Workers compensation classification codes are a three or four digit system assigned by either a state rating bureau or the National Council on Compensation Insurance, Inc. (NCCI). Generally, these class codes are used to differentiate various job duties performed by employees within an industry. Most classification systems contain hundreds of unique codes that provide premium and underwriting guidelines for workers compensation insurance.
A basic code denotes a specific industry such as manufacturers, retailers and wholesalers, restaurants and truckers. Employers are grouped into classification codes based on similar exposures or hazards related to job functions. Certain criterion is used to arrange business operations or people to have a basis for gathering statistical experiences. The information gathered helps to determine workers compensation insurance rates.
For insurance companies, this establishes a fair discrimination system. Proper classification allows a fair share of expenses and losses based on risks. This system highlights the importance of correctly classifying a business.
Proper classification is essential to provide adequate workers comp insurance coverage at fair rates. Identifying the right risks associated with a particular business enables the insurance company to charge a rate commensurate with exposure. Incorrect classification can lead to having the wrong policy for a business. In extreme cases, a business could shut down after an accident because of inadequate coverage.
Incorrect classification leads to rates that do not adequately cover exposures. Therefore, reported losses are inaccurate and skew the rating structure. Many policy holders find that they are underpaying or overpaying for coverage. Incorrect classification codes costs employers upwards of thousands of dollars each year.
Consequently, it is important for the business owner or decision maker of a company to understand the different codes. Doing so can ensure employees are classified correctly and money is saved on premiums.
Workers Comp Insurance for Manufacturers, Contractors, Retailers and Wholesalers, Restaurants and Truckers
Manufacturers must pay close attention to situations that can put them out of business. Typically, class codes are applied based on the type of manufacturing business. Sub-codes may also apply for specific industries such as box or cement manufacturing. A different rate applies based on each manufacturing group and worker.
Contractors face extreme risks in dangerous environments and are subject to physical injuries. Workers compensation protects contractors’ well-being and ensures they receive proper care if an injury occurs. The cascading affect of using the right classification codes to obtain insurance coverage covers medical expenses, a loss of wages and disability.
Retailers and Wholesalers
In general, workers compensation insurance is significantly less than coverage for other industries. Retail and wholesale codes may apply to stores such as small chains, auto parts store chains and big box retailers. It is important that codes are appropriately assigned if a cashier is injured while performing a task outside his or her scope of duties.
Insurance companies usually rate workers comp coverage for restaurants based on past losses. Restaurant owners can reduce their exposure by implementing policies that prevent some of the common hazardous conditions.
Accessing risks for trucking companies can be difficult for the insurance company. As a general rule, the insurer will use a higher state rate if the trucking company is headquartered in a high rate state. When headquarters are in a low rate state and most accidents occur in other states, the insurer may use a premium debit. This increases the premium to a profitable rate for the insurance company.