Workers’ compensation costs have hit their highest numbers in more than 20 years, according to a Workers’ Compensation Insurance Rating Bureau report released earlier this month.
The WCIRB’s latest Quarterly Experience Report states that California’s Combined Ratios are 127%, which exceeds any other combined ratio in the last 24 years. For those unfamiliar with the Combined Ratio – when the ratio is over 100%, carriers are losing money, and when it is under 100%, carriers are making money.
The Combined Ratio tends to fluctuate over the years, and was last nearest this level in 2009, when the ratio was at 125%. The ratio has only exceeded that number in 2025 where it is now 127%, and in 2001, when it was at 145%.
To use a weather analogy, the current workers’ compensation market is experiencing a 25-year-storm, ie a storm that is so severe it only occurs once every 25 years.
What is causing carriers to lose money at this relatively unprecedented rate? As our friends at WorkCompCentral nicely-summarized:
- Indemnity benefits severity is up 30% since 2016.
- Medical costs severity is up 36% since 2016, and rose 7% from 2023 to 2024.
- Ultimate Allocated Loss Adjustment Expense – which is the cost attributed to the processing of a specific insurance claim – increased 39% from 2016 through 2024.
- Claims frequency alone is up 3.6% from 2023 to 2024. It is worth noting that frequency did drop 1.1% during the first half of 2025, however.
- Allocated Loss Adjustment Expense, which refers to all the specific costs an insurance company incurs to investigate and settle a particular claim, is also being driven higher by increased litigation on cumulative trauma claims, especially in Southern California. These are 33% higher than they were in 2016.
In summary, all one has to do is click on the WCIRB’s report and look at most of the graphs – almost all have a line with its highest point on the far right. Most statistical indicators of costs are going up, up, and up.
HISTORY
When statistics start to look like they did during a prior timeframe, it’s worth taking a look back at history and seeing what was going on during that earlier time.
The state of the workers’ compensation market in the early 2000s was far from good. Carriers were going out of business left and right, premiums were becoming unaffordable for employers, and doctors were complaining about slower payments from carriers.
This culminated in two major changes:
- Workers’ compensation premiums played a role in then-Gov. Gray Davis’ recall election in 2003, where Davis lost to challenger Arnold Schwarzenegger.
- Gov. Schwarzenegger then used his lobbying power to negotiate Senate Bill 899, which brought in major reforms and created many elements of the current workers’ compensation system that we have today.
This blogger remembers the years that followed well, as I attended my first California Applicant’s Attorneys Association winter convention in January 2008. Going into that convention, my editor had tasked me with reporting on how applicant’s attorneys were handling the sea change brought about by SB 899 and its ensuing court decisions. The short answer I received is that while many applicant’s attorneys were not pleased by the bill and ensuing court decisions, they were invigorated by the challenging new system and generally told me that morale was high.
Applicant’s attorneys weren’t the only ones affected – as carriers went under and premiums remained high, State Compensation Insurance Fund had to add more reserves, and the California Insurance Guaranty Association (CIGA) had to bolster its coffers after insolvent carriers left it high and dry.
If we have learned anything from past history, it would be better to head off the 5-10 years of turmoil by passing omnibus legislation to fix these problems now.
Per Gov. Gavin Newsom’s veto message promising major Subsequent Injury Benefits Trust Fund (SIBTF) reforms in 2026, it would make sense to pair those with reforms to address the broader workers’ compensation system as well. After all, many of the same things that are driving up costs for carriers are also driving up costs for the SIBTF. Proposing legislative changes that help carriers would also alleviate some of the pressure on the SIBTF and its skyrocketing liabilities.
Got a question about workers’ compensation defense issues? Feel free to contact John P. Kamin. Mr. Kamin is a workers’ compensation defense attorney and partner at Bradford & Barthel’s Woodland Hills location, where he monitors the recent legislative affairs as the firm’s Director of the Editorial Board. Mr. Kamin previously worked as a journalist for WorkCompCentral, where he reported on work-related injuries in all 50 states. Please feel free to contact John at jkamin@bradfordbarthel.com or at (818) 654-0411.
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