The hallmark of Workers Compensation Insurance is the classification code system. Over 700 class codes exist. The system was designed to differentiate the risk associated with each specific job category.
For example, clerical office employees (Class Code 8810) are much less likely at sustaining a serious workplace injury than an employee that works in one of those higher risk jobs such as in the logging or construction industry. Dangers abound for loggers as they often spend most of their days outside with heavy machinery, often in bad weather and high altitudes.
So when you look across the spectrum of work out there in this world, you’ll see that there needs to be class codes that address the different risk associated with each type of work, and therefore, that’s where the classification codes come into play. The rate for clerical office employees (Class Code 8810) is under $1.00 for every $100 of payroll. Conversely, in the construction industry, rates can be as high as $60 for every $100 of payroll or in other words, 60% of your payroll! So, there’s quite a major disparity among workers comp class code rates!
The classification code system was developed by a company called NCCI (the National Council on Compensation Insurance). NCCI has a talented team that analyzes risk and loss trends of each class code. Based on the risk and those loss trends, NCCI actuaries calculate the workmans comp rates tied to each of those 700+ class code in 40 states. They bundle their findings and produce a work comp rate filing. In turn, NCCI submits their rate filings to each state Insurance Department each year. The filings present either a net rate increase or a net rate decrease. Then, each state Insurance Commissioner either approves, rejects or amends NCCI’s rate filing. For example, NCCI suggested a 20% work comp rate increase in Florida for 2017! In turn, the Florida Insurance Commissioner amended NCCI’s recommendation to a 14.5% work comp rate increase.
It is very important to accurately classify your business as the work comp rates greatly vary from class code to class code and from state to state. Wrong classifications by insurance agents or underwriters often result in premium that is higher or lower than it should be. Payroll is sometimes reclassified at audit, which can cause a large workers compensation balance owed or a credit. If you have questions about class codes please feel free to call us or submit your work comp class code inquiry, we will gladly share our advisement.