Proper Workers’ Comp classification codes, Explained
Even the National Council Compensation Insurance (NCCI) recognizes the complexity of the Workers’ Compensation classification system; however, proper classification is of most importance as it makes a big difference in rates and premiums.
NCCI has created a system of 600 plus classification codes, with the intention of covering workplace exposures. Each code has its own individual rate depending on the risk and level of exposure of the workplace. For example, the considerably lower rate for the code of a clerical worker versus the much higher rate for the code of a roofer. The workplace exposures of these two workers are obviously very different because the odds of a roofer being injured on the job are much higher than those of an office employee; however, sometimes proper classification are not so obvious and can be much more complicated. Small details can make a big difference in which classification code is assigned to an employer, which in turn, as mentioned earlier, can make a big difference in rates and premium.
We already know that NCCI provides us with the classification codes and definition but who really determines the classification codes used on an employer's Workers Compensation insurance policy?
Insurance Agents and PEO Broker Roles
Workers’ compensation class codes are usually suggested by the insurance agent or PEO brokerage firm who is offering the workers compensation to the employer. The agent or PEO broker will typically ask some questions of the employer to try and determine exactly what operations the employer's business performs. Usually, they will be able to look at past policies of the employer for guidance. Later he/she might discuss things with an underwriter to try and determine the correct class code for an employee. Even though agents/brokers can typically have a wide level of experience and expertise in the classification system, the classification system is still complicated and the best advice of an insurance agent or PEO broker may still sometimes not be 100% accurate. Most importantly, the agent's/brokers views on classification are NOT the final decision when binding coverage.
- The Insurance Underwriter:
After the insurance producer submits the worker’s compensation application to the insurance company, it will be reviewed by an underwriter who may or may not agree with the agent, regarding the classifications. Initial underwriting assigned risk plans is often less than thorough, which can set up the employer for unpleasant surprises down the road. This is why the more thorough and transparent you are when filling out your application the better. This allows all parties to give you more accurate expectations on the policy options available to you.
- The Insurance Auditor:
At different points during or even after the policy term has ended, an audit can be performed by the insurance company's auditor. The auditor may make changes in classifications; however, if these changes are made after the policy period has expired, this can produce a very expensive and alarming "shock audit" where ultimate costs of the coverage are far higher than the policy itself would indicate.
Getting your Employee in the Correct Class Codes
At National Workman’s Comp Solutions (NWCS), our Workers’ Compensation Specialists, take the time to review your current workers’ compensation codes in order to make sure you are coding your employees and quoted correctly. Not only do we validate your job classifications directly with the NCCI class code descriptions, we have also developed long standing relationships with the PEO underwriters. With over 15+ years of combined experience in processing and submitting your applications we are able to ensure that the underwriters have all of the necessary information for your employees to be properly classified under the worker’s comp class codes that accurately reflect the scope of work performed to help reduce your rates and premium.
Classification Codes and Statistical Codes for Workers Compensation and Employers Liability Insurance (Scopes Manual).
The Scopes Manual is the industry standard workers’ compensation class code book containing numerical classification codes and the classification phraseology for each code used in classifying workers' compensation risks, including state special codes. The NCCI Scopes Manual is available for purchase from NCCI.
Each classification code is comprised of a group of employers with similar exposures, or types of hazards. A basic classification code denotes a particular type of job duty within a business. Therefore, a class code is the systematic arranging of properties, persons, or business operations into groups or categories according to certain criteria. This arrangement is done to create a basis for establishing statistical experience and determining workers’ compensation rates, and to avoid unfair discrimination by insurance companies. The essential concept of "fair discrimination" is that each risk should bear its fair share of the overall cost of expenses and losses in relationship to its own relevant expenses and hazards.
A Scopes class code is the identifying number for each occupational classification. It is a three-digit or four-digit numeric code assigned to a specific occupation of workers. The code is based on the nature of the work for the employer and employee. It is common for most employers to have two or more class codes on their policy.
For example: Class code 8810 is for a clerical exposure and class code 5445 is for installation of wallboard, sheetrock, drywall, plasterboard or cement board in private or commercial properties. A contractor might have laborers working under class code 5445 and an office person rated under the clerical code.
An example of selected Codes and Rates
The workers' compensation rates listed below for Florida, represent the current insurance rates effective 01/01/2016. Florida rates are set by the state Department of Insurance. Below are some of the common codes for the construction, lawn care, retail, medical and hospitality industries.
One thing to keep in mind is that in addition to the classification code rate, there are two (2) other very important factors that insurance companies use to calculate Workers Compensation insurance premiums. One is the size of the employer’s payroll and the other, the employer and/or company’s claim experience modifier factor (MOD). The modifier or "MOD" is a numeric representation of the company’s claim experience and how it compares to others within the same industry with similarly code classification employees. This factor is used to adjust an insured's premiums up or down. For example, typically every business starts off with a 1.0 MOD score which would reflect that they have no claims or prior worker’s comp history. If the company had claims on their history and the MOD factor went up to 1.25 in this example… typically the carrier would bill the insured premiums 25% above the state rates. However, this can vary per carrier and on a state by state basis.