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Workers Compensation: The Anatomy of a Class Code Rate

June 30th, 2011

Pricing workers compensation premiums relies on a complicated classification system of job definitions designed to accurately reflect workplace exposures. Specific job classifications are assigned a four-digit number – a class code – each of which carries its own rate for the purpose of calculating workers compensation premiums. Simply put, different work exposures generate different rates. The class code for high steel construction workers carries a much higher rate than the code for clerical workers, for example.

The majority of states use the classification system devised and maintained by the National Council on Compensation Insurance (NCCI), an independent advisory organization. It consists of approximately 700 different classification codes and definitions, which are published in the so-called Bible of workers comp class codes, the “Scopes Manual.” Because it is copyrighted material, this information can only be purchased from NCCI either in print form or via on-line subscription. Several states – California, New Jersey, New York, Delaware, and Pennsylvania – do not use the NCCI classification system, opting for their own classification systems instead. While Texas licenses most of the NCCI system, it varies significantly with regard to specific classification rules. Many other states maintain “state special” classifications that vary from NCCI’s definition for certain workplace exposures.

Determining the appropriate class codes is a difficult and cumbersome process. There are specific rules pertaining to classifying employees and placing them in workers comp class codes. Misclassifications happen all the time. Incorrect classification results in premiums that are too high or lower premiums that will be reclassified during an audit, resulting in a large audit bill. Class codes are assigned or modified by insurance agents, insurance company underwriters, insurance company auditors, or a representative of the NCCI or other advisory organization.

Mistakes are often discovered during a workers comp code review. Unfortunately, fixing an incorrect code is easier said than done. To resolve the issue, contact your insurance agent. If they are unwilling to change the code(s) in question, contact the insurance company directly. The underwriter will review your workers comp codes for accuracy. If you still don’t get anywhere, you can appeal the code to your state’s advisory organization. The NCCI may inspect your workplace to determine the proper workers comp class codes. This inspection comes at a cost, however, which can be quite substantial. To discuss workers compensation or any other facet of your company’s insurance needs, contact The Foley Insurance Group. We’ll help ensure you are properly protected.

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