Classification System in Worker's Compensation Insurance

The object of the worker's compensation system is to group similar employers so that each classification reflects losses common to them. Since losses vary widely by business or industry of employers, charging the statewide average rates would result in some employers paying too high a premium, while employers in other businesses or industries would pay less than their fair share.

Accordingly, employers are classified by the business or industry in which they operate to reflect this variation in loss costs. Generally, similar businesses have similar exposures to occupational injury and disease, even though no two businesses are identical.

Each classification combines the payroll and losses of similar employers to develop a price for the insurance protection. Worker's compensation insurance uses approximately 600 separate business classifications for premium purposes.

Three occupations are common to so many businesses that special classifications have been established for them. These "standard exception" classifications cover clerical office employees, outside sales people, and drivers. The standard exception classes are the only classifications that are not related to the business of the employer. Instead, they are related to the job as these jobs are fairly common to all employers.