Workers’ compensation insurance classification codes are three- to four- numerical codes used to assess the risk that comes with different types of work and determine appropriate premium rates for employers.
Generally, the higher the risk a worker faces, the more expensive their workers’ compensation insurance will be. For example, construction workers face more risks compared to graphic designers. And as a result, the workers’ comp class codes for these jobs would reflect the difference in risk.
Different types of contractors also have their own codes and levels of risk. Carpenters, for example, have a different code than electricians, reflecting the unique risks involved in their work.
Who Developed Workers’ Comp Class Codes?
The NCCI (National Council on Compensation Insurance) developed and established the workers’ compensation class codes. NCCI is a significant organization specializing in providing data, analytics, and underwriting services for workers’ compensation insurance.
Do Class Codes Vary By State?
Yes, workers’ compensation class codes can vary by state. Some states adopt the NCCI’s class codes as they are, while others modify or create their unique classification system. These variations can occur due to differences in industry composition, regional factors, or specific regulations within each state.
To learn more about your state’s code system, check out the NCCI State Map.
Do Workers’ Comp Codes Affect Insurance Costs?
When determining the cost of workers’ comp coverage, there are four primary factors that owners need to take into account:
- Payroll: A larger workforce generally leads to higher insurance premiums.
- Type of Work: Different occupations have different levels of risk, which can affect insurance rates.
- Location: Different states have varying cost structures for workers’ comp insurance.
- Claims History: This is reflected in the experience modification factor, which adjusts the premium based on the business’s claims history.
Rates can range from $0.57 per $100 of covered payroll in Texas to $2.32 in Alaska.
Why Is It Important for the Codes To Be Accurate?
Businesses may overpay for insurance if anyone inaccurately reports the codes or face penalties for underreporting their risks.
During an insurance audit, if there is a discovery about anyone using safer codes instead of more appropriate ones, the insurer can retroactively bill the business for additional premiums covering up to three years. The insurer may cancel the policy in severe cases of multiple class code mistakes.
When seeking a new workers’ compensation policy, insurance providers will inquire about any prior instances of being dropped or denied coverage. Answering “yes” to such a question could lead to the denial of the application or an increase in premium rates.
About Insure My Work Comp
Insure My Work Comp provides you with workers’ compensation insurance quotes from top-rated insurance companies. They also help small business owners with a quick and easy way to find affordable workers’ compensation coverage. With Insure My Work Comp, you can also get group disability insurance along with your employee benefit package.