General liability (GL) insurance is among the most common policies in the industry. It is used by businesses to cover property damage and injuries to other parties. For insurers to determine how risky a business may be for liability, they utilize a series of general liability class codes.
General liability class codes are a series of numbers used to classify businesses by their risk level. This is done through tools like assessments and loss runs reports. Once the insurer determines the level of risk, a code is assigned. Then, the company’s policy is assigned the proper rates, discounts, and coverages.
How GL class codes are assigned depends on the type of business. For instance, a consultant who risks a business’ revenues is assigned one type of code. Meanwhile, a construction worker who is prone to a greater chance of injury is given a different class code.
This is unlike other policies. For some, it’s the location that determines the amount of risk. For example, a bookkeeper who works in an office environment has less risk of being injured or killed than a bookkeeper who works on an oil rig. With GL insurance, the codes are assigned by the service and their corresponding hazards.
Some internet sites allow businesses to review GL class codes. However, these sites can’t say for sure what risk level an insurance company will assign a company. That is up to the insurer’s underwriters and what they consider. They review loss runs and other factors to assign a code to a certain business.
GL class codes aren’t only used to determine coverage amounts and premium rates. They’re also applied when the insurer denies protection. This is called exclusion.
An instance of this is within the construction industry. A business might be covered within a certain height range for buildings. If someone files a claim for poor construction and it falls within the insurer’s limits, then the business is covered.
However, if someone claims improper building on a project that goes beyond those levels, the insurance company might exclude it due to the assigned GL codes. As a result, the company will need to pay for those damages out of their own pocket.
As with other policies, the greater the risk of continual reimbursement the more the insured pays in premiums. Then again, this might not happen if loss runs reports reveal the claims are separated by long stretches of minimal action. In other words, there are only one or two claims for each year reviewed rather than six in a 12-month period.
In this case, while the GL class code reveals the business is at the high-end of risk assessment, it might pay a lower premium or receive discounts for its good record. Nevertheless, if their claims are high, they will pay respective premiums or be denied coverage.