals should be saved for truly emergent situations or jobs that are not within a reasonable distance of an occupational medical clinic. These providers are expensive, and they do not understand the workers’ comp system so, the employee will ultimately need to be transitioned into the MPN anyway. Unless it is an emergency, sending an injured worker to the ER will only add time and money to the case.

Once past the initial stages of the claim, the goal is to keep the injured worker with the employer-preferred provider and avoid litigation. Once litigation occurs the attorney will often advise the employee to change to a physician who is technically within the MPN but who is more likely to increase treatment and keep the case open longer. Like the relationship with the supervisor, the relationship with the doctor plays a key role in the ultimate case outcome. As an employer the goal is to find a clinic that will treat conservatively and return folks to work quickly.

But an injured worker has different concerns. They are focused on getting care quickly, feeling listened to, and returning to good health. Therefore, finding the right clinic is a balance and is something that warrants attention before someone gets hurt. When vetting an occupational medical clinic, it is advisable to take a tour if possible, to ask to speak to the head physician and ask questions regarding return-to-work, communication policies, average wait times, referral procedures, etc. Make certain the chosen clinic has preferred billing rates with the workers’ comp insurance company, and establish a relationship with them prior to any injury occurring. These steps will ensure that once an injury does occur, everything that can be in place to help control medical costs is ready to go.

Adjusting Costs. Insurance companies also spend money to handle claims. These costs can range from adjuster fees to bill review and cost-containment fees. They are, in essence, the cost of doing business, and they are increasing. While it is much harder for an employer to have an impact on this variable, one thing that is important is to have a great broker. A broker can help negotiate the best rates and prepare a great submission. They can also explain adjusting expenses like cost-containment programs. Most insurance companies use an outside provider to review medical bills and either the provider or the insurance company (sometimes both) will keep an often-significant amount of the savings. A broker can also help a firm compare two potential insurance companies and understand why there might be a difference in premium. For example, if one company offers more loss control resources, whether they outsource things like nurse case management, if they have internal staff working to mitigate state-wide issues such as applicant-attorneys who file cases in one jurisdiction only regardless of where the injured workers and employers are physically located- in order to get a better outcome. In the end a firm may choose to go with the less expensive policy, but a good broker partner can help them understand what they are paying for and make sure there are no surprises.

We don’t yet know if a hard market will materialize, but it seems likely that workers’ comp rates will stop decreasing. When rates stagnate or even go up, it can be tempting to look for places to cut costs. Human resources, safety, and claims management can seem like an easy choice, especially if there has not been a history of challenges with claim frequency. However, this is not the right time to ease up on risk control. If anything, it is time to double down. If a hard market does materialize, it will be those employers who have the lowest claim frequency and severity. If they can paint a picture to their insurance company that they vetted employees pre-hire, trained them well, fostered a great culture, utilized medical triage, have a great relationship with a preferred medical clinic, they can keep employees at work, in the medical provider network and away from litigation, they will come out with the best rates.

Dickerson is director of risk control at Cavignac. She began her insurance career at AIG as a workers’ compensation claims specialist.

Topics Trends California Workers' Compensation

Was this article valuable?