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NCCI Workers Compensation Codes and Classifications
An Article About Workers Compensation Codes By Randy Sieberg, CIC, ARM, CRM
- An overview of the NCCI workers compensation code system -
- A workers compensation code, simply put, is a four digit number that corresponds with a work process or job description as outlined by NCCI, the national council on compensation insurance. Workers compensation codes are the building block of all workers compensation pricing. Each of the 700 plus workers compensation codes is assigned a rate used in the premium calculation of the policy. Assigned rates are per 100 of payroll or remuneration. That’s what I said, over 700 workers compensation codes in use today!
Take a look at this sample of code descriptions about “Milk”:
How about these, just for a treat…
- Milk – bottle cap mfg. – paper – including printing
- Milk – bottle exchange – all employees & drivers
- Milk – depot or milk dealer & route supervisors, drivers
- Milk – products mfg. NOC
- Milk – supply dealers
Strange? You bet! And this is just the tip of the iceberg when it comes to workers compensation code descriptions used to identify and properly classify a business.
- Oyster processing
- Ostrich farms - & drivers
- Potato chip mfg.
- Cream of wheat mfg.
- Donut mfg. – no consumption on premises & drivers
- The workers compensation code system and classification –
- Workers comp codes are only the beginning part of the overall workers compensation classification system in use today.
The current workers compensation classification system is an organized structure that groups work processes with similar traits together. Grouping work process together that have similar traits allows the rates developed for each code to better represent the actual exposure to loss that those work processes share. This process applies to all types of industries and all types of employers and allows those businesses with similar work processes and exposures to receive similar workers compensation rates.
The workers compensation classification system is complicated. One important point to remember is that it is the business that is classified, not each work process or job found within the business. This process is call the “governing classification code.” Simply put, the workers compensation governing class code is that code which best describes the overall business operation and includes the majority of the payroll of the business. This is a NCCI rule that can be found within their basic manual.
- The relationship between workers compensation codes and rates –
- The workers compensation code for “bridge construction” or “high steel construction” would be assigned a pretty high rate, say $90 per 100 of payroll. The workers comp code for an “doctors office” or “carpet store” would carry a much lower rate, maybe $2 or $3 per 100 of payroll. In these examples it’s easy to see the difference in exposures and how the rates would reflect that difference. The bridge and high steel construction workers have a much greater exposure or possibility of suffering a severe injury as compared to the office or store operations. Of course assigned rates are different and depend on each individual state where business is conducted.
- Who is responsible for workers comp codes -
- NCCI, the National Council on Compensation Insurance is known as the primary workers compensation rating bureau or authority. NCCI, an advisory organization has developed and maintains the workers compensation classification system that is used within the majority of states. However, some states do not use NCCI and have developed their own rating and advisory systems, some very similar, some very different. These are the folks who are responsible workers compensation codes and usually rates in any given state.
- How it fits together –
- No doubt, workers compensation codes and how they are used within the workers comp classification system are important. Grouping of similar job and work processes is a primary function of the classification system and leads to proper pricing of a workers comp insurance policy. And remember…correct workers compensation codes lead to correct workers compensation premiums.
I hope this article will help you better understand the relationship between workers compensation codes and rates. Thanks!
- Publication Date: 05-18-08
- Copyright © 2008 All rights reserved
- Randy Sieberg, CIC, ARM, CRM, has over 27 years experience in risk management and property and casualty insurance, is with Workers Compensation Consultants, an independent workers compensation consulting firm and works with business oweners to discover and return workers compensation premium overcharges by reviewing insurance audits, job classifications, payroll class assignments, experience modification factors and credit applications. Please contact Randy at firstname.lastname@example.org
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