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 Gray Quality Assurance Director WCIRB California Everyone wins when the classification assignment is correct from the start. IIABCal InsurFEST Rancho Mirage, CA October 26, 2013

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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 Commissioners 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 Plan1995 (USRP) The California Workers Compensation Experience Rating Plan1995 (ERP)

Introduction to the Standard Classification System USRP Part 3

Introduction to the Standard Classification System The 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 insurers 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 System Standard 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 Procedures Classification Description An alphabetical listing of classifications Describes Occupations Employments Industries and businesses

DECORATING–interior or exterior–hanging flags or bunting for conventions or celebrations (2) DENTAL LABORATORIES–including foundry or casting operations DENTISTS AND DENTAL SURGEONS See Health and Human Services. DETECTIVE OR PATROL AGENCIES (1) DETINNING (2) DIE CASTING MFG DISTILLING–N.O.C–See Food Packaging and Processing General Classification Procedures Sample Classification Descriptions

General Classification Procedures Classification Assignment Any business or operation specifically described by a classification shall be assigned to that classification

General Classification Procedures Criteria 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 Procedures Assignment 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 Procedures Analogous 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 Procedures Assigning 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 Procedures Standard 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 Enterprise Definition 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 Employers 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 Enterprise Restaurant Example A variety of specific job tasks Activities, duties, hazards and pay scales vary Storage facility at a separate location HOWEVER All tasks and the separate location are used only for the restaurant and these are all normal restaurant operations THEREFORE Classification 9079(1), Restaurants or Taverns, applies to all of the employees

Single Enterprise Division of Payroll Definition The distribution of payroll among classifications

Single Enterprise Division 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 Enterprise Classification Assignment Why dont 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 employers 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 Enterprise Classification 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 employers cost compared to the current system. 5.Division of payroll is verified when the payroll audit is performed.

Standard Exceptions

Standard Exceptions Definition 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 Exceptions Clerical 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 Exceptions Clerical 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 Exceptions Clerical 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 Exceptions Outside 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 Exceptions Single Enterprise Example DepartmentsEmployeesEst. Payroll Classifications Wooden Table Mfg.20$200, (00) FURNITURE MFG.–WOOD (including wood working, assembly, QC inspection, packing, and shipping) Outside Sales 3$60, (01) SALESPERSONS– OUTSIDE Office Staff2$25, (01) CLERICAL OFFICE EMPLOYEES Standard Exceptions

Standard Exceptions Standard Exception Classification If an employers 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 ®