It's very important that the work comp class codes on your policy reflect your business operations and often the work processes that you perform in your business. Mistakes and errors found in the classification of a business operation can lead to thousands of dollars in overpaid insurance premiums. In this section we will look at some of the more common mistakes made and how they effect the cost of workers compensation insurance.
It's The Wrong Workers Comp Class Code!
This is an easy one...and also one of the hardest to detect an error. In some cases there are over 700 different class codes to choose from. Some are pretty easy to see the difference like between a roofing contractor and a drug store employee. Some are very difficult to tell the difference like between a precision machine shop and a standard machine shop. What you think is correct could just as well be wrong. Just saying the code is wrong won't hold water, the classificatiion process is complicated and so very important. So while using a wrong work comp class code is an easy target a truely wrong code can be very hard to detect and correct.
Classification code errors can be found within a variety of differing categories. Let's look at a few:
Obvious Wrong Code Applied -
As mentioned above, the seemingly most obvious classification code error is when a blantant error exists in the classification. Like the drug store and roofing contractor. These types of code errors are most generally of a clerical type error. Where somewhere in transposing the correct code into the policy or audit, an incorrect code number was used. For example the code should have been 5551 roofing and 5221 concrete which carries a much lower rate per 100 than the roofing code was incorrectly inserted. These tpes of errors are pretty easy to correct. But if they are not identified and corrected, the resulting unexpected additional premium the employer will face may be devastating. That's right, just because an error or mistake is made in the application of the code doesn't mean it won't be corrected
in the future!
Misintrepreted Classification Code Applied -
Incorrect intrepretation of the scope of a classification code and use of a wrong class code occur with a regular frequency. We've written a great deal about the difficulty in identifying a correct classification for any given business owners operations and how mistakes made in the application of a workers compensation class code can easily lead to incorrect premiums paid by the emloyer. We would venture to say that misintrepretation of code descriptions are a very common error. Literal reading of classification code descriptions will lead to correct intrepretations. Meriam Webster defines "literal" as with exact equivalence: with the meaning of each individual word given exactly. We've seen it often when the reader of a code description will impart their own intrepretation into the reading of the description thus skewing the actual description. Often times the skew will be in favor of their individual needs or desires as to the outcome of the intrepretation. Code descriptions are to be taken literally. Just keep that in mind if you're ever given the opportunity to read a code description.
Failure to Follow the Phraseology of the Classification Code -
Each classification code will include descriptive wording, other wise known as the phraseology, that indicates how the code is to be applied. The phraseology of a class code will provide its user with answers as to how other class codes that may typically be found within the business are to be applied. For example lets take a Missouri risk - AUTOMOBILE SERVICE STATION & DRIVERS - in this example the class code description or phraseology included drivers. Drivers is one of the standard exception classes which may under normal circumstances be separated from the governing classification in this case, Automobile Service Station. However since the governing class code specifically includes DRIVERS, the normal separation is not allowed. Certain classifications will also include the Clerical operations within their governing code description. This often causes trouble since Clerical will often carry a much lower rate that other governing classifications. Be sure to read the next section about clerical code issues.
Code 8810 and Code 8742 -
Two work comp codes that cause many problems are code 8810 commonly known as clerical and code 8742 commonly known as outside sales. These codes are quite often misused. They are part of whats known as the standard exception codes. Workers comp codes that may be used in conjunction with most others. Of course these codes carry rates that are generally very low especially when compared with many governing classifications. Over the years we've observed many clients who get in trouble by having certain employees misclassified into these codes only to have the misclassification discovered by an auditor at the end of the policy period or when presented with a significant additional premium bill after the audit. So what makes these codes a problem? Sometimes it's an agent who's not really familar with the rules of classification who mistakenly puts certain employees into code 8810 or code 8742. A good general rule for the use of clerical is to keep in mind that if the employee who is classified into clerical has any interaction with the employers customers, if they take money from customers, or if in their job duties they perform any job function of the governing classification then they will correctly be moved into the governing class at audit. A move that may cause the employer to suffer an unknown additional cost for his workers compensation insurance. These codes are valuable and they serve a function, but they are abused and when it's audit time savy auditors will catch the abuse!
You must keep in mind that classification codes are all about details and specifics. The code descriptions themselves are the primary source for determining their correct application. It's often that we are faced with a code problem where a NOC classification has been used on a policy when a more descriptive or more specific classification exists. NOC codes serve the purpose of creating a more broad inclusion of operations. Where as the specific codes are just that, specific. Most problems dealing with NOC classifications may be found within the "Store" categories of codes. "Store" includes an extrememly large number of specific code representations. You will see "STORE - RETAIL - NOC" in the phraseology on a policy when the store NOC code is used. Here's the problem and what we mean by this.
These are some of the typical specific categories found in the "Store" classification codes:
Florist & Drivers
Furniture & Drivers
When an NOC classification is used and there exists a more descriptive specific code, it is the more descriptive specific code that will ultimately be used. It's the difference in rates, causing incorrect premiums, where the problem exists.
Analogy for Classification of a Business -
What happens when there is no clear, obvious, classification code that should be used for a business? Then the business is classified using analogy. Anology means "a comparison between two things - a thing that is comparable to something else in significant ways." And that's basically how the classification would be approached. You would need to drill down into the actual work processes found within the business in question. You would need to consider the materials the business makes, uses or handles. You would need to consider the methods and tools and facilities in use by the business to conduct its operations. You would then compare those items with other classification code descriptions and in some justified manner come up with the classification code that "best describes" the business in question. We often are brought into cases where there are no existing descriptive class codes for the business in question. Where in the analogy applicaiton of classification there has been a mistake in either understanding the details of the business and a more accurate classification actually existed. These situations are at best difficult! But they do occur with some frequency.
Classification of an Owner or Corporate Officer -
We'd venture to say that most people would think that the owner of a business would be classed into something like clerical or sales or some other low cost code. Most times this is not the case. While many insurance agents, those who usually are the first to assign class codes to a policy, will always try to put the owner in a lower code, upon audit their payroll may be changed to the correct code, possibly the governing classification of the business. This can be a pitfall and something that needs to be watched and questioned. For the most part the owner of a business should be classed into the general classification of the business and rarely will they actually qualify for the clerical code.
How do you know if you're paying too much in premium?
Without a workers compensation review, you may never know if you're overpaying for workers comp insurance. Insurance companies go by rules when pricing and auditing a workers compensation policy. Complicated rules and guidelines established by advisory organizations like NCCI and others. Without a working knowledge of those rules it's almost impossible to determine if your policy is calculated wrong. Correct application of those rules lead to fair, correct premium charges.
Are workers comp rules being properly applied?
Rules and regulations for the proper classification and pricing of a workers compensation policy are very complicated. They are found in reference materials such as "Rules of the Basic Manual" and the "Experiencing Rating Manual" both by NCCI. Those states who do not follow NCCI as their rating authority publish their own manuals or follow some hybrid combination of rules made up of a combination of NCCI and their own. It's virtually impossible for an individual employer, even an employer with on staff or contracted risk management consultants, to keep abreast of the many rules that must be followed. Rules that have a direct impact on the pricing and premium for workers comp insurance.
That's where we fit into the picture! Our professional consultants are experienced in working with these rules everyday. Our consultants have paid their dues with experience found ranging from workers compensation company employee status to former NCCI employee status and insurance agency principal. It's our experience and credentials that makes us different from other workers compensation consulting groups. The kind of experience you need on your team!
You will find we provide our workers compensation consulting services to a broad range of clients including:
Our Workers compensation review is easy. We keep things simple for you. Just contact our office, email or call. We'll talk about your situation and find out why you think you have a problem. We'll discuss which or our programs may be of assistance to you then we'll send you our service agreement and authorization forms for your signature and make arrangements to have you send the policy documents we need review either by email or fax. Once we receive the items back we'll assign our consultant and be in touch with you to review your case and further discuss our findings.
If it's a code problem you're having, then use our affordable Express Code Review Service, designed specifically for the small to medium size employer.
Contact us before your next audit and take advantage of our Pre Audit Review Program (PAR)! A program designed to work with our Express code Review that assists you in preparing for your audit to make sure the rules of audit are working in your favor!
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