The U.S. workers’ compensation insurance market continues to evolve, with rising medical costs, cumulative trauma litigation, and reserve adequacy concerns driving significant changes, and carriers face increasing pressure to provide solutions that best address these challenges.
One of our wholesale partners, Risk Placement Services (RPS), has recently released its 2026 Workers’ Compensation Market Outlook, highlighting key trends that are reshaping the industry, including medical inflation, litigation challenges, and regulatory shifts among key states. We sat down with Irina Simpson, EVP — Workers’ Compensation at Gallagher Bassett, and Patrick Edwards, Area SVP — Workers’ Compensation at RPS, to explore how carriers can effectively manage evolving risks.
What factors are driving changes in the U.S. workers’ compensation market heading into 2026?
Irina Simpson (IS): When speaking about workers’ compensation trends, it is important to understand their impact on claim severity. Several economic and regulatory factors come into play, starting with how businesses, governments, and various agencies are reevaluating their budgets, expenditures, and financial outlook and are changing their approach to claims as a result. While we continue to see a decline in frequency, the cost of medical care is rising, leading to increased severity in claim costs.
Another notable trend is the rise in mega claims, elevated through increased medical costs. These claims require more resources, faster and more comprehensive intervention, and higher caliber claims expertise to manage. With medical advances throughout the world, survivability and recovery rates are improving, but this requires longer and better lifetime support.
Patrick Edwards (PE): As Irina mentions, mega claims — fueled by rising jury damages are amplifying claim severity across states. The phenomenon of these increased jury verdicts is in part attributed to social inflation, which is driven by many contributing factors, including:
- Desensitization to large verdicts and corresponding media impact
- Negative public sentiment and corporate accountability
- Erosion of tort reform
- Attorney tactics and litigation funding
So, adopting a multifaceted approach to counteract these items is likely to yield the most significant results. Measures could include leveraging advanced data analytics to prevent and predict claims with high jury damages, exploring alternative dispute resolution methods, and tapping into partners with specialized expertise who can assist in mitigating risks by providing access to additional support for policy holders, such as training, resources, and tools.
IS: I agree, Patrick. Data analytics and technology are powerful tools for mitigating increasing claim severity, specifically in identifying co-morbidities and psychosocial factors in developmental cases that may become severe.
Regarding the increasing frequency of severe claims, historical claim benchmarking and analytics provide carriers with insights into emerging trends and patterns that contribute to social inflation, assisting in making informed decisions and developing strategies to overcome these challenges.
In addition, predictive modeling can pinpoint potential high-risk areas, allowing carriers to stay ahead of the curve, while performance analytics play a crucial role in facilitating more informed underwriting decisions.
In the report, California is highlighted as a state at the forefront of workers’ compensation trends. What can the industry learn or expect based on the claims data we’re seeing there?
PE: California represents nearly a quarter of the U.S. workers’ compensation market and produced an accident year combined loss ratio of 127% in 2024 for California workers’ compensation insurers, prompting an 8.7% pure premium rate increase, the highest in more than a decade. This signals the emergence of a potential tightening market, and underlying issues such as escalating medical costs, increased severity of indemnity claims (especially the surge in complex claims like cumulative trauma), and higher litigation expenses versus a workers’ compensation premium stagnation that has not kept pace with rising costs.
IS: As Patrick shared, the recent rate increases indicate a shift in the industry (albeit exclusive to California for now) in terms of exposure trends. We have to be prepared for the potential subsequent shifts in regulations across other bellwether states, particularly in how they affect outcomes as it relates to cost, access to care, compensability, and even presumption.
The industry has been used to years of declining frequency and a soft workers’ compensation market. However, in some states, like California, the trend appears to be reversing. Moreover, the industry must be mindful of the trends as it relates to the rise in cumulative trauma cases, expansion in compensability definitions, and changes to presumption of laws across states, among many others. These trends may influence frequency and severity trends as well as rate changes beyond California.
How are factors like mental health and access to care impacting medical inflation in workers’ compensation?
IS: Looking at the injured worker experience, mental health continues to shape how we approach claims. Recovery is a holistic journey, and whether laws change regarding mental health’s compensability or because we serve with empathy first, we account for the whole person while working toward resolution. Refining and adapting our approach to mental health and addressing injured worker needs holistically will remain a priority for us. This is a key need across the industry.
Another trend worth mentioning is the challenge of accessing healthcare, especially in rural areas. Hospital closures and consolidation, decreases in graduating Primary Care Physicians, an increased reliance on alternative providers, and providers opting out of traditional PPO networks are major concerns, especially as the cost of care continues to rise regardless of these additional factors.
PE: Medical and healthcare inflation continues to drive claim severity, with the Workers’ Compensation Weighted Medical Price Index (WCWMI) showing inflation of about 2% to 3.5%, according to the report.
It will be important to continue to watch the frequency trends as well, which have seen positive results over the last decade. As private insurance premiums are likely to rise and individuals may be opting out of insurance altogether or choosing high-deductible plans that are difficult to afford, there may be a potential shift of medical costs towards a no-fault system like workers’ compensation.
How does the increased cost of medical care, or the lack of healthcare resources, affect claims management? And what strategies can carriers use to stay ahead of these challenges?
IS: The restriction to care and associated costs has the greatest impact on the injured worker and their recovery. We anticipate that individuals in rural and more distantly placed areas will not be able to access care in a timely manner or may rely on alternative medical sources for care, leading to potential delays in preventative care and/or following an injury. In both instances, this has the potential to increase the severity and complexity of cases once they occur. We will need to continue our focus on early intervention, employee advocacy, treating the whole individual, and developing comprehensive treatment plans that address co-morbidities, psychosocial factors, and mental health.
PE: Navigating the constantly shifting and potentially tightening workers’ compensation market requires proactive strategies, early client engagement, and comprehensive market knowledge. Looking ahead, staying updated on state-level legislative changes, such as presumption laws for mental health injuries and hybrid work compensability challenges, is vital for adapting to market conditions.
The 2026 Workers’ Compensation Market Outlook delivers expert insights from RPS specialists who work in this market every day. From the impact of medical inflation and presumption laws to the growing importance of predictive analytics, this report can help guide readers toward smarter risk management and better coverage solutions.
Download the full 2026 US Workers’ Compensation Market Outlook here.
