California makes up almost a quarter of the US Workers' Compensation insurance market, and the remainder of the market is referred to as AOS — all other states — with the exception of four states that require business owners to purchase coverage through state agencies.

In other words, California is home to the largest, strongest Workers' Comp market in the country — by a lot.

This fact shouldn't be much of a surprise. California is also home to the largest population in the country. At the end of 2022, California's population was just shy of 40 million, making up 12% of the total US population.

California also has the largest business community with a corresponding worker base, one of the highest minimum hourly wage platforms in the country, as well as a high demand for workers and high payroll inflation.

Because California is home to a high cost of living, it's also home to the highest rate of payroll inflation nationwide.

For these reasons, California tends to lead Workers' Compensation coverage rates nationwide, according to Patrick Edwards, RPS area senior vice president and Workers' Compensation practice leader.

A State-by-State Approach

"State landscapes for Workers' Compensation vary widely, and so each state tends to need a tailored strategy," says Kenny Palmer, RPS's area assistant vice president of Workers' Compensation in Chicago.

Some markets are more aggressive than others. Some states have a higher cost of living than others. Some states are more employer friendly. Some states simply have a smaller population. Michigan, for example, has 10 million residents making up only about 3% of the country (compared to California's 12%).

The regulatory environment in each state also has an impact on the industry. For example, California Workers' Compensation claims tend to stay open longer, in part because of the regulatory framework in the state, according to the Workers' Compensation Insurance Rating Bureau of California (WCIRB).1 Specifically, California has a longer temporary disability duration compared to other states. Relative to other states with a similar Permanent Partial Disability benefit system, California temporary disability at 36 months is the longest, at roughly 50% higher than the comparison state median.

Palmer notes that currently New York, Colorado, Arizona and Indiana all have significant or notably increasing Workers' Compensation industry competition.

California's High Premiums

According to Edwards, the performance of the market in California is helping to compensate for deficient performance in other states.

In 2022, premium levels across California increased by 14%, according to Dayna Schneider, senior vice president of Workers' Compensation with Atlas General Insurance Services. In the fourth quarter of 2022 alone, California approved a 4.2% rate increase for its State Compensation Insurance Fund, which affected almost 95,000 policyholders across the state.2 The 4.2% rate increase translates to $55.7 million more in premiums.

Schneider anticipated that, in California, rates would continue to increase in 2023. She noted a $4.4 billion — or 7% — increase in written premiums in Q1 2023 compared to the previous year.

Note that in July 2023, California Insurance Commissioner Ricardo Lara issued a decreased rate for Worker's Compensation insurance.3 The move reduced the benchmark rate of 2.6% from last year to $1.46 per $100 of payroll for Workers' Compensation insurance. The change became effective September 1, 2023. Lara noted the need to share "savings and benefits of increased stability."

A Post-Pandemic Era of Insurance

Claims severity is higher than it's been in over 10 years. Perhaps surprisingly, carriers have reported that medical costs have remained relatively flat across the state. These trends appear to be national as well.

Still, competition is fierce, with some insurers reducing premiums to compete with competitor quotes, according to Amanda Ikari, RPS's area senior vice president in Thousand Oaks, California.

After 2018, insurance companies were able to pay out less for claims and expenses than what they were collecting in premiums, making the industry relatively profitable. As claim costs and expenses increased, carriers raised premium rates in order to be more profitable, according to L.J. Battagliese, area president at RPS Monument.

The pandemic had a significant impact on the market. Specifically in states that passed more serious COVID restrictions, frequency and severity of claims skyrocketed. Post-pandemic, however, Battagliese notes that claim numbers are starting to normalize. But still, inflation and increased wages are keeping premiums high.

States that passed strict COVID restrictions saw a new class of claims that skewed both frequency and severity. That's true for California.

According to WCIRB, about 290,000 COVID-19 claims — inclusive of denied claims — were reported by early September in 2022. In a typical year, 600,000 Workers' Compensation claims of all types are filed.

Learn more about what's next for the Workers' Compensation market in the RPS 2023 Workers' Compensation Market Outlook.



1"Drivers of California Claim Duration," Workers' Compensation Insurance Rating Bureau California, Nov 2022. PDF file.

2Figuracion, Kris. "California leads way with workers' compensation insurance rate hikes in Q4'22," S&P Global Market Intelligence, 7 Mar 2023.

3"Commissioner Lara Issues New, Lower Workers' Compensation Benchmark Rate," California Department of Insurance, 11 Jul 2023.