Most employers are acutely aware of the effect classification codes have upon the pricing of their workers compensation policy. Since each class code used on a policy has its own rate per 100 of payroll it seems most employers are always seeking the lowest cost and many have latched on the idea the best way to do that is to look for a cheaper class code to use. But there can be unknown, hidden problems with this approach. Lets talk about the pros and cons of reclassifying an employers workers into different classification codes.
When an employer asks our company to conduct a workers compensation code review on their business it’s usually because they have some feeling that the classification codes being used on their policy are incorrect. It may stem from increasing costs they have experienced on their policy or maybe from an adverse audit situation where an auditor reclassified their employees after the end of the policy period. Regardless the reason, when an employer seeks out our code review services we take this as an opportunity to educate that employer about the classification system and its pros and cons as being applied to their specific business operations.
When should a classification code be changed?
- When an error was made in the original classification;
- When the employers business operations have changed, new operations have been added or certain business operations are no longer performed;
- When the codes on an employers policy no longer reflect the operations conducted by the business;
- When code changes have been made at audit by an insurance company that are not allowed;
- When class code descriptions have been updated by the governing authority;
- When better codes exist that more accurately reflect the business operations.
- Only after a complete classification code review has been conducted by an independent source!
What are some of the pros of reclassifying workers comp codes?
- A more accurate, descriptive code will better reflect the work processes being performed by the business and will lead to a more accurate rate for the exposure;
- Will lead to better statistical information relating to experience rated issues such as the experience modification rate;
- May lead to lower costs incurred by the employer in the form of lower rates being applied to their policy;
- And there’s more…
What are some of the cons of reclassifying workers comp codes?
- Without a proper code review, reclassification may lead unneccessary higher premium;
- Incorrect assumptions made about codes may lead to problems with the accuracy of experience modification rates;
- Incorrect application of codes by an employer may lead to fraudulent acts of misrepresentation of the facts surrounding the work processes and operations of employees;
The proper classification of job processes are the starting place for the proper pricing of a workers compensation policy. And the starting place for proper classification is knowledge of the system, the class code descriptions and how they apply to an individual employers business.
If you find you’re experiencing a class code problem or need to request a class code review, be sure to seek out a workers compensation consultant, one who specializes in premium and audit issues, to help!