W o r k e r s C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ® Classification Essentials for Agents and Brokers.

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

Classification Essentials for Agents and Brokers

Brian GrayQuality Assurance DirectorWCIRB California

“Everyone wins when the classification assignment is correct from the start.”

IIABCal InsurFESTRancho Mirage, CAOctober 26, 2013

NoticeThe information provided in this presentation was developed by the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) solely for the purpose of discussion during this presentation. The WCIRB shall not be liable for any damages, of any kind, whether direct, indirect, incidental, punitive or consequential, arising from the use, inability to use, or reliance upon information provided in this presentation.

2013 Workers’ Compensation Insurance Rating Bureau of California. All rights reserved.No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including, without limitation, photocopying and recording, or by any information storage or retrieval system without the prior written permission of the Workers’ Compensation Insurance Rating Bureau of California (WCIRB), unless such copying is expressly permitted by federal copyright law. Workers’ Compensation Insurance Rating Bureau of California, WCIRB, WCIRB California, WCIRB Online, X-Mod Direct, eSCAD and the WCIRB California logo (WCIRB Marks) are registered trademarks or service marks of the WCIRB. WCIRB Marks may not be displayed or used in any manner without the WCIRB’s prior written permission. Any permitted copying of this work must maintain any and all trademarks and/or service marks on all copies.

Classification Essentials for Agents and Brokers

■ Brian Gray‒ Quality Assurance Director‒ Classification and Test Audit Division

The WCIRB California

■ A nonprofit association of all insurance carriers licensed to write workers’ compensation insurance in California

■ The Insurance Commissioner’s designated statistical agent‒ Members submit payroll and loss data

to the WCIRB California‒ The WCIRB California publishes:

• Advisory pure premium rates and experience modification factors

• The California Workers’ Compensation Uniform Statistical Reporting Plan—1995 (USRP)

• The California Workers’ Compensation Experience Rating Plan—1995 (ERP)

Introduction to the Standard Classification System

USRP Part 3USRP Part 3

Introduction to the Standard Classification SystemThe Standard Classification System

■ Provides rules and guidelines for establishing which workers’ compensation classifications apply to each California employer for statistical reporting purposes

■ Workers’ compensation policy classifications and premium rates are determined by the insurer’s filing with the California Department of Insurance. They are not under the authority of the WCIRB.

■ Required by the California Insurance Code

USRP, Part 3, Section I

The objective of the classification system is to group employers into classifications so that each classification reflects the risk of loss common to those employers. With few exceptions, it is the business of the employer within California that is classified, not the separate employments, occupations or operations within the business.

Introduction to the Standard Classification SystemStandard Classification System Objective

Introduction to the Standard Classification SystemStandard Classification System Objective

■ The Standard Classification System also ensures:‒ Accurate data collection and rate development ‒ Fundamental component of the ERP‒ A manageable system that equitably distributes insurance

costs among employers

General Classification Procedures

General Classification ProceduresClassification Description

■ An alphabetical listing of classifications ■ Describes

‒ Occupations‒ Employments‒ Industries and businesses  

DECORATING–interior or exterior–hanging flags or bunting for conventions or celebrations . . . . . . . . . . . . . . . . . . 9529 (2)

DENTAL LABORATORIES–including foundry or castingoperations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4692

DENTISTS AND DENTAL SURGEONS

See Health and Human Services.

DETECTIVE OR PATROL AGENCIES . . . . . . . . . . . . . . . . . . . . . . . 7721 (1)

DETINNING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3372 (2)

DIE CASTING MFG. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1925

DISTILLING–N.O.C–See Food Packaging and Processing

General Classification ProceduresSample Classification Descriptions

General Classification ProceduresClassification Assignment

■ Any business or operation specifically described by a classification shall be assigned to that classification

General Classification ProceduresCriteria for Establishing a Classification

■ An easily identifiable group of employers engaged in a common trade or business

■ The group of employers collectively develop statistically credible pure premium rates

General Classification ProceduresAssignment by Analogy

■ In 2013, there are only 494 specific classifications described by more than 700 separate phraseologies‒ Some classifications have more than one wording

■ When a business does not have a specific classification code, classification assignment is made by analogy

General Classification ProceduresAnalogous Assignment Factors

■ Factors to consider for analogous assignments‒ Industry type‒ Products, raw materials‒ Who purchases the products‒ How products are sold‒ Materials, tools and equipment‒ Licensing‒ Type of crops or animals raised

General Classification ProceduresAssigning Classification by Analogy

■ Assign the most analogous classification based on “process and hazard”

■ The “hazard” is typically established by the application of the criteria listed in the USRP, Part 3, Section III, Rule1, b.‒ Specific guidelines for

• Manufacturers• Stores• Service Providers• Construction or Erection Firms• Farms

General Classification ProceduresStandard Classification System Summary

1. Classify the business as a whole.2. If no classification specifically describes the business, assign

one by analogy.

Single Enterprise

Single EnterpriseDefinition

■ The most common and simplest type of business operation■ The various activities and departments that support a single

business operation make up a single enterprise■ Most often has a single source of revenue■ Employer’s business consists of:

‒ One or more operations‒ Performed at one or more locations‒ Where all operations are contemplated within the scope of

a single classification■ The entire exposure is assigned to a single classification

Single EnterpriseRestaurant Example

■ A variety of specific job tasks‒ Activities, duties, hazards and pay scales vary

■ Storage facility at a separate locationHOWEVER

■ All tasks and the separate location are used only for the restaurant and these are all normal restaurant operationsTHEREFORE

■ Classification 9079(1), Restaurants or Taverns, applies to all of the employees

Single EnterpriseDivision of Payroll Definition

■ The distribution of payroll among classifications

Single EnterpriseDivision of Payroll

■ No division of payroll is permitted‒ Even though such operation is specifically described by

another classification, unless‒ The phraseology of the applicable classification specifically

provides for such division of payroll■ Division of payroll for Standard Exceptions and General

Exclusions shall be made pursuant to the provisions of the USRP

Single EnterpriseClassification Assignment

Why don’t we separately assign each department or operation to its own classification? Why do we lump them all together?1.The Single Enterprise concept is the best ratemaking method, consistent with classifying by the employer’s overall business and industry.2.The record keeping to accurately track payroll for every activity would be burdensome to employers. 3.Calculating a separate rate for each activity may not produce credible rates for each activity.

Single EnterpriseClassification Assignment

4. With perfect records and accurate rates for each activity, the average premium for most businesses would not change. Without perfect records, all payroll would be assigned to the highest rated classification, increasing the employer’s cost compared to the current system.

5. Division of payroll is verified when the payroll audit is performed.

Standard Exceptions

Standard ExceptionsDefinition

■ Two classifications that are an exception to the Single Enterprise Rule‒ Clerical office employees ‒ Outside salespersons

■ Standard Exceptions are NOT contemplated by phrases such as ‒ “all employees”‒ “all operations”‒ etc.

Standard ExceptionsClerical Office Employees Definition

■ Clerical Office Employees keep:‒ The books ‒ The records ‒ The Cash of the employer

■ Clerical Office Employees are engaged wholly in general office work or office drafting

■ Clerical employees have no regular duty of any other nature in the service of the employer

Standard ExceptionsClerical Office Employees Payroll

■ The entire payroll of a clerical office employee who is also exposed ‒ To any operative hazard of the business ‒ To any outside selling or collecting work

is assigned to the highest rated classification of work to which the employee is so exposed

■ That is, the payroll for clerical employees may not be divided with any other classification

Standard ExceptionsClerical Office Employees Payroll

■ Clerical Office Employees must be separated from other business operations by‒ Buildings‒ Floors ‒ Partitions ‒ Railings ‒ Counters

■ Work area must be limited to clerical office or drafting duties

Standard ExceptionsOutside Salespersons Definition

■ Outside Salespersons are engaged in ‒ Sales ‒ Collection ‒ Public relations work

• Away from the premises of the employer‒ Engaged in outside sales for some portion of their time and

clerical office duties for the rest of their time

Standard ExceptionsSingle Enterprise Example

Departments Employees Est. Payroll Classifications

Wooden Table Mfg. 20 $200,000 2883 (00) FURNITUREMFG.–WOOD

(including wood working, assembly, QC inspection,packing, and shipping)

Outside Sales 3 $60,000 8742 (01) SALESPERSONS–OUTSIDE

Office Staff 2 $25,000 8810 (01) CLERICAL OFFICE EMPLOYEES

Standard Exceptions

Standard Exceptions Standard Exception Classification

■ If an employer’s business is described by a Standard Exception Classification,‒ Separately classify employees that perform duties not

contemplated by Standard Exceptions■ The Standard Exception Classifications are:

‒ Classification 8810, Clerical Office Employees‒ Classification 8742, Salespersons — outside

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®

W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a ®