When No Code Fits – Classification By Analogy
The term Classification by Analogy generates many questions on how companies are rated by the rating bureaus such as NCCI and the WCIRB.
One of the most confusing terms associated with classification codes is the classification by analogy. This is especially true if the class codes were changed at the time of the premium audit. Last week, I covered how a company’s workers compensation classification codes may change as a company grows over time.
Classification By Analogy is the interpretation of what Workers Comp Classification Codes are the closest to the job functions in a company. The insurance company looks at each classification code as a level of risk. These are “guesstimations” as there is no exact classification code that matches a job function or employee’s job description. The most important word is interpretation. No one knows your business as well as you do. However, the correct class codes for your business can be a tricky matter.
One of the red flags on Workers Comp audits is the use of Not Otherwise Classified (NOC) when classifying some of the job functions in your company by analogy. Over time, most rating bureaus have reduced the number of class codes. This has given rise to many of the old classifications that better described your business being combined into a more general class code or NOC.
One of the caveats with challenging or questioning a classification code that is analogous to your company’s job functions is the class code that you think more closely matches your company may end up costing more money that the original one. This is especially true if the Experience Mod is above a 1.4.
As always, if you feel you that there is something wrong (gut feeling), you may want to call in an expert.
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