The workers’ compensation market entered 2026 from a position of sustained strength. According to the National Council on Compensation Insurance’s (NCCI) 2026 State of the Line report, the combined ratio for 2025 was approximately 91%. This means that for every $100 of premium collected, around $91 was paid out in claims and expenses, continuing a prolonged period of underwriting profitability that has defined the line for much of the past decade.
However, this figure was partly driven by insurers releasing funds set aside for prior-year claims that proved less costly than anticipated.
When isolating the performance of more recent claims, the combined ratio rises to approximately 102%, implying that current underwriting conditions are marginally unprofitable.
Rising medical costs, increasing claim severity and other market trends are putting upward pressure on loss costs and prompting greater underwriting scrutiny, particularly for high-hazard classes. As such, while preferred accounts may continue to achieve rate decreases of -2% to -3%, accounts with higher exposure to workplace injury may experience flat to modest rate increases.
Current Market Trends and Cost Drivers
Medical Inflation and Tariff Exposure
Medical inflation continues to be a key factor shaping workers’ compensation claims costs. The Centers for Medicare and Medicaid Services estimates that national healthcare spending will rise at an average annual rate of 5.8% through 2033, a modest increase on earlier forecasts, and ahead of general economic inflation.
By comparison, workers’ compensation-weighted medical prices have increased more moderately. According to the NCCI’s April 2026 medical inflation insights report, workers’ compensation medical costs rose by 1.8%, well below general medical inflation. Factors behind this more subdued growth include slower price increases or stable pricing in key areas such as hospital outpatient care and physician services, alongside the continued influence of fee schedules that set or limit the rates providers can charge for treating injured workers. While some states have begun updating fee schedules, workers’ compensation reimbursement rates may still lag behind medical cost inflation, particularly in jurisdictions where fee schedules are tied to general inflation. As the gap between healthcare providers’ costs and reimbursement widens, further adjustments to fee schedules may be needed to better reflect underlying cost trends, potentially leading to higher workers’ compensation costs over time.
Additional cost pressures are also emerging. The NCCI’s report found that medical equipment and supply prices increased by 4.1% year over year in March 2026, indicating that tariffs on imported medical goods are beginning to be reflected in the underlying cost of care delivery. Additionally, hospital inpatient care prices rose 3.7%, while a growing share of claims requiring more intensive treatment is adding further cost pressure. As such, strong safety programs and effective return-to-work protocols are essential to prevent workplace injuries from developing into more complex, treatment intensive claims and to reduce exposure to higher-cost care and tariff-related cost pressures.
Mental Health Presumption Laws
Mental health concerns also continue to shape workers’ compensation claims. Traditionally, most states only recognized mental health-related claims when accompanied by a physical injury, and standalone psychological coverage was reserved for first responders, such as firefighters and emergency medical personnel. However, a growing number of states have expanded coverage for pure psychological injuries, such as post-traumatic stress disorder (PTSD), to a wider range of employees. For instance, Connecticut expanded its PTSD coverage to all employees in January 2024, and New York introduced similar legislation in January 2025. This expansion has significant cost implications, since mental health claims typically remain open longer and are more costly than physical-only claims. Consequently, underwriters may increasingly scrutinize workplace mental health risks, particularly in states where coverage for psychological injuries has expanded, which may place upward pressure on pricing. Early behavioral intervention and proactive workplace mental health support may be critical to reducing claim duration and containing costs.
Cumulative Trauma Litigation
Cumulative trauma—injuries that develop gradually through repeated physical stress rather than a single incident—is a growing source of workers’ compensation claims. These injuries, including repetitive stress injuries and musculoskeletal disorders, may be more difficult to diagnose and treat and lead to longer claim durations than acute injuries. The rise of hybrid working may be contributing to this trend, as home-based work environments can introduce additional ergonomic risks.
Illustrating the growing prevalence of these injuries, cumulative trauma claims now account for nearly a quarter of all indemnity claims in California, according to the Workers’ Compensation Insurance Rating Bureau of California. Underwriters may scrutinize certain classes where cumulative trauma exposure is more common, such as construction, warehousing and manufacturing. Employers should consider ergonomic assessments and early intervention programs to identify and address repetitive-stress risks before they develop into more complex, costly claims.
Legislative Risk: Heat Exposure and Workplace Violence
Another emerging area of concern is the expansion of legislative oversight around specific workplace safety exposures, particularly heat-related injuries and work-place violence. NCCI closely monitors legislative and regulatory developments affecting workers’ compensation and identified both risks in a March 2026 report as growing areas of focus.
As climate change increases the likelihood of extreme temperatures, several states are considering regulatory proposals to reduce heat-related risks, including requirements for written heat illness prevention programs, emergency response protocols and employee training. Additionally, OSHA is evaluating a federal
rule that, if enacted, would establish a national standard for occupational heat exposure.
Workplace violence is also receiving increased policy attention. For example, a proposed bill in New York that would entitle employees injured as a result of
workplace sexual offenses to workers’ compensation benefits is currently with the state Senate. Federal lawmakers are also considering legislation requiring certain healthcare and social service employers to implement formal workplace violence prevention programs. Such developments signal a broader shift in how workplace harm is defined, regulated and compensated.
As regulatory frameworks evolve, insurers may increasingly incorporate these exposures into underwriting evaluations, potentially leading to reduced appetite, tighter terms or pricing adjustments, particularly in higher-risk industries.
Looking Ahead
Workers’ compensation pricing is expected to remain favorable, with pre-ferred accounts likely to continue experiencing modest rate decreases as the line maintains its position as one of the more stable segments of commercial casualty.
However, accounts with higher exposure to workplace injury or those operating in jurisdictions with evolving legislative environments may face increased under-writing scrutiny, potentially leading to flat renewals, reduced rate decreases or, in some cases, modest increases.
Organizations should stay abreast of regulatory developments and implement robust safety practices to help secure the best pricing and coverage outcomes.
Contact us today for additional market updates and resources.
Article Published By: Zywave, Inc.
