Financial Trends in California's Workers’ Compensation Insurance for 2025
California's workers’ compensation insurers faced significant financial challenges in 2025, posting a pre-tax underwriting loss of 2.8% of earned premiums, roughly $431 million. This marks a sharp contrast to 2024, where the sector experienced a 0.8% underwriting profit, according to the Workers’ Compensation Insurance Rating Bureau of California (WCIRB).
The WCIRB reported that the state's earned premium for 2025 stood at $15.4 billion, slightly lower than 2024's $15.6 billion. Meanwhile, incurred losses and expenses rose to $15.7 billion, accounting for 102% of earned premiums. Notably, loss adjustment expenses increased from 16% to 18% of earned premiums. Additionally, total incurred expenses climbed from 38% to 40%.
The loss payment distribution in 2025 was nearly even between medical and indemnity benefits. Medical benefits accounted for $5.2 billion, or 52% of total payouts, while indemnity benefits, including vocational rehabilitation, totaled $4.7 billion. This underscores a subtle shift from 2024, where medical benefits had a slightly larger proportion.
Medical expenses remained consistent at $5.2 billion. Within this category, the cost of medical-legal evaluations rose from $450 million to $480 million. However, there was a slight decrease in expenses related to physician services and hospital payments.
Defense attorney costs, a significant part of loss adjustment expenses, increased to $1.09 billion in 2025 from $1.07 billion in 2024. Applicant attorney fees, included in indemnity losses, rose to $506 million, up from $420 million the previous year.
Insurers reported $9.8 billion in total paid losses, excluding contributions to the California Insurance Guarantee Association, equating to 64% of earned premiums, up from 61% in 2024. Slip-and-fall incidents were the most frequent and costly for permanent disability claims, averaging $105,965 per claim. These claims constituted 27.9% of the category.
Amid these trends, insurance industry stakeholders are navigating the delicate balance of employing advanced AI-driven risk assessment tools while ensuring fairness and compliance in pricing models, particularly in auto insurance. Regulatory efforts in states like Colorado and New York strive to refine these models, promoting equity and avoiding bias through enhanced governance and collaboration with actuarial experts.