Masonry Magazine June 1986 Page. 27
Workers Compensation Classifications
Classifications are assigned to employers on the basis of the classifications that best describe their business operations, and the price they pay for their insurance is based upon the rates for the classifications assigned to them.
The classification process begins with the employer. Classifications are assigned to employers on the basis of their business operations because it is the liability of the employer that is insured, even though the employee, if injured, is the beneficiary of the policy.
The need for a classification system can best be understood by imagining a situation without it. Without classifications, a single price would prevail and the total premium required to pay the benefits would be distributed proportionately among all insureds. This is obviously unfair, because some industries are more hazardous than others. Without classifications, the premium charge for high hazard industries would be inadequate, while the assessment for low hazard industries would be excessive.
In effect, the less hazardous industries would be subsidizing the more hazardous ones. A good classification system allocates premium equitably among employers, consistent with statistically supportable differences in the expectation of losses among different kinds of businesses.
The 650 categories for workers compensation now in use evolved over the years. When workers compensation was established in the United States in 1911, it inherited approximately 1,400 classifications from early forms of employers liability insurance. Over the next decade, the total number was cut by almost half and ever since has grown and shrunk as old industries vanished and new ones appeared.
The classification system groups employers involved in the same kind of business because similar businesses usually have similar exposures to occupational injury and disease, even though no two businesses are identical. Businesses in a given classification will generally be producing similar kinds of product, using similar kinds of machinery or other equipment and handling similar kinds of raw materials.
Each classification should be both homogeneous and large enough to provide a meaningful statistical base. The virtues of homogeneity are obvious-like is grouped with like, and priced accordingly. The virtues of size are a little subtler, but still clear. The more data that can be accumulated, the more statistically credible it will be and the more useful in predicting the likely course of events. In early April, there are many 400 hitters; by September, there are none. An entire season cannot be judged by the small sample and, indeed, the leaders in April are not
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MASONRY-MAY/JUNE, 1986 27