Navigating the Instability of California’s Workers’ Compensation Market: What Employers Need to Prepare For

California’s workers’ compensation market is facing unprecedented challenges, with rising costs, increasing claim liabilities, and regulatory pressures creating a turbulent environment for employers. As someone closely monitoring these trends, I want to share key insights into the issues driving this instability and offer actionable steps for employers to prepare for what’s ahead.

Rising Costs and Underwriting Losses

In 2024, California’s workers’ compensation industry reported a $1 billion underwriting loss, the first since 2014, following a $1.3 billion pretax profit in 2023 bolstered by reserve releases. This shift was driven by a slight decline in written premiums to $15 billion, coupled with a 16.7% surge in losses and expenses, totaling $8.67 billion. The industry’s combined ratio hit 107.8%, with projections for 2025 reaching 127%. Medical expenses, accounting for 33.2% of direct earned premiums ($5.2 billion), and indemnity benefits ($4.2 billion) are significant cost drivers.

For employers, this means higher premiums. An 8.7% increase in advisory pure premium rates, effective September 1, 2025—the first hike since 2015—has been approved. Over 280 job classes face above-average increases, some as high as 25%. Employers should brace for significant rate hikes at their next renewal and adjust budgets accordingly.

The SIBTF Crisis

The Subsequent Injuries Benefits Trust Fund (SIBTF) is becoming a major financial burden. Repealing the SIBTF could save employers over $3 billion annually, according to recent actuarial estimates. The program, meant to compensate workers with preexisting conditions, has grown out of control, with unpaid liabilities as of December 31, 2022, ranging from $12.8 billion to $17.7 billion (discounted) or $18.6 billion to $24.9 billion (undiscounted). Over 18,000 claims from 2022 and earlier remain unreported, adding an estimated $1.4 billion to liabilities.

SIBTF assessments are projected to reach $888 million in 2025/26, a 74% increase from the prior year. Over the next five years, assessments could range from $2.4 billion to $4.8 billion. Insured employers, covering 73% of these costs, should expect rising fees and advocate for reforms like stricter eligibility criteria to curb program abuse.

Fraud and Legal Challenges

Fraud continues to plague the system, with 32 district attorneys splitting nearly $53 million in 2025 to combat workers’ comp fraud, funded by employer assessments. A high-profile case involves a husband-and-wife duo charged with running a capping scheme that referred over 13,467 cases to attorneys, generating $2 million illegally. Such schemes inflate claim volumes and costs, further straining the system. Employers must support anti-fraud initiatives and implement robust internal controls to detect and report fraudulent claims.

Legal battles, such as the ongoing litigation involving Applied Underwriters and the California Insurance Company (CIC), add uncertainty. The First District Court of Appeal upheld the Insurance Department’s conservation and rehabilitation plan for CIC, signaling strict regulatory oversight. Employers relying on such carriers should monitor these developments and diversify their insurance providers to mitigate risks.

Declining Claims, Rising Costs for Self-Insureds

Private self-insured employers paid $17.3 billion in 2024 for indemnity and medical benefits, an 11% increase from 2023, driven largely by a 13.7% rise in medical costs. Despite a decline in new claims (87,360 in 2024 vs. 98,000 in 2022), average paid per claim rose 12.3% to $14,087, and incurred costs jumped 16.8% to $30,985. Self-insured employers should enhance claims management and invest in workplace safety to control costs.

What Employers Should Do

• Budget for Rate Increases: With the 8.7% average rate hike and higher increases in specific classes, review insurance budgets and explore cost-saving measures like safety programs to reduce claims.
• Advocate for SIBTF Reform: Support legislative efforts like Assembly Bill 129, which aims to reduce SIBTF assessments by 20-25%. Push for stricter eligibility criteria to limit program misuse.
• Strengthen Fraud Prevention: Implement internal audits and employee training to identify and report fraudulent claims, reducing exposure to schemes like capping.
• Enhance Safety Protocols: Invest in workplace safety to lower claim frequency and severity, particularly for self-insured employers facing rising medical costs.
• Monitor Regulatory Developments: Stay informed about legal and regulatory changes, such as the CIC case, to anticipate impacts on insurance providers and coverage options.

Looking Ahead

The instability in California’s workers’ compensation market requires proactive measures from employers. Rising premiums, SIBTF liabilities, fraud, and regulatory challenges demand vigilance and strategic planning. By preparing for rate hikes, supporting reforms, and strengthening risk management, employers can mitigate the financial and operational impacts of this challenging market.

Let’s connect to discuss strategies for navigating these challenges and ensuring your business thrives in this complex environment.