In most of the country, workers’ compensation rates are falling. Employers in California are seeing the opposite. Understanding why matters for any business running payroll in both states.

The National Picture: Rates Are Falling

For 2025 and 2026, most states that set workers’ comp rates through independent rating bureaus or the National Council on Compensation Insurance (NCCI) approved reductions, several for the ninth, twelfth, or thirteenth consecutive year:

  • Texas: average loss costs down 11.5%, effective July 2025 — NCCI described the system as “healthy” with medical cost inflation “remained stable.”
  • Florida: rates down 6.9%, the ninth straight year of cuts.
  • New York: loss costs down 13.2%, with employer assessments also trending down.
  • Arizona: down 6.7%, the twelfth consecutive year of decreases.
  • Tennessee: down roughly 2%, the thirteenth consecutive year of decreases.
  • New Jersey, Ohio, and Delaware all approved additional cuts for 2026, continuing multi-year downward trends.

The consistent explanation across these states: stable medical costs, declining claim frequency, and strong carrier profitability. When the numbers support a cut, regulators have been approving one.

California Is the Outlier

California Insurance Commissioner Ricardo Lara adopted a new average advisory pure premium rate of $1.65 per $100 of payroll for 2026 — a 6.6% increase over the 2025 approved rate, effective September 1, 2026. That increase was actually below the 10.4% hike requested by the Workers’ Compensation Insurance Rating Bureau of California (WCIRB); the prior year’s approved increase was 8.7%.

The Department of Insurance cited higher medical treatment and medical-legal costs, a rising number of projected cumulative trauma claims, and escalating claims-adjusting expenses as the drivers behind the increase. Wage growth from a strong labor market has offset some of that pressure, but not enough to flatten the trend.

The advisory rate isn’t binding — carriers set their own final rates — but it signals the direction underwriters are pricing toward, and it has moved up in back-to-back years while most of the country has moved down.

Why the Divergence?

Both California and Texas rely on independent analysis rather than a single national body — the WCIRB in California, NCCI-informed loss costs in Texas. Both are working from broadly similar national trends in medical cost inflation. The difference shows up in claims mix and cost drivers specific to each state: California’s WCIRB has flagged cumulative trauma claims (injuries alleged to develop over time rather than from a single incident) and medical-legal dispute costs as a growing share of claim severity, a pattern that hasn’t shown up the same way in Texas’s loss experience.

It’s worth noting that California’s rate-setting methodology has drawn some outside scrutiny — industry commentators have questioned whether WCIRB reporting fully accounts for negotiated provider discounts when it calculates medical cost trends. That’s a debate for actuaries and regulators to resolve. For employers, the practical reality is the same regardless of which side of that debate is right: California pricing is moving up, and businesses need to plan for it.

What This Means for Multi-State Employers

For contractors and businesses running payroll in both California and Texas, this isn’t a one-line adjustment. A few things worth checking before your next renewal:

  • Don’t assume a favorable Texas renewal means California will follow the same direction — budget each state’s payroll exposure separately.
  • Confirm how your payroll is allocated between states in your experience rating. Misclassified or misallocated payroll can compound a rate increase.
  • Ask your broker whether your experience modifier trend is being driven by claim frequency, claim severity, or a jurisdictional rate change — the fix looks different depending on the answer.
  • Revisit safety and claims-management practices proactively. In a rising-rate state, the businesses that control frequency and severity are the ones that outperform the advisory trend at renewal.

For more on how California and Texas commercial insurance requirements diverge more broadly, see our California vs. Texas Commercial Insurance guide. For the cost side of skipping coverage altogether, see The Hidden Costs of Not Having Workers’ Compensation Insurance.

What We See in the Real World

Clients running crews across both states are often surprised that a good claims year in Texas doesn’t buy them anything in California — the two rating systems don’t talk to each other. The businesses that handle this well treat each state’s renewal as its own conversation, with its own numbers, rather than assuming last year’s trend carries over.

If your renewal is coming up and you want a read on how this affects your specific CA/TX payroll mix, talk to us.