California business insurance requirements

California requires workers' compensation from the first employee, and it is one of the few states where every worker also pays into a state disability and paid family leave fund. Comp rates are built from the state's own rating bureau, not NCCI, and the advisory benchmark rose 6.6% for September 2026. On the liability side, fault is split under pure comparative negligence, and the property market is still working through the fallout of the January 2025 Los Angeles wildfires.

Workers' compensation requirements

The Division of Workers' Compensation puts it plainly: "California employers are required by law to have workers' compensation insurance, even if they have only one employee" (DWC employer page). Part-time workers count. Since July 1, 2020, whether someone is an employee for comp purposes turns on the ABC test in Labor Code 2775 (Lab. Code 3351(i)), so a 1099 is no defense if the worker fails that test; see independent contractors and workers' comp: the misclassification risk.

Owners have narrow ways out. An officer or director who owns at least 10% of the stock (or 1% if a parent, child or spouse owns 10%) can sign a written waiver under penalty of perjury stating they have health coverage, and it takes effect when the carrier accepts it. General partners and LLC managing members can waive the same way, and a sole-shareholder officer is outside the Act unless they elect coverage (Lab. Code 3352(a)(16)-(17)). See can owners and officers exclude themselves from workers' comp?.

Contractors face a separate licensing rule. The Contractors State License Board will not keep a license active without a comp certificate or a signed no-employee exemption, and concrete, HVAC, asbestos abatement, roofing and tree service licensees cannot use the exemption at all (CSLB). The current version of Bus. & Prof. Code 7125 expires January 1, 2028, the date SB 1455 (2024) set for ending the exemption for every licensee. Check with CSLB before you plan around it.

Going bare is a crime. A first offense carries up to a year in county jail and a fine of up to double the premium, with a $10,000 floor (Lab. Code 3700.5). The Labor Commissioner can also shut the business with a stop order and assess $1,500 per employee, or twice the premium the employer should have paid (Lab. Code 3722).

California has no assigned risk plan. The State Compensation Insurance Fund competes with private carriers and "shall not refuse to insure" a risk tendered with premium, except for unsafe operations or risks too large for it (Ins. Code 11784). Rates start from the WCIRB, which files advisory pure premium rates and runs California's own experience rating plan. On July 10, 2026 the Insurance Commissioner adopted an average advisory rate of $1.65 per $100 of payroll for policies from September 1, 2026, up 6.6% and below the WCIRB's 10.4% request. The Department cited medical and medical-legal costs, more cumulative trauma claims and rising claim expenses (CDI). Carriers file their own rates, so treat that as a direction, not a price. For the basics, see workers' compensation insurance: how it works.

Disability and paid leave mandates

California runs State Disability Insurance, which pays short-term disability for non-work illness, injury and pregnancy, and Paid Family Leave, which pays up to eight weeks in a 12-month period to care for a seriously ill family member, bond with a new child or handle a military deployment event (EDD). Employers do not pay premiums; they withhold 1.3% of every employee's wages in 2026, with no taxable wage ceiling since January 1, 2024 (EDD rates). Disability benefits run up to 52 weeks at 70% to 90% of wages, capped at $1,765 a week on EDD's current table. Employers may offer an approved voluntary plan in place of the state plan. Any group disability coverage you buy should be written to coordinate with SDI, and multistate employers should read state disability and paid family leave programs: every mandate in 2026.

Commercial auto requirements

California raised its minimums for policies issued or renewed on or after January 1, 2025 to $30,000 per person and $60,000 per accident for bodily injury and $15,000 for property damage, and they rise to 50/100/25 on January 1, 2035 (Veh. Code 16056; DMV). Intrastate property carriers operating under a DMV Motor Carrier Permit need a $750,000 combined single limit, or $300,000 if every vehicle is under 10,000 pounds GVWR, and $1 million to $5 million for hazardous materials (Veh. Code 34631.5). Interstate carriers follow the federal limits in FMCSA insurance requirements and filings for motor carriers. A $15,000 property damage limit will not cover one late-model pickup; most business accounts carry $1 million. See commercial auto insurance: what it covers and what it leaves out.

The business insurance market in California

The California FAIR Plan is the property market of last resort, and its book has grown as admitted carriers pulled back from wildfire zones. After the January 2025 Southern California fires, the Commissioner approved a $1 billion assessment on member insurers so the Plan could keep paying claims (CDI, February 11, 2025). In March 2025 he approved raising FAIR Plan commercial property limits to $20 million per building and $100 million per location (CDI). FAIR Plan coverage is narrower than a standard special-form policy, so many insureds pair it with a difference in conditions (DIC) policy. Earthquake is excluded from standard commercial property forms and needs separate cover. See california's commercial property and wildfire market.

Hard-to-place wildfire and earthquake risks often end up in the surplus lines market. Brokers pay a 3% tax on premiums for California home-state insureds, filed annually by March 1, plus the Surplus Line Association's 0.18% stamping fee, unchanged since January 1, 2023 (SLA). See surplus lines taxes, stamping fees and diligent search. NFIP commercial flood policies top out at $500,000 building and $500,000 contents, and the program is authorized only through December 11, 2026 (FEMA).

Liability law that affects premiums

California has used pure comparative negligence since Li v. Yellow Cab Co. (1975): a plaintiff 90% at fault still recovers 10%. Proposition 51 softened joint liability, so each defendant pays noneconomic damages only in proportion to its own fault (Civ. Code 1431.2); economic damages remain joint. In construction, Civ. Code 2782 voids clauses that indemnify a party for its own sole negligence or willful misconduct and limits what residential builders can push onto subcontractors, which shapes the additional insured and indemnity terms a general contractor can demand. Medical negligence noneconomic damages caps started at $350,000 ($500,000 in death cases) in 2023 and rise each January until they reach $750,000 and $1 million (Civ. Code 3333.2).

Filing deadlines: two years for personal injury (CCP 335.1), three years for injury to real or personal property (CCP 338) and four years on a written contract (CCP 337).

Insurers based in California

• State Compensation Insurance Fund, the state fund, wrote $962.0 million in commercial premiums in 2025 by NAIC market share data.
• Farmers Insurance lists its home office in Los Angeles and wrote $5.87 billion in commercial lines in 2025.
• The Doctors Company in Napa is a medical professional liability specialist ($1.55 billion).
• ICW Group in San Diego writes workers' comp and commercial lines ($1.17 billion).
• Palomar, headquartered in La Jolla, writes commercial and residential earthquake, other property and specialty casualty lines ($890.2 million).
• Mercury Insurance, headquartered in Brea, writes business auto and businessowners policies ($628.2 million).

Where to get help

• California Department of Insurance (insurance.ca.gov): consumer hotline 800-927-4357, TTY 800-482-4833. File a complaint against an insurer, agent or broker online or by phone; the Department also reviews rate filings and investigates comp fraud.
• Division of Workers' Compensation (dir.ca.gov/dwc): 800-736-7401. Its Information and Assistance officers help with benefit disputes; the Labor Commissioner enforces coverage and issues stop orders.
• Contractors State License Board (cslb.ca.gov) for comp certificates and exemptions tied to a contractor's license.

Rules change often in Sacramento. Confirm your obligations with the agency or a licensed broker, and compare states with the workers' comp and benefits requirements by state.