California Is Sending a Warning to the Workers' Compensation Market

For more than a decade, the workers' compensation market in the US has benefited from unusually favorable conditions: declining rates, strong underwriting performance and reserve cushions that gave carriers room to absorb volatility. But that era is ending, and nowhere is the shift more visible than in California.

Representing almost a quarter of the US workers' compensation market, the state now serves as the clearest early indicator that the national workers' compensation environment is tightening, and the data suggest that the market may be headed for a significant correction. California's loss ratio reached 127% in 2024, the highest in over two decades, and the gap is widening.¹ This deterioration prompted the Insurance Commissioner to approve an 8.7% pure premium rate increase, California's first rate hike in 10 years.

"While the headline figure of an 8.7% increase in average pure premium rates may not seem drastic, the reality is far more significant when you look at the details," says L.J. Battagliese, area president at RPS. "In some industries, such as manufacturing and education, pure premium rates are rising by over 20% year-over-year, with certain codes even exceeding 30%."

In other words, the statewide figure masks an uneven landscape in which certain sectors — particularly labor-intensive, injury-prone or historically stable classes — are facing dramatic cost spikes. For brokers and insureds in these industries, the shift feels less like a subtle correction and more like a wholesale reset.

"This signals a potential tightening market and underlying issues such as escalating medical costs, increased frequency and severity of claims — especially complex ones like cumulative trauma — and higher litigation expenses have reached a critical point," says Patrick Edwards, area senior vice president, Workers' Compensation practice leader at RPS.

Persistent unprofitability has forced carriers to reassess their appetite, leading to an increase in non-renewals and a jump in minimum premiums, where base rates have increased by as much as 20%. Carriers are also removing credits that were applied last year and, in some cases, adding debits, even on clean accounts. For many insureds, the once-stable workers' comp line is now producing double-digit increases despite minimal or no losses.

This pricing pressure is compounded by another challenge: the rapid erosion of reserve cushions. Historically, carriers in California relied on substantial reserve redundancy to offset deteriorating performance elsewhere. That is vanishing. Estimated claims redundancy has fallen sharply, from $17 billion in 2017 to just $3 billion in 2024.² At this pace, the reserve cushion could disappear within two to three years and result in a reserve deficiency.

When redundancy becomes deficiency, carriers often must respond through higher rates, stricter underwriting and reduced risk appetite.

A Fundamental Shift

The root causes of California's stress run deeper than traditional economic cycles. Structural shifts, and in some cases legal and behavioral shifts, are amplifying the severity of the market disruptions. In some ways, this disruption is a perfect storm for the state, being driven by medical inflation, wage inflation, pandemic-era disruptions in claims use and the rise of "telelegal" litigation practices that enabled attorneys to litigate claims virtually across California.

Combined with the surge in cumulative trauma claims, which now account for nearly a quarter of all indemnity claims, these forces are pushing claims severity beyond historical norms.

"A perception is that the California workers' comp market is about 1.5 to 2 years ahead of all other states' marketplaces," Edwards says. "But the marketplace is in turmoil, especially for workers' compensation carriers who are now seeing steep losses due to the 127% Accident Year Combined ratio. Carriers that have been aggressively writing as much workers' compensation business as possible and doing so in a non-profitable manner could face significant challenges ahead."

National Impact

Whenever California moves, the industry pays attention, and right now, it's moving quickly. States like Nevada have already begun to show early signs of similar upward pressure, and national market data indicate that accident-year loss ratios are beginning to deteriorate even in states that remain profitable overall.

Clients need to be ready for higher premiums, reduced carrier appetite and fewer credits or discounts at renewal. Transparency about expectations will be critical. In other words, the days of easy placements and annual decreases are over.

Ultimately, what's happening in California isn't an isolated situation; it's an early signal for the workers' compensation market. A system under pressure is beginning to correct, and the forces driving the shift are unlikely to reverse anytime soon. For industry leaders, brokers and employers, understanding California's trajectory may offer the best preview of what's coming next for the market at large.

Learn more about what's next for the workers' compensation insurance market in the 2026 Workers' Market Outlook.

See the Report