Strong results continue, but insurers’ margins are shrinking

For more than a decade, workers’ compensation insurers have reported strong profitability. They continue to report good results today, but some fatigue may be setting in.

In May, the National Council on Compensation Insurance (NCCI) published its annual State of the Line Report, a much-anticipated review of financial and claims trends in state workers’ compensation systems across the country. NCCI is the licensed rating and statistical organization and/or plan administrator in 35 states.

While data compiled by NCCI indicates that the line remains profitable and healthy, insurers’ margins are thinning. For 2025, the private carrier calendar year combined ratio is projected to be 91, the first time since 2016 that it would be above 90.

+5 pts

The NCCI-selected accident year combined ratio also rose five points, from 92 in 2024 to 97 in 2025, its highest level in recent memory, and has risen 16 points since 2016.

Still, it’s important to put recent results in context. A combined ratio under 100 indicates underwriting profitability. The projected combined ratio of 91 for 2025, while higher than in the past, still means insurers are collecting nine points of underwriting profit.

Lost-time claim frequency is estimated to have declined by 2% in accident year 2025, a noticeable deceleration from prior years. That has prompted concerns that frequency gains may no longer keep pace with rising claim severity.

+4%

Indemnity severity climbed 4%, largely tracking wage inflation, while medical severity also rose 4%, outstripping the modest 1.8% increase in NCCI’s Workers Compensation Weighted Medical Price Index. NCCI points to increased utilization as the main driver, signaling a potential shift toward more complex and resource-intensive claims.

Other research indicates rising costs for employers. Workers’ compensation claim costs increased an average of 6% annually from 2022 to 2025 across 18 states studied by the Workers Compensation Research Institute (WCRI), reversing a period of relative stability through 2022. The increase was driven by growth across all major claim components, including medical payments, indemnity benefits, and claim administration expenses.

The 18 states in the WCRI study are Arkansas, California, Delaware, Florida, Illinois, Indiana, Iowa, Kentucky, Louisiana, Massachusetts, Michigan, Minnesota, New Jersey, North Carolina, Pennsylvania, Texas, Virginia, and Wisconsin. Together, these states account for more than half of the total U.S. population.

Medical payments in these states rose primarily because of higher prices rather than greater utilization, while longer temporary disability durations and rising wages increased indemnity benefits. Benefit delivery expenses also climbed, reflecting higher medical cost containment and litigation costs. WCRI found that cost growth was broad-based, with most states experiencing increases in total claim costs and their underlying components.

Of note: On July 10, the California Insurance Commissioner approved an advisory pure premium rate increase of 6.6% for new and renewal policies effective Sept. 1, 2026. This follows an 8.7% rate increase that took effect Sept. 1, 2025, the first such rate increase in a decade.

The 2025 and 2026 rate hikes were proposed by the Workers’ Compensation Insurance Rating Bureau of California (WCIRB), which has reported steadily climbing combined ratios in the state for the last decade. In 2025, the combined ratio was projected to rise to 129, its highest level in more than 20 years.

California’s experience highlights several trends that employers and insurers should monitor nationally. According to WCIRB, recent deterioration in accident year results has been driven by higher claim frequency and rising loss and loss adjustment expenses, even as earned premium has remained relatively stable. WCIRB has also pointed to increasing medical costs and growth in cumulative trauma claims as key contributors to worsening loss ratios.

California’s results may also reflect the influence of a highly developed plaintiffs’ bar and an increasingly litigious claims environment, factors that can increase claim duration, legal expenses, and overall settlement costs. While California remains an outlier in many respects, the trends affecting its workers' compensation system, including rising medical severity, cumulative trauma exposures, and litigation-related costs, mirror broader concerns emerging elsewhere in the country. As claim severity continues to rise nationally, employers should closely monitor developments in California for potential indicators of future cost pressures in other jurisdictions.

On the other hand, the New York State Department of Financial Services announced the approval of a 22% reduction in premium rates effective Oct. 1. “In New York State, workers’ compensation premium rates have steadily declined since 2020, with approved rate decreases averaging 10.3 percent annually over the six-year period,” Governor Kathy Hochul’s office said in a statement. The state's favorable experience has been driven largely by fewer claims rather than reduced claim costs.

NCCI, meanwhile, has recommended a 7.4% average rate decrease in Florida effective Jan. 1, 2027; if approved, it would mark the 10th consecutive annual rate decrease. NCCI noted that lost-time claim frequency in Florida continues to decline, while wage growth in the state is up.

As claim frequency improvements level off and severity pressures from medical inflation, wage growth, and expanding benefit obligations continue to build, employers should not assume these rate trajectories will be replicated elsewhere.