Numbers are important in insurance. Insurance professionals rely on statistics and studies to determine how much risk to assign to activities. Workers compensation insurance is no different. In fact, most insurance companies that offer workers comp insurance rely on workers compensation class codes to determine just how risky, and potentially expensive, certain occupations may be.
Workers compensation class codes are determined by an organization known as the National Council on Compensation Insurance, more commonly referred to as the NCCI. The NCCI is independent; however, it is staffed with insurance professionals. Insurance companies that offer workers comp insurance in most states subscribe to the workers compensation class codes that have been defined by the NCCI. A few states have developed their own classification system, while other states adopt the NCCI program in part.
The NCCI regularly publishes a journal known as the Scopes Manual. In the Scopes Manual, insurance agents will find a complete listing of all current workers compensation class codes. These codes are then utilized by the agent to determine rates and premiums for a company. This is why class codes are so important: they largely determine just how expensive workers compensation coverage will be for a particular employer.
Most of the class codes are based on simple common sense. There are currently about 550 different class codes. It is the job of the NCCI to determine where each form of employment should fall within those 550 codes. It can be generally stated that the goal of the NCCI is to define the overall business in which an employer engages, rather than the specialized duties performed by individual employees. As an illustrative example, a janitor employed in a factory would be covered under the same manufacturing class code as the overall factory and not by a janitorial code.
Workers compensation class codes can make the difference between paying much higher rates and keeping this insurance more affordable. For instance, workers who fall under a clerical classification code would be far less expensive to cover than workers who are roofers. The reasons are obvious. On the job injuries in industries like construction and roofing are far more likely than they are in an office setting. The relatively low risk office environment tends to keep employees safe and puts them at little chance for injury. Clearly the same cannot be said for construction workers who perform labor in undoubtedly risky circumstances.
Occasionally a company is classified in an incorrect code. This can be a very expensive error as it may result in the employer paying premiums and rates that are far beyond what they reasonably should have been paying. The reverse may also happen. If a company is classified in a class code that does not provide sufficient coverage, they may be liable for making back payments as a result of not having paid enough in premiums to date. That is just one of the reasons why it is important for employers to select their insurance carrier very carefully to ensure they are hiring a professional who is knowledgeable enough and experienced enough to be able to accurately classify that employers field of work.
Class codes for workers compensation are not available to the general public for review. They are published and sold via the Scopes Manual, so in order to be privy to such information, an individual would be required to have a subscription. Again, this is why it is so important to seek an experienced insurance professional. Workers compensation insurance is required in most states and having the best coverage possible almost always depends upon finding the right agent.