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California Workers’ Compensation Advisory Rate Increase: What It Means for Employers

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On September 1, 2025, California’s Insurance Commissioner approved an 8.7% increase in the state’s advisory pure premium rate for workers’ compensation policies. This marks the first meaningful upward adjustment in nearly a decade and will directly influence how insurers price policies that are renewing or starting on (or after) 9/1/25. For most employers, this means higher workers’ comp costs that need to be taken into consideration as they set 2026 budgets.

While employers cannot change the Commissioner’s decision, they can manage their own risk profile through audits of classification codes, payroll reporting, open claims, and experience modification (X-Mod) factors.

To understand why this increase matters, and why it’s happening now, it’s useful to look at the recent history of California’s workers’ comp rates.

A Look Back: 2020–2025 Rate Trends

2020–2022: Downward Worker’s Comp Adjustments (During Pandemic Era)

  • In the early pandemic years, California saw declining claim frequency as workplaces shut down, elective procedures slowed, and employers shifted to remote work.
  • Lower frequency combined with stable medical inflation produced a string of rate decreases. Insurers priced more competitively, reflecting lower-than-expected losses.
  • In 2020 the advisory pure premium benchmark for policies beginning Jan 1, 2020 was $1.52 per $100 payroll. 
  • In 2021 and 2022 it was $1.45 per $100 payroll

2023: Continued Stability

  • With businesses reopening, the system expected a rebound in claim volume. While frequency did tick upward, it remained below long-term historical averages.
  • The advisory rate held relatively steady, with only modest adjustments, as accumulated system savings still outweighed cost pressures.
  • In 2023 the rate increased nominally to $1.46 per $100 payroll

2024: The Last Decrease

  • In 2024, the Commissioner approved another reduction, citing sustained lower claim frequency and favorable loss development.
  • At that point, California’s benchmark workers’ comp rates were at their lowest levels in decades. Employers benefited, but many experts cautioned that these conditions would not last indefinitely.
  • In 2024 the rate was reduced to $1.40 per $100 payroll

2025: The First Significant Increase

  • In mid-2025, the WCIRB recommended an 11.2% increase in the advisory rate, citing rising costs across multiple fronts. The Commissioner ultimately approved a smaller, but still substantial, 8.7% increase.
  • This reversal reflects cost trends that had been building beneath the surface for several years.

Why Rates Are Rising Now

Several macroeconomic and system-specific forces are converging to drive this increase:

  1. Medical Inflation
    • Medical care costs have risen sharply nationwide, driven by higher provider fees, pharmaceutical expenses, and the increasing complexity of care.
    • Workers’ comp medical costs, particularly hospital and specialist services, are experiencing inflation beyond general CPI levels.
  2. Claim Frequency Shifts
    • After years of decline, indemnity claim frequency has begun to stabilize and even tick upward in some industries.
    • More complex claims, especially cumulative trauma claims, are increasing in proportion, lengthening claim durations and raising costs.
  3. Allocated Loss Adjustment Expenses (ALAE)
    • Expenses associated with handling claims, legal costs, investigations, medical-legal reports, have escalated. These administrative burdens drive up the overall cost of claims even if underlying frequency remains relatively stable.
  4. Macroeconomic Labor Trends
    • Wage growth has been strong in California, particularly in industries with high workers’ comp exposure such as construction, logistics, and healthcare. Since benefits are wage-linked, higher payrolls increase indemnity costs.
    • Labor shortages and high turnover can contribute to more injuries, as less experienced workers enter physically demanding roles.
  5. System Dynamics and Legal Environment
    • California continues to see high levels of cumulative trauma filings, which are costly to adjudicate and defend.
    • Medical-legal evaluations, which are unique to the California system, have become more expensive in recent years.

The Big Picture: Rates in Context

The last decade was marked by historic lows in California’s advisory rates. From 2015 to 2022, advisory rates fell steadily, offering significant relief to employers. This was driven by favorable medical cost trends, declining claim frequency, and structural reforms that took pressure out of the system.

The 2025–2026 increase represents a reversion to the mean. While not catastrophic by historical standards, California’s workers’ comp costs were far higher in the early 2000s, the change signals that the long run of decreases is over. Employers must now plan for upward cost pressure in their workers’ comp budgets.

What Employers Can Do

While no employer can change the Commissioner’s order, you can reduce your individual premium burden by controlling the factors insurers use to calculate your rates:

  • Audit Class Codes: Ensure employees are correctly classified; errors here can inflate premiums.
  • Validate Payroll Reporting: Overstated payroll or misallocated overtime leads to unnecessary premium charges.
  • Manage Open Claims: High reserves on claims inflate your experience modification factor (X-Mod). Proactive claims management can reduce future costs.
  • Explore Deductibles and Credits: Some carriers offer credits or deductible options that can offset part of the increase.
  • Safety Programs: Demonstrating a culture of safety not only reduces injuries but may open doors to carrier discounts.

How Apex Can Help Businesses Budget For Insurance Fluctuations Better

The advisory rate increase effective September 1, 2025, is the first major upward shift in years, reflecting a combination of medical inflation, wage growth, rising claims complexity, and system costs. Employers should treat this as a signal: workers’ comp costs are trending upward again.

Now is the time to take a proactive approach, auditing policies, tightening classification and payroll reporting, and actively managing claims. Doing so won’t change the Commissioner’s rate decision, but it can materially reduce what your business pays in 2026 and beyond.

At Apex, we pride ourselves on being problem-solvers. It’s what we do best.  If you have insurance questions, we will find you solutions. It’s what we do.