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Basics of Classification

Presented by: Veruschka Mayorga Classification Assurance

© 2005 National Council on Compensation Insurance, Inc. © 2005 National Council on Compensation Insurance, Inc.

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Introduction to Classification

· The first step in determining the proper premium for a business is to identify the correct NCCI classification for the business. · Each classification is assigned a rate (or loss cost) that is used to develop policy premium. The classification rate reflects the exposure to workplace injury common to similar exposures.

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Purpose of the Classification System

· To group employers with similar operations into classifications so that: ­ The assigned classification reflects common exposures ­ The rate charged reflects common exposure to loss · Subject to certain exceptions, it is the business of the employer within a state that is classified, not separate employments, occupations, or operations within the business. · There are approximately 579 national and 300 state special classification codes.

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Manuals for Classification

· The Basic Manual for Workers Compensation and Employers Liability Insurance lists all classifications alphabetically by title. · The Scopes® of Basic Manual Classifications provides a detailed description of each classification in numerical order. The Scopes® Manual also includes: ­ An alphabetical index ­ A numerical index ­ An industrial index

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Explanation of Classifications

· Classifications are divided into two types: ­ Basic Classifications ­ Standard Exception Classifications · Classifications are identified by a four-digit code number

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Explanation of Classifications (Cont'd)

· Basic Classifications

­ Describe the business of the employer

­ Examples:

Business Mfr. of a Product Construction A General Type of Business A Service Classification Bicycle Plumbing Hardware Store Beauty Parlor Code No. 3865 5183 8010 9586

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Explanation of Classifications (Cont'd)

· Standard Exception Classifications ­ Refer to special classifications established for those occupations that are common to many businesses. These common occupations are not included in a basic classification unless specified in the classification wording. The Standard Exceptions are: ­ Clerical or Drafting · Office Employees (Code 8810) · Telecommuter Employees NOC (Code 8871) ­ Drivers, Chauffeurs, and Their Helpers (Code 7380) ­ Outside Salespersons, Collectors & Messengers (Code 8742) ­ Automobile Salespersons (Code 8748)

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General Inclusions

· Some operations appear to be separate businesses, but are included within all basic classifications. These are called general inclusions. These operations are not separately classified. They include the following: ­ Restaurants or cafeterias operated by the insured for employee use ­ Manufacture of containers by the insured, such as bags, barrels, bottles, etc. for sole use in the operations insured by the policy ­ Hospitals or medical facilities operated by the insured for its employees ­ Maintenance or repair of the insured's buildings or equipment by the insured's employees ­ Printing or lithographing by the insured on its own products

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General Inclusions Exception

Example: A bank, classified to the standard exception Code 8810--Clerical Office Employees NOC, operates a restaurant for its employees' use. To which class code should the restaurant operations be classified?

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General Inclusions Exception (Cont'd)

Example (Cont'd) A restaurant operated for the insured's employees is a general inclusion and usually not separately classified. However, because a bank is classified to a standard exception classification, the restaurant operation must be separately classified to the appropriate restaurant classification.

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General Exclusions

· Some operations in a business are so unusual for the type of business described by the applicable basic classification, that they are separately classified even though the operations are not conducted as a secondary business. These are called general exclusions. · The five General Exclusions are: ­ Aircraft Operations ­ New Construction or Alterations ­ Stevedoring (Loading and Unloading of Ships) ­ Sawmill Operations ­ Employer-Operated Day Care Services

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General Exclusions (Cont'd)

Example: A bank, classified to the standard exception Code 8810--Clerical Office Employees NOC, provides a child care program for its employees. To which class code should the child care program be classified?

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General Exclusions (Cont'd)

Example (Cont'd): An employer-operated day care service is considered a general exclusion. This means that unless a classification applicable to a business includes employer-operated day care services, this service is separately classified. Therefore, the child care program of the bank must be separately classified to the appropriate child day care center classification(s).

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Governing Classification

· The governing classification at a specific job or location is the classification, other than a standard exception classification, that produces the greatest amount of payroll. · If a basic classification is not applicable, the governing classification is the standard exception classification that produces the greatest amount of payroll.

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Governing Classification (Cont'd)

Example:

A business has the following payroll amounts assigned to the following classifications: ­ $220,000 for Code 2003--Bakery ­ $120,000 for Code 8017--Store: Retail ­ $240,000 for Code 8810--Clerical What is the governing classification for this business?

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Governing Classification (Cont'd)

Example (Cont'd): The governing classification code for this business is Code 2003 because it is the classification code, other than the standard exception code (Code 8810), with the greatest amount of payroll.

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Classification Assignment

· An additional classification may be assigned to a business when the principal business is described by a basic classification that requires certain operations or businesses to be separately rated Example: Code 0251--Irrigation Works Operation & Drivers and the farm classifications cannot be assigned to the same risk unless the operations described by these classifications are conducted as separate and distinct businesses. Irrigation system construction must be separately rated as Code 6229.

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Classification Assignment (Cont'd)

An additional classification may also be assigned to a business when: ­ The insured conducts one or more of the following operations: · Construction or erection · Farming · Employee leasing, labor contracting, temporary labor services · Mercantile business ­ The employer operates more than one operation in a state, which meet certain conditions

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Classification Assignment Example

Assume that the insured is a window cleaning contractor based in Alabama.

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Classification Assignment Example (Cont'd)

1. Review classification pages of the Basic Manual. There are no entries for: ­ "window cleaning"

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Classification Assignment Example (Cont'd)

2. Turn to the alphabetical index in the Scopes® Manual, several window-related businesses are listed, but window cleaning (AL) is not one of them.

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Classification Assignment Example (Cont'd)

3. Turn to the industrial index in the Scopes® Manual. Possible industrial groups include: ­ Laundering, Cleaning, and Dyeing ­ Building Operation--Miscellaneous

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Classification Assignment Example (Cont'd)

4. Review the phraseologies under each industrial group. After scanning the phraseologies provided for each of the class codes listed, the "Laundering, Cleaning and Dyeing" category is ruled out. "Building Operation--Miscellaneous" yields these potential candidates: · 9014--Buildings--Operation by Contractors · 9170--Buildings--Operation by Contractors: Includes Window Cleaning Above One Story (CO) · 9014--Janitorial Service by Contractor · 9001--Janitorial Service by Contractor: Includes Window Cleaning (FL)

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Classification Assignment Example (Cont'd)

· After reading the scope (detailed description) of Code 9014, you find that the code refers to window cleaning. The classification search is done.

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Contact Information

Veruschka Mayorga Senior Classification Research Specialist Phone: 561-893-3198 E-mail: [email protected]

© 2005 National Council on Compensation Insurance, Inc.

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