Definition of Workers’ Compensation Class Codes in Business Insurance

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Workers’ Compensation Class Codes

When someone gets hurt on the job, they could potentially face lost wages during recovery time. Workers’ compensation gives employees benefits to help them stay financially afloat while they recover from job-related injuries or illnesses. In many cases, the benefits cover lost wages and normal expenses such as rent and utilities. Should the injury or illness be more serious, workers’ compensation handles ongoing medical bills or, in the case of a death, the costs related to a funeral.

Today’s version of workers’ compensation is slightly more complicated than in previous decades. The types of industries, illnesses, and injuries have increased to the point that there must now be categorizations for them. The results of these categorizations are known as class codes.

What Class Codes Do

Class codes are three- and four-digit numbers the insurance industry uses to describe the worker's condition and the compensation they are entitled. In other words, they estimate rates for employers when a claim is filed.

Normally, these rates are based on the risk connected with each type of responsibility within the company. The greater the danger, the larger the rate of compensation for the employee. This translates to higher premiums for the company.

As an example, a person who works on a computer entering bookkeeping information gets a higher code and a lower-risk category. On the other hand, a worker who installs fiber optic cables throughout a high-rise office building is given a higher risk and a lower code.

Code Use

Normally, insurance companies rely on the workers’ compensation class codes established by the National Council on Compensation Insurance (NCCI). Their responsibility is to gather data on workers’ compensation and analyze it for any changes. If there is a prevalent trend for one type of position, they will consider adding a new code.

In some instances, the NCCI codes aren’t the only ones used. States have the option of creating their own codes for unique positions. For example, some states have unique codes for those who work in the fracking industry.

How Rates Are Calculated

To determine the worker's compensation rate, the insurance company reviews the class code and assigns a base rate for the risk level of work. From there, they adjust the rate depending on the level of danger over the industry average. So, while a bookkeeper in an office building would be a low-risk code, the same person who worked on an oil rig in the Gulf of Mexico would have a higher risk assigned to them.

On top of this, the annual payroll is also included in rate calculations. These numbers must be accurately reported for insurance firms to determine if the rates need to be changed. Should a company inaccurately report its numbers, it could result in the insurer voiding the policy altogether. Furthermore, it will affect the company’s budget if they need to directly pay out compensations.