What are workers compensation class codes? This video explains the following:
1.)What are workers compensation class codes?
Workers’ compensation class codes are codes that the insurance companies use to identify specific categories of work. For instance, you may know the job duties of a contractor by their job title. However, the insurance company knows them as “5606”.
2.) What is workers’ compensation insurance?
Workers' compensation is a form of insurance that provides compensation to employees who suffer job-related injuries and illnesses. In exchange for the possession of workers’ compensation insurance, the state offers a legal surrender of the employee's right to sue his or her employer for the tort of negligence.
3.) Why do insurance companies use workers’ compensation class codes?
Insurance companies need to be able to categorize various types of work into “class codes” to determine workers compensation rates, coverages, and exclusions. For example, a 5606 (Contractor) will have a more expensive workers’ compensation rate than an 8810 (Clerical) employee, because more dangerous work is being performed.
4.) How is workers’ compensation insurance charged?
Insurance companies assign a unique rate to each client based on the applicable class code, the experience and loss history of the business, amount of employees and payroll, and other factors.
The rate is charged as a percentage of payroll applied to the taxable wages paid to employees.
For example, a road construction company might have nine employees that are classified as 5506. Let’s say those employees have a workers' compensation rate of $12 per 100.
That means that for every $100 of taxable wages paid to those employees, the employer is charged $12 for workers compensation insurance. That same company has one 8810 (Clerical) employee. The 8810 employee has a rate of $0.15 per 100. That means that for every $100 of taxable wages paid to that employee, the employer is charged $0.15 for workers’ compensation insurance.
5.) Why is it important to be correctly classified?
In the event of an audit (Or injury that leads to an audit), the carrier may determine that employees were incorrectly classified. If so, the insurance company can retroactively bill the client for up to three years of premium that has been incorrectly classified.
If employees are misclassified, the claim frequency and loss ratios will be out-of-line with the norm for that class code. Insurance companies use statisticians to keep track of unusual loss patterns and payroll ratios. They will figure it out eventually, possibly resulting in the outcome from bullet point above.
Being incorrectly classified can cause insured’s to get dropped by their carrier. Getting dropped puts companies in a frantic rush to find new coverage, meanwhile, the income-producing functions of the business must come to a halt.
When a business then tries to get insurance from another carrier, the first question the new insurance company will ask is “Have you recently been dropped or denied coverage?” If this is true, the insurance company will most likely either refuse to quote or markup the rate due to the increased risk.
As a business, the best way to save money on workers’ compensation insurance is to build a long, trusting relationship with the carrier.
6.) Why do some states have different class codes for the same type of work?
The rules and regulations for workers’ compensation are unique for every state. Most states utilize the NCCI class code system.
With states that use NCCI workers’ compensation class codes, the classifications remain almost entirely the same for each of those states (Except for state specials).
However, some states do remain independent, or monopolistic.
7.) How to use the NCCI State Reference Guide
To see the governing authority for the workers’ compensation class code list of any US state, you can visit the “NCCI State Reference Guide”.
After selecting a state from the drop-down menu, the “State Jurisdiction” row will tell you the name of the organization overseeing the classification system.
Additionally, the “Policy Data” row will tell you the organization that is in charge of reporting statistical data for their correlating workers’ compensation “Statistical Plan.”
8.) What is the National Council on Compensation Insurance (NCCI)?
NCCI is an independent advisory organization that is primarily funded by insurance companies. Most insurance companies use NCCI for various services, such as collecting and analyzing statistical data for workers’ compensation rates.
9.) What is the NCCI Scopes Manual?
The NCCI Scopes Manual is used by insurance professionals (Such as underwriters) to identify the class code associated with each type of occupational work.
10.) How to view a free online index of workers’ compensation codes by state.
You can view the correlating article for this video at: [ Ссылка ]
