Insurance premiums are determined by several key pieces of information, including workers’ comp codes. Because these codes signify the level of risk your client represents, some codes are more desirable for insurers than others. Read on to learn why.
Workers’ comp class codes, also called classification codes or workers’ comp classification codes, are three- or four-digit codes used to estimate rates. Insurance companies use these codes to categorize businesses by how risky their operations are so that carriers can estimate the cost of insuring them more accurately. By grouping similar businesses, data on workplace injuries and workers’ comp claims can be analyzed. Then, that data is used by the rating agency to determine the relative risk associated with that type of work. It then assigns a rate based on recent losses (claims that have been filed and paid out).
What should agents look for in workers’ comp class codes?
Some states have their own workers’ comp codes, but many states use the codes set by the National Council on Compensation Insurance (NCCI), an independent organization that gathers and analyzes data on workers’ compensation insurance.
Workers’ comp class codes are important because they directly affect how much your client will pay for coverage. Clients who take on more risk—such as a construction company or transportation service—will start with a higher base rate and pay higher premiums.
While rates are specific to each class code, statewide rates are often raised and lowered at the same time and proportionally, based on a percentage. In Indiana, for example, a plumber (NCCI code 5183) will pay a rate of $1.68, while a clerical worker (NCCI code 8810) will pay $0.35.
In general, the formula used to calculate a client’s workers’ compensation premium:
Workers must be classified properly since this information will be checked during your client’s annual workers’ comp audit. An audit helps ensure that your client paid the appropriate amount for coverage. The auditor will confirm your client’s business operations and workers’ duties to check that the estimates of risk match with the actuals.
Why are some more desirable than others?
As you can understand, insurers typically have a higher appetite for businesses in lower-risk industries. These preferred industries mean higher hit ratios for your submissions. Companies in preferred industries enjoy more competitive pricing and greater retention representing your best opportunity for long-term profitability. At Pie, we call this our Success List , but each carrier has a target list of class codes that are preferred by underwriters.
You can also take a look at Pie’s Preferred Class Codes—when submitting for codes on this list, you don’t have to submit loss runs, another way we’re making workers’ comp as easy as pie.
Do you have clients on Pie’s Preferred Class Code list? Take a look!
Thanks for reading our educational resource! Any above reference to a specific company, method, or product is meant for educational purposes only and is not specifically endorsed by Pie.