To use an obvious example, the classification code for a clerical worker should carry a significantly lower rate than the code for a roofer, because the average workplace exposures of those two types of employment are obviously quite different.

Of course, once you move beyond such obvious examples, the question of proper classification of workplace exposure can get a lot more complicated. Incorrect classification of workplace exposures is one of the most common mistakes that A.I.M. finds and corrects for clients.

In most states, the classification system used is one devised and maintained by NCCI, the National Council on Compensation Insurance. NCCI is an independent organization, an "Advisory Organization", to use the current preferred term. (Most insurance people still refer to it as a "Rating Bureau")

NCCI is largely funded by insurance companies, and insurance company executives make up a majority of its board members. But NCCI is independent of those insurance companies, or at least as independent as any organization can be that has such close financial and management ties with the insurance industry.

NCCI has devised a system of approximately 600 classification codes, intended to cover workplace exposures. NCCI devises the manuals and rules regarding classification that are used in most states, and also is responsible for determining the correct classifications for particular employers (in those states that use the NCCI system).

There are a handful of states that do not use the NCCI classification system: California, New Jersey, New York, Delaware, and Pennsylvania are states that have their own classification systems. Texas licenses much of the NCCI system, but makes significant variations in specific classification rules.  Many other states have some "state special" classifications that vary significantly from NCCI definitions for certain workplace exposures. To see which states are NCCI jurisdictions and which have independent rating bureaus, consult our state-by-state directory.

In general, the NCCI classification system seeks to classify the overall business enterprise of an employer, not the particular work performed by specific employees. For that reason, a janitor working at a manufacturing plant will be assigned to the overall manufacturing classification used by that plant, not to a janitorial classification.

The NCCI classification system makes an exception to this approach for construction-type classifications. For these employers, multiple classifications may be assigned to employees, depending on the actual work done. But work records must show specific hours at the various tasks for a worker's time to be split among the appropriate classifications.

Even for non-construction employers, more than a single classification code is usually used on a policy, because the NCCI has established that certain workplace exposures are almost always eligible to be broken out into their own classification--clerical, outside sales, and sometimes (but not always) drivers.

Determining what the proper classification code is for a particular employer is not always easy, even for NCCI. AIM has helped a number of clients who were misclassified into more expensive classes not just by their insurance company, but by NCCI itself. This is not so much a criticism of NCCI itself as it is a reflection of the complexity of the classification system. Sometimes small details can make a big difference in which classification code is assigned to an employer, which in turn can make a big difference in rates and premium.

Often, we find employers misclassified into a more expensive classification for years, in spite of competitive bidding by various agents and insurers.

We here at AIM are often asked by employers if they can find details of this NCCI classification system online.  The answer, surprisingly, is no.  One would think that such information would be publicly available somewhere on the internet, as it is so fundamental to the pricing of Workers Comp insurance.  But NCCI views that manual, known as the Scopes manual, as proprietary and copyrighted material, which they sell.  So NCCI doesn't want that material available freely.  To get that information, one must purchase a copy of the manual from NCCI, either a hard copy or an electronic subscription.

An employer may be able to get information about specific classification entries in the Scopes manual from their agent, but not all agents have up-to-date copies of this manual.


Find out if your employees have been misclassified by emailing Advanced Insurance Management at aim@cutcomp.com.