Tag: NCCI

Why does my class code matter?

Workers Compensation Insurance is required by law in 48 out of 50 states. It is offered based on a classification code system developed by the National Council for Compensation Insurance. There are more than 700 industry specific classification codes. Some industries have just one, some have many. For this reason, it is very important for business owners to take a few extra moments and speak with their insurance agent when buying or renewing their commercial insurance policy. It is crucial for a business owner to talk to their agent about the daily operations of their business. The key to getting the best policy on the best insurance package is to speak open and honestly with your insurance agent. 

Remember that your insurance agent is on your side. They are there to help you get the fullest coverage at the best price possible. Your agent can only do this if you give them all the information possible to negotiate on your behalf with the insurance carriers. This is where having an agency that has the ability to quote your policy with many carriers is important. Some agencies only carry policies with a few select carriers. If your business is in a difficult to quote classification code than this can make it difficult to get a better price or get any coverage altogether. So having a relationship with an agency that can quote from a variety of carriers is important. 

Next it is also important to ensure your agent and your carrier are aware of all the operations your business does and does not partake in. This can cause you to overpay or underpay on premium. Regardless of the amount of risk your business takes, it is very important to be classified correctly in the proper NCCI classification code. There is an audit of your business done at the end of every term. Usually if your business is coded incorrectly it gets caught during the audit. If you are actually supposed to be in a riskier code than you will end up owing more in premium. If you should be in a less risky code it can result in a refund, but you have been paying more in premium throughout the year. Typically, that is cash flow you could be using for other more urgent business needs. 

A few industries that give us some perfect examples of industries that have classification codes that could be incorrectly coded are landscaping and commercial vs. residential cleaning companies. For example, landscaping  has two class codes 9102 and 0042. 9102 is for businesses that only maintain existing lawns. 0042 is for businesses that install lawns, plants and other beds. 0042 is more dangerous. Because it is a riskier classification code the premium for these types of businesses is higher.

commercial and residential cleaning companies include the classification codes 9102 and 0042.

Another example of an industry that has multiple classification codes is the cleaning industry. Commercial cleaning is classification code 9014 and is the less risky class code. Residential cleaning service companies are class code 0917 and they cost more. The reason for a larger risk in the residential industry is because of the fact the employees are driving to one or more off site locations. Commercial cleaning companies typically have employees come to one location, like a mall, and clean one or more business at that one location. For residential cleaning companies, they are liable for any injuries that occur while the employee is driving to and from the different locations. These types of injuries may not be frequent, but when they do happen they tend to be much more expensive than a simple slip and fall while cleaning a building.

So the most important things any business owner can do to ensure they are classified correctly is to speak open and honestly with their agent about the what their business does and does not partake in. Again, this can prevent both over and under paying on premium. Regardless of whether you are in a a fairly risky class code like landscaping or you have a bunch of employees who sit around an office all year, it is imperative to have your business classified correctly. This can prevent your business from over paying throughout the year or from having a surprise when you are audited at the end of your term.

What is the Assigned Risk Provider?

The assigned risk provider is also frequently referred to as The State Fund or The Pool

Workers’ Compensation Insurance Coverage is required by law in nearly every state in the country. The basic purpose of the Workers’ Compensation Insurance is to provide wage replacement benefits and medical treatment for employees who have been injured on the job. Workers Comp prevents the employer from bearing the costs of injuries that occur during normal business operations.

Each state has their own method for how they go about determining rates on workers’ compensation class codes. Most states partner with the National Council on Compensation Insurance (NCCI) to determine rates for different class codes. Some states; like Indiana for example, have their own rating system administered by a government organization. Most use the basic guidelines of the NCCI system.

Every state also has a different way for how they go about setting up a provider of last resort for the employer’s of the state. This provider of last resort is also referred to as the assigned risk provider, the state fund or sometimes as the pool. This provider is designated as the provider of last resort for businesses who cannot find coverage through the open market. It is typically more expensive from this provider for a number of reasons.

Businesses that end up having to purchase coverage from the assigned risk provider, may not be able to find insurance coverage for a number of reasons. Lots of times it is because the business operates in a classification code that carries more risk than most carriers are willing to take. Sometimes it is because that business has had too many claims within a short period time. It also is frequently because the business just does not generate enough income for the amount of risk in their industry. States usually have a requirement that the business has to try to obtain coverage from a certain number of providers on the open market before they can apply to the assigned risk provider. Usually that number is two or three providers.

There are three main ways states go about providing employers with an assigned risk provider. Some states provide their own fund, some use NCCI and some have a partner carrier who guarantees coverage for employers who cannot find coverage on the open market. Typically states who have a strong assigned risk provider who competes with the open market enjoy the best rates on workers’ compensation insurance. There are different ways to provide this strong provider, but typically the stronger this provider is the lower the rates employers pay.

Utah is an example of a state who has its own fund. This fund is called the Workers’ Compensation Fund. This fund dominates 57 percent of the market and is the main reason Workers Compensation Utah enjoys some of the lowest rates in the country for workers comp coverage. Colorado has a partnership with a company called Pinnacol. Pinnacol was begun around the time workers’ compensation became a requirement in the state. It was designed in partnership with the state government so there would always be someone guaranteeing coverage and competing to keep the rates reasonable for the employer’s of Colorado. Both of these states enjoy some of the lowest rates on Workers’ Compensation Insurance because of their strong Assigned Risk Providers. New York is an example of the other end of the spectrum. New York has its own state fund administered as a non profit agency. New York also has very difficult regulatory compliance regulations for workers comp. These regulations force many carriers to simply not offer coverage in the state. All of these factors combine to cause New York to have some of the highest workers compensation rates in the entire country.

So administering the state fund is left up to each individual state. Again there are three main ways the states go about doing this. Some handle it themselves, others partner with an outside carrier and some contract this service out to NCCI. All three ways can be effective ways to keep costs down for the employers of that state. The strength of these pools goes a long way towards determining what employers across the state pay for workers compensation coverage.

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.

 

 

Workers’ Compensation provider of last resort. 3 ways states provide this service.

Workers’ Compensation Insurance is required coverage for businesses in nearly every state. It covers workers’ for some lost wages and medical costs due to injuries occurring on the job. It provides employers with the piece of mind that they will not be sued for injuries that occur as part of normal business operations. How to administer a system of workers’ compensation is left up to the individual states. Each state has their own way of going about administering this system. One major part of this system is how a state providers employers with a provider of last resort. This is also referred to as the state fund or the assigned risk provider.

Some employers who have had several incidents may be labeled as too much of a risk to insure. other employers are in a very risky industry like off-shore oil-drilling or coal mining. In these situations, insurance companies may deem the business too much of a risk to offer an insurance policy. When this is the case the state steps in and providers a provider of last resort. There are three main ways states go about administering a provider of last resort.

  • A State Fund
  • A Public-Private Partnership
  • Partner with NCCI

A State fund

One way states go about administering a provider of last resort is to have a government provided state fund. Utah and California are examples of two states who have state funded providers. These two states show how a strong or weak assigned risk provider can affect the rates employers pay for coverage. For example, The Workers’ Compensation Fund of Utah (WCF) has a 57 percent market share for work comp policies in the state. The next largest provider owns only a 3 percent share of the market (1). In comparison, The California State Compensation Insurance Fund (CSCIF) controls just over 11 percent of the market, compared to just under 10 percent for the next largest provider. As a result, Utah has workers comp 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 effect 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.

A Public Private partnership.

Some states create a quasi-governmental partnership with a private insurance company to be the provider of last resort. This relationship allows the state and the insurance company partner to spread the risk between the two and still provide coverage to the employers of the state.

Colorado is an example of a strong public private partnership. The state fund provider for Colorado is the company Pinnacol. Pinnacol serves 56,000 businesses covering more than 900,000 workers in Colorado. Colorado employer’s enjoy rates on workers’ compensation insurance that are 19 percent less than the national average(3).

NCCI

Some states partner with an outside organization to administer the state fund. The National Council on Compensation Insurance (NCCI) is the organization most frequently used. NCCI is the nation’s most experienced provider of workers compensation information, tools, and services. In most cases they can administer the assigned risk more efficiently and cheaper than a state government can themselves. States who outsource this job to NCCI typically enjoy lower rates across the board.