What Is a Workers’ Comp Class Code?
Does your company need Workers' Compensation insurance? Do you want to learn more about how insurance rates are evaluated? Are you knowledgeable about Workers’ Comp class codes and how it can affect your rate?
If you want to learn more about where your business ranks in terms of the Workers' Comp class code, you’ll want to keep reading. We will go over what Workers' Compensation class codes are and how it can determine the cost of your insurance policy.
Workers’ Compensation Class Code
Workers' Comp class codes are three to four-digit numerical codes assigned to over seven hundred businesses and job types. These codes represent small businesses and professions where employees could have exposure to work-related sicknesses or injuries. Insurance providers who offer Workers' Compensation insurance use these class codes to determine how risky your business is and how much they will charge for insurance.
Are These Codes Necessary?
Developed by the National Council on Compensation Insurance (NCCI) and other state WC rating bureaus, these Workers’ Comp codes are necessary so that insurance carriers can fairly distribute the costs of Workers’ Comp insurance across all employers.
Companies with a higher workplace risk are typically charged more for their coverage than those with fewer risks. If these codes were not in place, companies with different levels of workplace risks would likely pay the same amount for coverage.
Workers’ Comp Class Codes and Rates
As mentioned earlier, the risks of your company are associated with a code, but did you know there are two other significant factors that could impact your rate? Workers' Compensation insurance rates are determined by the risk of your company, your payroll, and experience modification factors.
Workers’ Comp Classification Model
When determining your rate, the insurance company will utilize a corresponding class code to set a base rate for your line of work. After further reviewing your company, the insurer will adjust your rate depending on if your company has greater or less risk than those within the same industry.
Payroll
Workers' Compensation costs also depend on how many employees you have in your workforce and your annual payroll. It is extremely important that you report your payroll accurately because the amount that you declare could affect your Workers' Comp rate.
When calculating your rate, your insurer will ask you to estimate your upcoming payroll for the following year. That estimate determines your forecasted premium.
If you under or overestimate your payroll, you run the risk of impacting the cash flow of your business in the event of an insurance audit. Insurers audit businesses after the policy expires, to ensure that their estimated policy premium is accurate.
Experience Modification Factor
An experience modification factor, also known as experience mod, is calculated by the NCCI or other state WC rating bureaus and is based on your claims/loss history. This factor is a direct reflection of your workplace safety compared to other businesses within your industry. If you receive an experience mod score of 1.0, your business is considered an industry average.
If the score is more than 1.0, your business is considered a debit mod. A debit mod means that your losses are more significant than the average company in your industry, so you may have to pay more for insurance.
If your mod is less than 1.0, this means that your losses are less than average. A mod less than 1.0 is a credit mod, and you could receive a discount on your premium if your company has a score of less than 1.0.
It is important to note that you won't have any history of claims if you are new in business. Until you have an experience mod score, you may have to pay more for Workers’ Comp insurance. Over time as your business gains tenure and experience, you can have your policy reevaluated for a better rate. Eligibility for experience mod factors are based on NCCI and state WC rating bureau rules, so you may not be eligible for an experience mod right away.
Comp Codes for Each State
Workers’ Comp class codes are not the same in every state. Some states operate with monopolistic or independent class codes. This means that these Workers' Compensation class codes vary based on the state's own rules and regulations.
Monopolistic states are:
- Ohio
- North Dakota
- Wyoming
- Washington
If a state has its own set of codes, then it usually will not follow the code system created by the NCCI. Other states that are considered independent are California, New York, New Jersey, Michigan, and Indiana. Make sure to research your state's code system when you are shopping around for Workers’ Comp insurance for your company.
NCCI Workers’ Comp Rates
If you are looking for more information on your state's class codes through the NCCI, you can check it out on their website. They have a great online tool to help you locate your class codes and other related content for your business industry.
Best Workers’ Compensation Policies
Without a doubt, if you run a business with employees, you may want to consider Workers' Compensation insurance. Now that you are knowledgeable about Workers' Comp class codes and how they can affect your rate, it is time for you to obtain the best policy for your business.
If you are looking for more information on Workers’ Compensation or for a Workers’ Comp policy, reach out to us now! We can customize your coverage to meet your business needs.