UPDATES AND INSIGHTS ON THE WORKERS’ COMP. MARKET

While it’s hard to imagine we’re halfway into 2026, it’s not hard to imagine how the insurance market continues to shift with or without our noticing. In this article, we’ll discuss rate indications, key trends, and strategic considerations to help you prepare for what’s ahead. I’ll also do something a little different by calling-out my most recent predilections and seeing which were right and which were way off.

RATE INDICATIONS: A NEW TRAJECTORY?

In my last article from March 2025, I projected that rate indications in WC would continue to decrease. As of last year, WC had been in a soft market and decade-plus run of profitability so it was hard to bet against a change. All states known at that time were still announcing rate decreases in the 2%-7% range although Washington announced a 3.8% increase that January. Frequency continued its decline or remain flat while severity continued to increase.

And yet, whether my desire to hedge and/or provide a fuller picture, I noted that medical costs spiked temporarily at the beginning of 2024 only to return to a lower average soon thereafter, and financial markets were still unstable which might hamper the already low investment return and thus impact pretax operating gain.

Fast forward to present day, and the national picture looks largely the same. WC continues to be one of the most stable commercial lines, with the latest NCCI State of the Line analysis (published May 2025) showing a continued 86% industry wide net combined ratio, with prior accident years still seeing downward reserve development. And yet, a number of states have reported rate increases. California, which we’ll discuss separately in the sections to follow, announced an 8.7% increase in advisory pure premium rates effective 9/1/2025 and again recommends a similar magnitude increase effective 9/1/2026. Nevada proposed a 21.9% increase in loss costs effective 3/1/2026 after a smaller 6.5% increase effective 3/1/2025. And states like New Jersey – though not announcing increases – are announcing decreases smaller in magnitude than prior years. What is driving these changes? The answer lies not with frequency but severity.

NCCI reported that frequency was still declining consistent with the past two decades but lost-time indemnity claim severity was projected to increase 6% to roughly $30K, the highest in the last two decades; medical severity also increased 6%. Wage growth and rising benefits are driving the indemnity side of lost-time claims while medical costs are being driven by higher utilization, physical medical, and medical supplies such that medical costs now make up the largest share of a WC claim (interestingly, that percentage is slightly over 50% for all claims but increases as the size of claim increases).

California presents an interesting study and a return to some familiar figures. In addition to rising medical costs, California has been reporting and continues to report a large increase in cumulative trauma (CT) claims. The prevalence of CT claims is unique to California due to its low burden of proof – requiring only a 1% causation threshold – and the ability for CT claims to be filed post-termination or layoff. Pair this with a large industry advertising for attorney representation, and it is no wonder that 70% of CT claims involve attorneys compared to 21% for non-CT claims.

How this plays out in reality is interesting. With legitimate CT claims, the cost can be multiples of a similar claim, due to said litigation, more complex medical evidence, and thus lengthier claim durations. And yet, of note is that CT claim frequency tends to increase during economic downturns. The conventional understanding is that California may be subject to greater reporting of less complex CT claims when the economy seems most uncertain. In these cases, CT claims may ultimately settle for at or less than the average severity of the broader book.

What this looks like in any particular risk base may vary considerably. In some cases, California frequency and severity may increase due to the disproportionate impact of CT claims. In others, California frequency may temporarily jump but soon return to more normal levels for the same accident year, with little to no impact on average severity.

NEXT STEPS

What can an employer and/or risk taker do to get ahead of a potential hardening WC market and/or focus on CA CT claims?

AI. AI has made significant strides in the claims management process and SIU, able to cogently process piles of segmented information into a cohesive timeline and story – perfect for those looking to identify potential large risks and thus focus on better serving injured workers.

Actuarial. Have more frequent discussions and evaluations of your risk program, focusing in on specific concerns. Talk to your actuary about shorter or mini-studies that can help you better monitor trends without ponying up for full actuarial analyses. And check your own actuarial reports to ensure your actuary is properly reflecting the changes in the current WC environment.

Partner Communication. What AI cannot do is gather your vendor partners together and work better together. Consider meeting monthly or some regular cadence to share insights and execution until the worst is over.