Rising costs, higher claims utilization, and projections for increased cumulative trauma claims are contributing to a rise in workers’ compensation rates in California, according to Insurance Commissioner Ricardo Lara.
The California Department of Insurance (CDI) has approved an 8.7% increase in advisory pure premium rates for policies renewing on or after Sept. 1. While these rates are advisory and not mandatory, the CDI said they reflect escalating medical and claims-related expenses.
California’s Workers’ Compensation Insurance Rating Bureau (WCIRB) had recommended an 11.2% increase during the rate review process, while the public member representative on WCIRB’s governing board suggested an 8.1% hike, according to the CDI’s order.
“We must be proactive in analyzing and addressing these early warning signs of a shift in market conditions in order to foster a vibrant and competitive insurance marketplace,” Lara said. “These considerations should guide us in striving for data-driven solutions.”
The newly approved increase follows a 2.1% decrease in advisory rates for 2024. That prior reduction had been supported by a WCIRB recommendation for a 0.9% increase, driven in part by fewer permanent disability claims and lower utilization of medical services per claim, the CDI said in a previous filing.
Medical inflation continues to be a persistent cost driver in California’s workers’ compensation system, with average increases in medical expenses ranging between 2.5% and 3.5%. While broader consumer inflation has shown volatility, medical costs within the comp system have not declined at the same rate, maintaining upward pressure on insurer outlays and pricing strategies.
Despite relatively low rate levels in recent years, Lara pointed to mounting medical service expenses, increased claims adjustment costs, and rising medical-legal fees. He also noted that projected growth in cumulative trauma claims – typically associated with higher costs – was another contributing factor.
National employment and wage trends are also influencing the rate environment. In October 2024, wages in the US rose by 5.6%, and employment rates remained strong. This has led to an overall increase in workers’ compensation premiums, as higher wages drive up indemnity payments and claims exposure across industries.
For the most recent four accident years, California’s workers’ comp carriers have posted average combined ratios above 110. The CDI anticipates a combined ratio of 123 for 2024, which Lara said would represent one of the highest levels in close to 15 years.
The rising combined ratio in California contrasts sharply with national trends over the past several years. The private workers’ comp market had recorded underwriting gains for seven consecutive years through 2023, with industry-wide combined ratios often below 90%. California’s current trajectory marks a departure from this national pattern, underscoring region-specific pressures in the state’s comp environment.
In his letter to state legislators, Lara noted that recent rate actions have aimed to reduce excessive system costs while maintaining protections for injured workers.
“Because higher insurance rates can affect businesses’ ability to hire and sustain financial growth, it is important to be aware of early warning signs and respond appropriately,” he said.
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