What are class codes?
Class codes, also called classification codes, help insurers categorize businesses according to factors like liability, job risk, and industry. Insurance companies use different systems of class codes for different types of business insurance including general liability insurance and workers’ compensation insurance.
What types of class codes are there?
Although there are several kinds of class codes, there are two important types that small business owners should know about: general liability class codes and workers’ compensation class codes.
General liability class codes
General liability class codes, or GL class codes, are typically five-digit numbers insurance companies use to classify businesses into different categories of risk. GL class codes help insurers determine the correct coverage, exclusions, and rates when they issue general liability insurance. General liability is designed to help protect your business from third-party claims of bodily injury and property damage.
General liability class codes are associated with different industries and therefore have varying risks. For example, catering would carry a different GL code than pet grooming. Insurance companies use these GL class codes, along with other factors like sales, square footage, and payroll to set insurance premiums and coverage. Proper classification of your business is important to ensure coverage is accurate.
Insurance providers typically base their GL class codes on those established by organizations like the North American Industry Classification System (NAICS), Standard Industrial Classifications (SIC), or Insurance Services Office (ISO). You can learn more about your GL class codes by speaking with your insurance representative.
Workers' compensation class codes
Like GL class codes, workers’ compensation classification codes, known as workers’ comp class codes or WC codes, are also used by insurance companies to group businesses into various categories of risk. Unlike GL codes,WC codes refer to job hazards to a company’s employees rather than risks to third parties like customers.
WC class codes are three- or four-digit codes that help insurers determine the appropriate coverage, exclusions, and rates for workers’ compensation insurance. Workers’ comp is the type of insurance that helps protect your employees and your business assets in the event that an employee sustains a work-related injury.
Since WC class codes are assigned to different job roles based on risk, an office worker would have a different class code than a drywall installer, for example. Insurance companies use workers’ comp class codes, along with factors like location, payroll, and company claims history, to set insurance premiums and coverage. Therefore, it is critical that your employees are classified under the correct workers’ compensation class codes.
Insurance companies generally use WC codes set by the National Council on Compensation Insurance (NCCI)—an independent organization that gathers and analyzes data on workers’ compensation insurance. However, some states have their own workers’ compensation codes. To find out more about workers’ compensation class codes for your employees, speak with an insurance representative.
Business owners' responsibilities regarding class codes
While understanding class codes can be complex, the most important thing is accurately report the type of work your company and each of your employees perform. Each state has laws regarding improper, incomplete, or inaccurate coding, so be sure to confer with your agent and split or adjust codes over time if needed.
If understanding class codes and insurance feels overwhelming, Pie Insurance can help! We’ve taken the guesswork out of the process, and we’re passionate about providing affordable workers’ comp insurance for small businesses across the country.
Thanks for reading! Please note that this content is intended for educational purposes only. As laws change regularly, you should refer to your state legislation and/or an advisor for specific legal counsel. If you’re a small business owner, learn more about workers’ compensation insurance or check your current rate in 3 minutes.