Introduction to the Workers Compensation Classification System

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VIDEO SCRIPT:

Hello, and welcome to the Introduction to the Classification System.

This video is an excerpt from "The Employer's Workers Compensation Classification System.", linked in the description below.

The workers' compensation classification system was developed to provide an orderly method of grouping similar employers where each workers’ compensation class code would reflect job exposures that are common to insureds in their respective industry.

Under the classification system, the business of the insured (the employer) is classified instead of each separate occupation within the company.

Most business operations are classified into what is known as the governing classification.

The governing classification is the single workers' compensation code that most accurately describes operations being performed by the insured.

The classification assigned to an insured can greatly impact the cost an insurer pays for workers’ compensation premiums from the point of classification forward.

The code will be essential in determining the premium rate and is used with the experience modifier (the company’s experience rating), and the insured’s payroll per $100.

Payroll X Base Rate X Experience Modifier = Premium

The workers' compensation classification system is different than the Standard Industrial Classification (SIC) and the North American Industry Classification System (NAICS).

Many insurance professionals do not entirely understand all the nuances of the classification system.

Employers tend to solely rely on the knowledge and expertise of their insurance agent.

This is acceptable if you have an experienced and knowledgeable agent that truly understands the specifics and day-to-day operations of an insureds business.

But many times, nobody knows the business of the insured better than the business owner, and there are many pitfalls that could be avoided if the business owner had a strong grasp of the classification process.

The efforts of even the best insurance agent can be improved with the help of a knowledgeable and informed insured.

Insurance underwriters are much savvier in catching classification mistakes that are costing them money.

They continuously monitor their loss history with each client, searching for red flags that would indicate more dangerous work is being performed than is allowed by an assigned class code.

However, they do not necessarily search for loss history that would suggest the insured is paying for higher risk than their exposure.

Continue watching this series to learn more about the workers compensation classification system, and to equip yourself with knowledge that could help you avoid costly mistakes in the present and future.

In the next video, we will learn about NCCI and the Scopes Manual.

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