Are You Sure Your Employees Have The Right Workers Comp Codes

Workers Comp Codes Determine What You Pay for Insurance Premium

Workers Compensation Classification Codes are a three or four digit code describing what each individual employee does on a daily basis. The codes are either created by the National Council on Compensation Insurance (NCCI) or a specific state rating bureau. NCCI partners with more than 30 states to recommend pure premium rates for Workers Comp Codes throughout the state workers compensation system. The code of each employee is one of the strongest determining factors when it comes to what a insurance carrier charges the business for workers compensation insurance premium. Here are five tips to make sure your business is doing everything possible to control what the business pays for workers compensation insurance.

Small Business Meeting discussing employee Workers Comp Codes.

Create In-depth Job Descriptions

Job descriptions are important when it comes to purchasing all types of commercial insurance, especially workers compensation coverage. The workers comp codes of employees determine what the business pays for work comp coverage. Some employees participate in more dangerous activities than others. Because of these activities, your business must pay more for workers comp coverage for the employees who participate in more dangerous activities. If you have many types of employees who engage in many different types of business activities it is very important to have in-depth job descriptions for your employees. Having all employees classified properly and having well-written job descriptions can save your business a lot of headaches in relation to your commercial insurance policies.

Sure up your operations

Each employees class code is based on the employees operations. The class code will be determined based on your client’s operations, work environment, job description, etc. The more dialed in you have your business, the easier it is to control claims and secure additional discounts when renewing insurance. Many carriers will offer discounts for things like safety programs, return to work programs, defensive driving courses, owning new equipment, and implementing an ergonomically friendly work space. If you have some or all of these aspects of your business and it is documented, you can usually secure a discount on commercial insurance.

Expect Rates to Fluctuate

Rates for commercial insurance vary from state to state and industry to industry. It is important to expect the rates to fluctuate from year to year. There are many aspects that go in to what a business pays for premium that include the workers comp code of the employees, the experience modification rating of the business, the amount of payroll of the business, and the claims history of the business. If one of these aspects changes, it can have a positive or negative impact on what a carrier charges for insurance.

Know Incorrect Workers Comp Codes Can Cost More

Placing the wrong Workers Compensation Classification Code on an employee or a number of employees can drastically impact what your business pays for premium. These discrepancies usually are found during the end of term audit. Mistakes can result in either a credit or debit to your policy. These discrepancies can happen when you have employees who work in multiple departments. Working with your Accounting Department or an outside Payroll Company can be a good way to ensure accurate classification and payroll numbers.

Communicate with your Carrier

Like most things in business, communication is key to success. It is important to communicate with both your agent and your carrier when things change about your business. If you purchase a new piece of equipment or you are taking on a new type of work, it is important to speak with your agent and carrier about these changes. It may mean the difference between a claim being denied or a carrier sending you a non-renewal.

Why Do Work Comp Rates Vary From State to State?

Citizens of the United States enjoy a very high quality of life. According to a 2016 Business Insider Article, Americans enjoyed the 9th highest quality of life of any country in the world. Workers’ compensation coverage is a huge contributing factor to this quality of life. A strong workers’ compensation system provides the ‘exclusive remedy’ that helps prevent litigation between employers and employees when accidents happen on the job. When a strong Workers’ Compensation System is in place, employees are guaranteed some wage replacement while hurt and not able to work. Employees also receive payment for all medical expenses as a result of injuries that occur as a part of normal business operations. In turn, employers can rest easy knowing they will not be held liable for employee injuries, except in circumstances where the employer intended to cause the injury or was willfully negligent.

In the United States, Workers Comp Laws are left up to the state governments. In most states, employers are required to carry workers’ compensation insurance. There are a few exceptions to that rule, but for the most part all employers are required to carry some baseline coverage to protect their injured workers. There are many things a state government must do to administer a workers compensation system. The two main things states do that can effect price are; determine a process for assigning rates on industry class codes and provide employers with a provider of last resort (state fund or assigned risk provider).

Provider of Last Resort

Rates can be strongly impacted by the strength of the provider of last resort. This is frequently referred to as the state fund or the assigned risk provider. The assigned risk provider is offered to employers who cannot find a carrier to offer them coverage on the open market. The business may not be able to find coverage on the open market because of their past claims history or because they operate in a high risk industry. How well the state goes about setting up this relationship goes a long way towards determining the rates employers pay for coverage in that state.

There are three main ways states go about providing this service.

State provided fund
Public-Private Partnership
Partner with an outside agency

The Workers’ Compensation Fund of Utah (WCF) and The California State Compensation Insurance Fund (CSCIF) are two examples of states who provide their own fund. These two states area good comparisons to show how rates are affected by either a strong or weak state fund. In Utah, The WCF has a 57 percent market share while the next largest provider owns only a 3 percent share of the market (2). In comparison, The CSCIF controls just over 11 percent of the market compared to just under 10 percent for the next largest provider. As a result, Workmans Comp Utah has rates that are 107 percent cheaper compared to California. This is not the only contributing factor to the discrepancy in prices, but it goes to show how drastic an impact a strong state fund can have. Now in California’s defense, the Gross Domestic Product (GDP) in Utah is nearly 1.7 trillion dollars less than California (2). That is another huge factor driving up prices in California.

Another factor impacting rates on workers’ compensation insurance is how a state goes about determining rates on all the different industry classification codes. There are two ways states can go about providing this service. They can provide their own rating bureau or they can partner with an outside agency to do this in-depth work. Most states partner with the National Council on Compensation Insurance (NCCI) for determining rates on class codes. A few states have an organization that is part of the state government who determine rates.

Determining Rates on Class Codes

New York and Arkansas are two contrasting states that are a good example for how these different approaches can effect the rates on workers comp coverage. New York has its own bureau, The New York Compensation Insurance Rating Board (NYCIRB) while Arkansas outsources these duties to NCCI. As of 2014 Arkansas has rates on Workers Comp Coverage that are 90 percent cheaper than those rates in New York. Now again in defense of New York, it does have a GDP that is just under a trillion dollars more than Arkansas. That is a strong factor contributing to higher rates, but so is the fact that New York does not use NCCI to determine rates. Typically states who have their own bureau have higher rates across the board. In most cases, NCCI is better at doing this task than the states are themselves. The one exception to this is the state of Indiana. Indiana has their own state rating bureau, but enjoys some of the lowest rates on workers comp in the country.

In both of these examples the larger states have different ways of going about administering their workers compensation policies. These different ways contribute to escalating rates on workers’ compensation insurance. Now part of the reason for them doing things differently might be the vast size of the economies in these state’s. They may not be able to outsource this job for an economy in the trillions of dollars where as another state may be able to outsource more easily because their economy only amounts to 100 billion. Both of these examples do show how the strength of the state fund and how efficiently a state determines rates can drastically effect the amount employers pay for workers comp coverage.

These factors are two of many factors that can have a huge impact on rates employers pay for workers comp coverage. This is why it is immensely important to consult with an insurance industry professional when quoting a policy. It is also important to quote with agencies who have access to many different insurance carriers within your state. The more carriers your agent can get a quote from, the more likely your businesses is to get more comprehensive coverage and lower rates on premium.

Your Experience Modification Rating Explained

A simple and concise explanation of your businesses Experience Modification Rating.

Understanding your experience modification rating is important, and can help reduce insurance premiums for workers compensation insurance. The experience modification rating goes by a variety of names including experience mod, experience rating, e-mod, EMR, and sometimes just the mod. It is a factor that compares your business’ losses with other businesses in the same classification, and has the ability to increase or decrease your premium cost. The experience rating is used to customize the insured’s premium to better suit the characteristics of a certain employer or risk. It is found on the Experience Modification Rating Worksheet that you will receive each year before your policy effective date. An experience rating of 1 is considered a unity mod, and does not change the cost of premium. A rating that is >1 is called a debit mod, and would increase the cost of premium. On the flip side, a mod that is <1 is referred to as a credit mod, and would reduce the cost of insurance to the employer. So if an employer has a mod of 0.80, their premium would be 20% cheaper. The idea being that an insured with a mod that is >1 is riskier than the average, and should therefore have to pay more. While an insured with a mod that is <1 is less risky than the average, and should be rewarded by paying less.

	Manual Premium	Experience Modification Rate	Premium charged to employer
Employer 1	$250,000	.75	$187,500
Employer 2	$250,000	1.00	$250,000
Employer 3	$250,000	1.25	$312,500

As seen above, a credit mod (E-Mod value is <1) provides the employer with a cheaper premium. While a debit mod causes the employer to pay a higher premium, and the unity mod causes no change in premium at all. This change in premium provides incentive for employers to reduce and control losses in order to lower their experience mod.

Who calculates the employers experience modification rating? The experience mod factor is generated by the National Council on Compensation Insurance (NCCI). The mod is generated 60 to 90 days before the rating effective date, and therefore doesn’t use the current policy in the calculation. The NCCI uses a period of three years of loss experience and compares it to the average losses in the class. The time period that is used for data is determined by the risk’s rating effective date. The data that is used in the experience modification rating calculation will include the policies that have an effective date that is no less than 21 months prior to the rating effective date, and no more than 57 months before the rating effective date. In other words, policies that begin within 21 months and 57 months before the rating effective date will be used in the calculation. For example, a policy that renews on 1/1/17 would include policies with effective dates that fall between 4/1/12 and 4/1/15. Therefore, the policies that would be included in the data for the experience mod would be the 1/1/13-1/1/14, 1/1/14-1/1/15, and 1/1/15-1/1/16 policies.

As of 2017, the NCCI’s Experience Rating Plan manual for Workers Compensation and Employers Liability Insurance (the “Plan”) is currently approved and authorized to use in 39 jurisdictions. Right now the Plan applies to Indiana, Massachusetts, and North Carolina, however these states have bureaus that produce their own intrastate ratings. An “intrastate” rating refers to a risk that is only in one state that uses the Plan. By contrast, an “interstate” rating refers to a risk that is located in two or more states that use the Plan. Minnesota, New York, and Wisconsin have also authorized the use of the Plan, but only on an interstate basis. The Plan does not apply to California, Delaware, Michigan, New Jersey, Pennsylvania, North Dakota, Ohio, Washington, and Wyoming. These states administer their own plans and produce their own rates. However, since insurance is regulated on a state-by-state basis, the states that currently approve or disapprove the Plan are always subject to change.

The experience modification rating is a mandatory plan if the insured is qualified. In order to qualify for an experience rating the insured must have paid a minimum amount of premium determined by the state within the most recent 24 months of the rating period, or have reached an average amount of premium that meets the established threshold over the entire rating period. For example, the state of Florida requires that an employer must pay at least $10,000 in premium within the last two years, or have paid an average of $5,000 over the entire rating period.

Employer 1:	Employer 2:	Employer 3:
2015 – $7,000	2015 – $4,500	2015 – $4,000
2014 – $3,500	2014 – $4,100	2014 – $5,000
2013 – $2,000	2013 – $6,500	2013 – $4,500
Qualification requirements are met in the two most recent years. ($7,000+$3,500= $10,500)	Qualification requirements are met by averaging the premium over 3 years. ($4,500+$4,100+$6,500)/3= $5,033	Qualification requirements are not met.

In this example, Employers 1 and 2 would be required to apply an experience mod to their manual premium, and Employer 3 would not qualify.

The difference between claim severity and frequency. When referring to an employer’s loss history, the terms severity and frequency are often brought up. Severity meaning how severe, or how expensive a single loss is, and frequency meaning how often claims occur. When calculating an experience mod, the NCCI assigns more weight to high frequency claims than it does to high severity claims. The logic being that if the insured has a history of a high frequency of claims, then there is a good chance the insured will continue to have losses. Also, having a high frequency of claims increases the chance that the insured will experience a larger loss in the future. In other words, frequency leads to severity. However, if the insured only has one claim with a high severity, there is a good chance that it was a more uncommon accident or injury that is unlikely to occur again. The NCCI gives more weight to the frequency of claims by using the Split rating system.

Split Rating. NCCI uses split rating to divide losses incurred by a claim into Primary Losses and Excess losses. This is done so that the frequency and severity of claims can be weighted properly. Primary losses represent frequency, whereas excess loses represent severity. In the calculation of the experience modification rating, primary losses are weighted more than excess losses. However, the excess losses shouldn’t be ignored as they can be a very large amount. The NCCI uses a ratio called the Discount Ratio (D Ratio) to find the expected primary losses by multiplying the expected losses by the D Ratio. To find the expected excess loss, they multiply the expected losses by 1 – the D Ratio. When finding the actual primary losses, as of 2017 the NCCI considers the first $16,500 of a claim to be the actual primary loss, and anything leftover to be the excess loss. If the claim is less than $16,500, the entire claim is considered primary loss. The amount of money that is used as the cutoff point for primary losses is referred to as the split point. The split point is a value that is subject to change. In 2013, the split point was increased from $5,000-$10,000, and by 2017 it has climbed to $16,500 where it stands today. The split point will continue to change in the future based on inflation and loss data.

The experience modification factor is calculated by taking the total adjusted actual claims divided by the total adjusted expected claims of your class. So if you have more actual claims than what is expected of your class, the mod will be >1 and you will receive a debit mod. While this seems simple enough, there are many complicated steps that are taken before the final mod is produced.

First, the NCCI collects and records the payroll and loss information on to an experience rating worksheet. Using this information, they calculate the expected losses for each classification using its Expected Loss Rate (ELR). The ELR is the amount of expected losses for the classification per $100 of payroll. So the expected losses equals the ELR x (Payroll/100).

Then they split the expected losses into primary and excess losses using the discount ratio. After that, they must also split the actual losses into primary and excess losses.

To keep the mod from varying too much, the NCCI determines a stabilizing value and adds it to the calculation. This calculation requires the use of the ballast factor and the Wt factor. The ballast factor is a number that is added to help keep the mod from shifting too much, and the Wt factor is the weight assigned to the excess losses. The stabilizing factor is calculated by multiplying the expected excess losses by (1-Wt), and then adding the ballast factor.

Once the primary losses and the stabilizing value has been found, the actual and expected ratable excess losses must be determined. The ratable excess loss is the amount of excess loss that is included in the calculation. This is done simply by multiplying the excess losses by the Wt factor.

Now that we have determined these values, the total adjusted actual losses can be found by adding the actual primary losses + the stabilizing value + the actual ratable excess losses. Likewise, the total adjusted expected losses = expected primary losses + the stabilizing value + the expected ratable excess losses.

Finally, the experience mod can be calculated by dividing the total adjusted actual losses by the total adjusted expected losses.

E-Mod=(Actual Primary Loss+Stabilizing Value+Actual Ratable Excess Loss) ÷ (Expected Primary Loss+Stabilizing Value+Expected Ratable Excess Loss)

E-Mod = Total Adjusted Actual Losses ÷ Total Adjusted Expected Losses

Medical-only claims are not weighted as much in the calculation, and therefore don’t have as much of an impact on the experience mod. Most states have approved an Experience Rating Adjustment (ERA) that limits the amount that medic-only claims are weighted in the experience modification rating. Only 30% of the portion of a medical-only claim is included in the experience mod calculation. This is done in an attempt to decrease the incentive for employers to pay off medical-only claims without reporting it to the carrier.

There are ways for employers to lower their experience mod, and therefore lower their workers compensation costs.

One effective way to do so is to implement a formal safety program, or make meaningful changes to a pre-existing safety program. Having a written safety program in place can help reduce injuries and accidents which will reduce your losses, and lower your experience mod. An employer should train their employees in the proper safety procedures for driving, lifting and other job related duties. As well as the precautions taken to prevent accidents like slips and falls, such as requiring non-slip shoes. An employer can even consider incorporating rewards and disciplinary actions in their safety program, if it seems necessary.
Maintaining good hiring and orientation practices can also help reduce losses. Making sure each employee is mentally and physically fit for the job before hiring them is a good way to lower accidents.
Including a mandatory return to work program can greatly reduce the cost of claims. Having an employee return to work at a light or modified duty will lower the cost of their claim, which can help lower the employer’s losses and will bring their experience modification rating down.
Taking the time to make sure all your employees are placed in the correct class codes can also help reduce costs.

My Insurance Question is a part of the Insurance Shop LLC. The Insurance Shop is an independent insurance agency, founded in 2005. Over a decade and a half, the agents at the Insurance Shop LLC have developed relationships with dozens of insurance carriers who are hungry to offer coverage to businesses operating in many different industries. If you are looking to shop around for a better value when renewing your commercial insurance package, give us a call at 800-800-4864 to speak with one of our insurance specialists today.

NCCI Workers Compensation Class Code 9014

Let’s Break Down Commercial Cleaning Companies

NCCI class code 9014, like most workers comp class codes, includes many different operations. NCCI stand for the National Council on Compensation Insurance. It is the main governing body for workers comp codes. These classification codes generally include a variety of operations. The classification manual from NCCI is written to include specific operations. It is called the Scopes Manual. Over time, additional operations are added to each individual classification code.

Commercial janitorial services is the primary operation contemplated by NCCI class code 9014. Janitorial Services are specifically defined as keeping a building clean. The businesses do this by routine dusting; mopping, vacuuming, waxing, or polishing floors. The janitorial businesses also empty trash; clean and wash interior walls; clean, sanitize, and deodorize restrooms. Office cleaning companies are the easiest operations to get insured (at the most favorable pricing). It is reasonably easy to get favorable workers comp insurance for commercial janitorial companies. Especially commercial janitorial companies that clean at retail and other light commercial spaces. It is difficult to get workers compensation insurance for commercial janitorial companies which specialize in cleaning at industrial settings. Industrial settings frequently lead to the business having to purchase coverage from the state’s assigned risk provider.

Difficult Operations to Quote For Code 9014

Favorable workers comp insurance is more difficult to get for certain operations. For typical commercial janitorial companies, the NCCI class code 9014 allows for maintenance and minor repair work. Most insurance carriers will allow up to 10% of operations to fall into this arena. Floor waxing is another operation which underwriters consider. Some carriers allow as much as 25% of the business activity to be floor waxing. If it is this amount or less the carrier will still quote accounts. Power washing is disfavored, and most carriers will decline to quote companies offering power washing. Although it is an operation included in code 9014, at least if performed at ground level.

Code 9014 allows for residential cleaning if it is less than 50% of operations. A different workers comp class code is used for primarily cleaning companies. That code is 0917. However, the majority of workers comp carriers will decline any account which does any residential cleaning as it is a less controlled work environment. With that said, at least in some states, The Hartford will still quote commercial janitorial companies with some level of residential cleaning. Having several years in business is generally an eligibility requirement in this case.

Insurance carriers favor interior operations over exterior operations. A small amount of exterior operations can be allowed, but work from heights or power washing usually lead to declines from insurance carriers. NCCI class code 9014 allows for ground level window cleaning. Class code 9170 must be used for businesses that partake in any window washing above ground level. This is much more difficult to get quoted by insurance carriers.

Other operations which are included in NCCI workers comp code 9014 include:

Exterminators

Some carriers will offer coverage to these businesses, but many will not. If there is any live animal trapping provided in services almost all of the insurance carriers will refuse to provide workers comp insurance.

Chimney Cleaning

This function is acceptable to most insurance carriers if the service is performed using the vacuum suction method at ground level. If the service includes work at heights for any employees, it becomes much more difficult to find a carrier who will quote workers comp coverage.

Residential Boiler Cleaning

This type of service frequently involves using vacuum suction equipment. Any work involving boilers is difficult to get quoted by nearly all insurance carriers.

Swimming Pool Maintenance

A few carriers will quote swimming pool maintenance companies. When the swimming pool maintenance company adds construction to their list of business operations, it becomes much more difficult to find a carrier willing to quote the business.

Pet Waste Removal Services

Pet waste removal businesses need to have sufficient payroll to find many carriers willing to quote coverage. There is a small possibility to get this quoted by carriers on the voluntary market.

There are many different operations that can be included in NCCI Class Code 9014. Especially for purposes of workers comp.

My Insurance Question is a creation of the experts at The Insurance Shop LLC. The agency was founded in 2005 and has developed partnerships with more then two dozen insurance carriers. This large amount of carriers allows the agents at The Insurance Shop to shop your policy around in an attempt to make the carriers compete for your business. If you are looking for a better value when purchasing your commercial insurance package, let us shop insurance, so you don’t have to. Give us a call today at 800-800-4864.

Florida faces another new twist.

The workers’ compensation market in the state of Florida has faced some turbulent times over the last year. More shocking news came the Wednesday before Thanksgiving in the form of a ruling by Leon County Circuit Court. Judge Karen Gievers released the shocking news in the form of a ruling in a case that claims the National Council on Compensation Insurance (NCCI) and the Florida Office of Insurance Regulation (OIR) did not follow proper procedure under the states Sunshine Law.

The case that is challenging this ruling was brought before the court by James Fee. Fee is a Miami attorney who represents injured workers. He claimed, and Judge Gievers agreed, that NCCI was in violation of the Sunshine Laws by holding “multiple, non-public, secret meetings” internally and with the OIR over the rates. Representatives with NCCI and the OIR claim they have complied with the Sunshine Laws.

How much was the rate increase in Florida?

The total rate change was an in crease 14.5% for workers compensation insurance coverage, on average throughout the state of Florida.

What cause the rate increase?

The rate increase was the result of two court cases, Castellanos v. Next Door Company and Westphal v. City of St. Petersburg, and updates to the Florida Workers’ Compensation Health Care Provider Reimbursement Manual mandated by Senate Bill 1402.

Castellanos vs. Next Door Company

Marvin Castellanos was an injured employee who sued Next Door Company. This court decision ruled invalid a previous court ruling from 2009. The previous ruling put in place a mandatory attorney fee schedule. THe overturn of this ruling means judges no longer have to stick to the mandatory fee schedule and now can award additional compensation for attorney’s fees. The judges now use the fee schedule as a starting point. This will cause the amount judges award to injured employees to increase dramatically because there is no longer a cap on what the judges can recommend for compensation to the injured employees attorney fees. This ruling resulted in the Florida Office of Insurance Regulation (OIR) approving an increase of 10.1 percent on average statewide.

Westphal v. City of St. Petersburg

The Westphal vs. City of St. Petersburg case found the 104-week statutory limitation on temporary total disability benefits to be unconstitutional. The Florida Supreme Court reinstated a 260-week limitation. This Increased the amount of time an injured employees will get partial salary benefits by an additional 156 weeks. This additional 156 weeks of coverage caused the OIR to approve an average increase of 2.2 percent statewide.

Senate Bill 1402

The additional 1.8 percent increase on premium for workers’ compensation was related to updates within the Florida Workers’ Compensation HCPR Manual. This increase was approved as part of Senate Bill 1402.

Commonly Misclassified Workers Compensation Class Codes

One of the most misunderstood and difficult parts of setting up a workers compensation insurance policy is classifying the type of work being done by each employee. With over 700 classifications there are a lot to choose from and some of the wording on the classification descriptions can be misleading. In most states, the classifications are written by the National Council on Compensation Insurance (NCCI). These class codes are one of the most important parts of the workers compensation policy, because they are one of the two driving factors in price or premium. The other factor determining what a business pays is the amount of payroll for the employees of that business. If the employees are not classified properly, there is a chance that upon an end of term audit for a significant difference in rate between the classifications. This can cause either a large increase in premium owed, or a refund because too much has been paid into the policy. Here are some examples of my experiences with some classification codes that are commonly misused. Hopefully this will help you as a business owner more effectively classify your business with the proper workers comp codes.

Class Codes 5606

Contractor – Project Manager – Construction Executive – Construction Manager or Construction Superintendent

In my opinion, this classification is one of the most misused of all 700 codes. This classification is designed for an employee who is in charge of a construction project, but the employee does not take part in any of the physical work whatsoever. They also cannot have direct contact with the employees doing the work. They must be talking with the foreman who then will line out the work to be done by the employees on the job site. This position is mostly work being done in the office, but occasionally will include going to the job sites to check in with the foreman’s.

Class Codes 5437

Carpentry – Installation of Cabinets or Interior Trim

Carpentry is one of the commonly mis-classified class codes when it comes to general contractors. General contractors cannot separate out this classification from other work being done. Even if the other work was done weeks prior, the contractor still cannot use this classification. It will default to the classification that has the highest risk for the work done at the job site. The higher risk typically has a higher rate of premium. This particular classification is designed to be used by an artisan (specialty) contractor. This is someone whose scope of work is only doing the installation of cabinets or trim inside of the structure. This person is not doing any other type of work on the building. It is a very specific classification and the rate for this type of work is much less than all the other construction classifications. For this reason, if a business is using this classification and it is incorrect the business will owe a very large amount at the end of the term after an audit.

Class Codes 8810

Clerical Office Employees NOC

Clerical employees are typically one of the least expensive class codes. This is for a good reason because the chances of someone sitting behind a computer being injured is very small. Since it is the least expensive classification, it is common that business owners try to classify as many of their employees as they possibly can with this code in an attempt to reduce cost. The biggest requirement for this classification is that there has to be physical separation of the clerical employee from the other work being done at the location. This separation can be a wall or even a reception desk. The other caveat of this classification is that you typically cannot use this in conjunction with any other classifications. People within the insurance industry refer to this as a standard exception class code. The standard exception class code means the employee cannot be doing any other class of work. You cannot have an employee who is classified as 5437 (trim carpenter) and then have the same employee come back into the office to be assigned class code 8810, which is a less risky class code. Some states may have certain instances where they allow this code to be split. Missouri is one such state that allows an owner to assign 10% of their payroll to the 8810 class and the remaining to the governing code. It is important to check the regulations of the state you are operating in to make sure.

Standard Exception Class Codes

As referred to with the clerical classification (8810) they cannot be used in conjunction with any other classification. There are three of these class codes that are commonly misused in this manner, 8742 (outside sales), 8810 (clerical), 7380 (delivery). Make sure that if you are using these classifications the employee is not participating in any other aspect of work being done in the company that should be classified elsewhere.

Conclusion on Class Codes

The biggest take away from this is a business owner should verify all the classifications the agent is using on the policy of their business. The insurance agent is in the business of analyzing risk. It is in their best interest to always assume more risk. This is because it is a lot easier for the agent to explain that a business over paid. This is easier than explaining that a business under paid and now they owe additional premium. Plus the insurance agent can only operate off of the information you give them about your business. No one knows your business better than you. For this reason, it is important to take an adequate amount of time to talk with your agent. Talk with them about all of the ins and outs of your business. This will help them properly protect your business.

It is equally important that part of your conversation with your agent is to talk through the class codes. Take time to make sure the class codes are being properly assigned. You can always look up class codes online as a consumer through several different sites. Most agents will be more than happy to explain why they used a particular classification. Classifications can sometimes be very tricky and it can even vary by how a particular insurance carrier views the work being done. A little research and questioning to make sure things are set up properly can end up saving you a lot of hassle. It will also save you money upon the end of term audit. For this reason, it is important to establish a comfortable working relationship with your insurance agent.

My Insurance Question is a contribution of the experts at The Insurance Shop LLC. The Insurance Shop was founded in 2005 as an independent insurance agency that partners with a couple dozen insurance carriers. This large amount of carriers allows the agents at The Insurance Shop the ability to shop your policy around in an attempt to make the carriers compete for your business. If you are looking for a better value when purchasing your commercial insurance package, let us shop insurance so you don’t have to. Give us a call today at 800-800-4864.

Inland Marine Insurance Coverage

Four things to remember when purchasing Inland Marine Coverage.

Inland Marine Coverage is frequently referred to as ‘Floaters’ or ‘Equipment’ Coverage. That is because it is designed to protect equipment that a business owns, leases or rents that is not a vehicle or a piece of property. It is also typically equipment that is going to be transported in some way shape or form. This can include a mower that a landscaping business is transporting to a clients premises or a product being delivered to a customer. Many business owners think this part of their business is covered by their basic general liability policy, but that is incorrect. If they partner with a good insurance agent they know what is and what is not covered by each of the policy they may or may not be purchasing for their business. If you find that inland marine coverage is right for your business, here are four things to keep in mind in relation to this policy.

Choose an agent who partners with many carriers and not just a select few.
Determine the proper classification code for your business.
Inventory all equipment that needs to be protected under the policy.
Establish a good working relationship with your Insurance Agent.

Choose an agent who partners with many carriers and not just a select few.

By choosing an agent who partners with many different carriers you are allowing yourself to let the insurance agent shop the policy for you. Some agents work with only one carrier or just a select few carriers. This means they are not able to make sure you are getting the absolute best coverage at the best price. You can always shop the coverage around to several agents, but wouldn’t your time be better spent running your business. Finding an agent you trust and who knows your industry well can allow you to let the insurance professionals do their job. It allows you to get back to doing what you do best, which is running your business.

Determine the proper classification code for your business.

Most industries have several classification codes within the industry. Insurance agents and insurance carriers are in the business of analyzing risk. It is in the best interest of their business to always assume more risk until proven otherwise. If you are in a less risky classification code within your industry the agent and carrier are only going to know this if you bring it to their attention. Otherwise they will probably assume your business takes on more risk. This will result in you paying more premium and may cause some claims to not be covered. Now, these mistakes typically do get fixed at the end of term audit, but even when they are fixed you still have been tying up cash into premium you did not owe that could have been used to reinvest in your business. In some cases if you are classified into a less risky class code you will owe more in premium after the audit. In the worst case scenarios your claim may not be covered because you are misclassified and the carrier would not have offered coverage in your higher risk class code.

Inventory all equipment that needs to be protected under the policy.

It is very important to keep an up to date inventory of all the equipment you want listed under your Inland Marine Coverage Policy. Taking pictures of the equipment is a good idea as well because if there is a claim you will get replacement level value for the equipment that is damaged or destroyed. If you have an expensive version of whatever piece of equipment you are covering the best way to prove that is with a picture. Keeping this information on file with your agent and especially your carrier is crucial when a claim does occur.

Establish a good working relationship with your Insurance Agent.

The better relationship you have with your agent the smoother the process will be when you go to renew your policy and when a claim inevitably does occur. If they know you, your business and what is important to you as a business owner they can better insure your business the way you want it to be protected. Some business owners are okay with excepting some of the risk. Other business owners want to be protect to the fullest limits of the policy. The agent can only attempt to cover your business the way you want them to if you let them know what you expect and how you run your business. This relationship can also come in handy when a claim does occur. If you were combative during the quoting process and then your business has a claim six weeks into your term it does not speak highly of the way you operate your business. On the contrary, if you take some extra time to explain all the intricacies of your business and the way in which you want to be insured during the quoting process it starts off the relationship on the right foot. Later when a claim does occur this process will move through much more smoothly and your agent will be much more likely to go to bat for you with the insurance carrier.

Workers’ Compensation Rates Could be on the Rise in Florida

Workers’ compensation insurance rates in Florida could be on the rise. As reported in outlets such as the Miami Herald, the Orlando Sentinel and the Insurance Journal. The National Council on Compensation Insurance (NCCI) filed for a 17.1 rate increase to take affect August 1st. The bulk of the recommended rate increase is due to an expectation that attorneys’ fees will increase the Florida workers comp landscape due to a recent Supreme Court Ruling.

The increased rates are unfortunate in that Florida workers comp insurance is already a significant expense to business owners. Furthermore, increased legal fees should not be a necessary expense to add to the system. Increased education, safety devices, adoption of return to work programs and decreased prescribing of opiates are all trends within the industry which are helping to control workers’ comp rates. Thus, while this appears to be a blow to work comp rates in the state, there are some trends that are working to reduce rates as well (which is a challenge given the ever increasing cost of medical care in the United States).

Another factor which drives Florida workers comp rates higher is the existence of fraud and other scams. Florida is one of the highest states in the country for fraudulent work comp claims, especially in the Miami area. Additionally, as demonstrated in this article from the Insurance Journal, scams to artificially reduce workers’ comp premium are prevalent in Florida. Scams and fraud unfairly increase work comp rates for business owners that are trying to work within the system.

Florida is what is known as a rate mandated state for workers’ compensation insurance. Wisconsin and several other states are set up like this as well. This means workers’ comp rates are set by the state. Work comp rates vary by employee classification and experience modifications, but they are otherwise set by the state. This is in contrast with most states where insurance carriers file rates and there is different pricing between carriers. Florida’s workers’ compensation rates are just below average compared to other rates in the most recently published national study.

Given Florida is a rate mandated state, business owners may wonder what they can do to reduce workers’ compensation rates. In Florida, a small number of carriers, such as Employers, have file with the state of Florida to offer a 5% discount from the rates set by the state of Florida. On the other hand, there is a consent to rate, which can be offered by certain carriers in Florida for difficult to quote businesses. This means a carrier offers workers comp insurance, but they are allowed to charge up to 25% more than the rates set by the state of Florida if an insured signs off on this pricing. If rates can’t be improved, business owners may have better payment options available such as pay as you go insurance. Furthermore, better safety practices leading to lower claims (and thus a lower experience modification factor) are always a way business owners can decrease their work comp insurance costs. Most within the industry believe the Florida legislature will make sweeping changes to the workers compensation system at some point in 2017 or 2018. So business owners can rest assured that in some way, help is on the way in Florida.

Lawncare & Landscaping

Lawncare and landscaping businesses are similar yet very different.

As a business owner of a lawncare or landscape company you might have had to shop for insurance. You might have had to do this to either to meet state requirements or to make sure your business is protected just in case an injury occurs to an employee. Recently I have taken many phone calls from owners of small lawncare or landscape companies that have been asked by a client, sometimes even a home owner to provide proof of work comp coverage before they are grated the job or bid. Whether you have a small or large lawncare company chances are you have had to make a call or two to obtain a work comp insurance certificate.

When going through this process have you ever wondered how your company is classified? There are two class codes that contemplate lawncare and landscaping, 9102 and 0042. The most qualifying question to determine what class code you are in is, does your company primarily engage in maintaining already existing lawns and garden beds or is your business designing and installing landscape or flower beds. Another deciding factor is if there will be any installation of paving stones or rock beds. The class code 9102 is designated for lawncare or maintenance of existing lawns. Snow removal will also be covered under 9102 and should be discussed if there is snow removal operations in the down season of lawncare. 0042 class code is designated to design and installations of lawns and beds. Any sod laying or pavers would also fall under the 0042 class code. However both class codes do contemplate the applications of fertilizers and insecticides.

One aspect of both classes of business, that I feel I must bring up, is tree trimming. If at any time there is tree trimming the class code 0106 would need to be added to the work comp quote. Designated payroll can be added to that class or it can be added on an “if any” basis. I also must fully explain that the 0106 class code is considered high risk. It is very difficult to place with an insurance carrier.

When calling in or submitting an online quote, the first couple of questions back to you will most likely be: How many employees not counting the owner are there and what type of lawncare are you providing? If the answer to the first question is there is only the owner, which some times is the case, that would be an owner only policy. If there is one employee or more there will need to be included a total annual payroll. At that time we would figure out how to best classify you. lawncare or landscape will find the best price and insurance carrier for your company.

Experience Modification Overview

The Experience Modification Rate will only apply to your workers’ compensation policy. Typically you will not qualify for a rating until you have been in business for 3 consecutive years with workers’ compensation insurance coverage. Your Experience Mod compares your workers’ compensation claims experience to other employers of similar size operating in the same type of business. If you have fewer claims than other companies of the same size and industry you will receive a lower Experience Mod Ratio. This ratio is used against your annual premium and results as a discount. On the flip side of that is if you have higher claims in a four year time period then it will result in a higher experience mod. The claims history will generally lag at least a year. What this means is your current claims history, whether good or bad, will not have an effect on your renewal experience mod. The modification only calculates policy periods that have been completed. So if you have a good year this year it will not help with your experience rating for two years. On the same note if you had a bad year it will not effect you for two years as far as rating goes. Experienced companies that monitor their workers’ compensation premium understand and utilize their experience mod annually. Understanding your experience modification rating and monitoring is another area in which you can reduce your workers comp costs. Companies who effectively manage their safety programs not only understand how this works, but also have assigned someone to monitor this on a regular basis. It has a direct correlation to how much you pay in work comp premiums.

Where to find your Experience Modification Rate: You will receive an updated Experience Modification Rating Sheet each year prior to your policy renewal date. Your experience mod is also listed on the declarations pages of your workers’ compensation policy. This will reflect last years rate. You will want to contact the National Council on Compensation Insurance (NCCI) directly or your respective State Insurance Bureau. They are able to send you a copy of your new rate, which will be used for this years premium cost. If you don’t know how to find it reach out to your insurance agent and they will be able to point you in the right direction. Most companies whose annual premium are in excess of $5,000 and have been in business for more than 3 years will receive an Experience Modification Rate. The requirements could vary per state and will if you have an individual bureau that handles the rating outside of NCCI. Each year insurance carriers report to the calculating agency your class codes, payrolls and losses for the last five years. The computing agency uses three complete years of data ending one year prior to the effective date of the rating period. For example, a rating in 2015 normally will not use 2014 but would include years 2011-2013 in the formula. Don’t forget about your current years claims. These usually present the greatest opportunity for cost reductions. Remember this years claims will affect your Experience Mod next year.

How claims affect the Experience Mod:

Medical-only claims Claims that require medical treatment only are usually less severe so employers should not be penalized when they occur. Consequently, any medical only claims are reduced by about 70% before they enter the formula. You can take advantage of this by ensuring that injured employees remain at work when possible or return to work within the waiting period. This is where an effective claims management and return to work program can have a dramatic effect. Should you need help in establishing a program, Western National Loss Control Consultants can help.

Lost time claims The first $5,000 of a lost time claim is counted at full value. The dollar amounts after $5,000 are discounted. There is also a large claim cap limit to protect you from a catastrophic loss. Because the first $5,000 of each loss goes into the formula dollar-for-dollar, severity is a factor. A single claim valued at $20,000 has less effect on your Experience Mod then 10 claims valued at $2,000.