Workers’ Compensation Classifications
Classifying a business properly is a critical step in the calculation of workers’ compensation insurance premiums. Each business is assigned at least one 4-digit class code depending upon the type of business and the state four states in which it operates.
Each class code is assigned a rate or “lost cost” that reflects the exposures to losses that the business might incur The purpose of the classification system is to group employers having similar operations in a state into classifications that reflect those common exposures. This also ensures the rate being applied to a class code will be similar for the same types of business operations in a state.
To start with, we’ll collectively refer to rates and lost costs as rates. So here’s how this works. In most states, fast food restaurants use the same classification code. The same rate is used to calculate the premium for each business operating a fast-food restaurant in that state the same concept goes for all businesses hospitals supermarkets roofing companies and so on.
On the other hand, other types of operations may have a more diverse employee population class. Imagine how different the risk exposures might be for a business that employs office workers and field technicians. Certain types of perils and risks could be related to one class but not the other. Underwriters take this into consideration so it’s important that an insurance agent assigns the appropriate classification code for each type of employee. Otherwise, the group could be misclassified and the rates might not be reflective of the true workers’ compensation risk. This could drive up costs for both employers and insurance providers.
Proper classification clearly plays an important role because the classification system impacts all businesses from architecture to masonry to zipper manufacturing.
If you’re a new business, you may need help in understanding how workers’ compensation works. If you’re already in business then you should be aware that it’s not a one size fits all proposition when seeking quotes. Depending on the type of business you should understand clearly how classifications work when underwriters evaluate your organizations’ risk.
Beard|Daily can help you close the gaps that may be present in your existing coverage, help you identify vulnerabilities, and navigate the risks. Reach out to us and let us know how we can help.