Workers’ compensation landscape evolves
Workers’ compensation remains a profitable line for insurers, and buyers are benefiting from a competitive marketplace. In the second quarter of 2025, median rates for guaranteed cost programs fell 2.6%; median rates for loss-sensitive programs fell 1.2%, according to Lockton data. (See Figure 15.)
The workers’ compensation market has demonstrated sustained profitability over the past decade, with insurers reporting a collective combined ratio below 90% for eight consecutive years and maintaining substantial reserves through the end of 2024. Nevertheless, emerging indicators suggest potential challenges for the line. Although claim frequency declined in 2024, severity increased 6% for both medical and indemnity claims, according to the National Council on Compensation Insurance.
The industry is also seeing a steady increase in so-called “mega claims” of $2 million or more, linked to a rise in head and brain injuries, motor vehicle collisions, and construction-related incidents, according to a report from the Workers’ Compensation Insurance Rating Bureau of California (WCIRB). “Mega claims represent far less than 1 percent of total workers’ compensation claims yet account for over 2 percent of total loss dollars, in excess of $1 billion each year,” WCIRB said.
Some industry experts are concerned that ongoing reserve releases have enabled favorable calendar year results, even as underlying accident year loss ratios may be deteriorating.
In recent years, steady rate reductions have largely been sustainable due to offsetting increases in exposure. Although pricing generally remains flat for most workers’ compensation buyers, fewer programs are renewing with rate decreases. Insurers are also being careful to ensure the adequacy of retentions.
In California, WCIRB has approved a pure premium rate increase of 8.7%, effective Sept. 1. Several factors contributed to California’s decision to increase rates, including:
- Higher claim frequency, particularly for cumulative trauma claims.
- Rising medical and loss adjustment expenses.
- A projected California combined ratio of 123% in 2024, the highest in 14 years.
While the new California rates broadly affect employers across multiple industries, healthcare, construction, and transportation/logistics employers are expected to see the greatest impact. Employers in other industries with a heavy concentration of workers in California may also see greater-than-average rate increases. Whether other states will implement comparable rate increases is yet to be determined.
Notably, major insurers reported no adverse developments in the line during second-quarter earnings calls. Travelers CEO Alan Schnitzler described workers' compensation pricing as being “about the same,” while The Hartford Chairman and CEO Christopher Swift said the insurer’s workers’ compensation portfolio was “performing exceedingly well.”
In general, market competition remains strong, with no leading carriers exiting the market. Insurers continue to have strong appetites for new and renewal business. However, underwriters are asking more questions, becoming more selective, and appearing less inclined to offer aggressive pricing — particularly for risks with adverse loss experience or limited differentiation.
Emerging claim trends are also influencing underwriting behavior. Mental health and workplace violence claims are becoming more frequent, prompting increased scrutiny, especially for healthcare, education, and public sector employers. Staffing shortages are contributing to more claims related to overexertion and burnout, particularly in construction, retail, hospitality, and healthcare. Underwriters are also asking about staffing levels, training, and safety protocols.
Workers’ compensation insurers are keeping a close eye on economic trends. A weakening labor market would reduce payrolls, leading to lower premium volume. Following years of sustained rate decreases, these dynamics could create challenges for insurers. Such conditions may also add pressure to collateral requirements for loss-sensitive programs, particularly for employers with deteriorating financials or limited risk differentiation.
For employers, renewal preparation is increasingly important. Highlighting differentiators — including robust safety and loss control programs, proactive claims management, and strong employee engagement — can help mitigate pricing pressure. This is especially critical for employers with large California workforces or exposure to emerging risks. Buyers should also note that their ability to continue to leverage workers’ compensation savings to offset liability increases may be diminishing.
1Note: Rate ranges presented here reflect expected renewal outcomes — as of the Lockton Market Update publication date — over the next quarter for most insurance buyers. These should not be taken as a guarantee of any specific results during renewal negotiations. Depending on risk profiles, loss histories, and other factors, individual buyers may renew their programs outside these ranges.
