These may also be known as Class Codes, Work Comp Codes, Codes, etc. Today, let us start with the definition of the Class Codes.
As I mentioned in my last post, the errors that we find have a common theme to them, which are Classification Codes. In laypersons terms, Classification Codes are how a Workers Comp carrier and the NCCI or your state rating bureau views your business operation. For instance, a trucking company may have a Classification Code of 7228 – which are short haul truckers.
There is a very important point that needs to be made now. Your Classification Codes are not the same as your SIC codes. Your Work Comp Class Codes should not be based on your SIC codes. Quite often very small employers start out by doing a self-audit on their payroll and job types. When they grow, the Class Codes that are used year after year may have been based on the owner’s self-audit and description of company.
This is not to say that the insured, NCCI, agent, or insurance carrier did anything wrong. Quite often, the Classification Codes are just copied from year to year by the agent. What if you change course in what your business is doing, or if the NCCI or your state rating bureau performs an in-person audit? I am not talking about the premium auditor that does a yearly payroll audit. Do your Classification Codes have quite a few NOC’s (Not Otherwise Classified)?
A great example is a firefighting company that we assisted that was classified as a water carrier. Why? They had Water in their name. As they were a small company, they were audited over the phone year after year. The firefighters now pay over 60% less in Workers’ Compensation premiums after we were able to convince the State Rating Bureau and their insurance carrier of the mistake. Who was to blame? This was just the natural Work Comp insurance process that went slightly awry.
Tomorrow – Classification Codes Part I
Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.