OhioBWC - Basics: Job (manual) Classification

OhioBWC - Basics: Job (manual) Classification - NCCI Conversion

Job (manual) classification - NCCI conversion

The rate an employer pays to insure an employee in case of a work-related injury is based on the industry pursuit of the employer. BWC reviews the information on the coverage application and assigns manual classifications to the employer that correspond with the work being done and the risk of injury due to hazards associated to that work.

For example, the manual classification for an office worker carries a lower rate than the manual classification for a construction worker. This is because there is less hazard and risk of injury for the office worker and claims costs for office workers are typically lower than claims costs for construction workers.

BWC converted its manual classifications to those established by the National Council on Compensation Insurance (NCCI). BWC implemented this change, mandated by law, over a four-year period, 1996 through 2000. BWC converted to the NCCI classification system because it represents a more equitable premium rate structure than the previous system. It also is a more accurate and understandable system, which better classifies employers by their predominant business. As of January 2002, 42 states and the District of Columbia use the NCCI classification system.

Premium Rates
The Ohio Constitution requires BWC to classify industries according to the degree of hazard in the business. This is accomplished when BWC assigns manual classifications to the employer based on the description of work being performed (this information is taken from the coverage application). Each manual classification has its own base premium rate.

How are base premium rates determined?

Base rates are determined by claims costs for a particular classification industry wide and not just from one employer's experience.
BWC's actuarial department analyzes the costs of all claims in each manual classification during the oldest four of the most recent five years.
This information is used to project the cost of claims that will occur the next year for each manual classification.
BWC's administrator uses this actuarial data to make recommendations for premium rates and assessments.
Final approval of premium rates comes from the BWC Oversight Commission.
New rates for private, state-fund employers are effective each July 1 and new rates for public, state-fund employers are effective each Jan. 1.

Base Rating

Base-rated employers pay their workers compensation premiums according to base rates recommended by BWC's administrator and approved by the BWC Oversight Commission.
Base rating allows employers to pay workers' compensation premiums based on the average costs of claims filed against all employers in like industries, utilizing the same manual classifications.
Manual classifications are assigned based on the description of work being performed (this information is supplied by the employer on the initial coverage application).
The base rate assigned to a particular manual classification is determined by a review of combined claims costs in the experiences of all employers associated to that manual classification.
An employer's "experience" is a statistical picture of claims costs during the oldest four of the most recent five-year period.
BWC limits the average base-rate increase or decrease to a 30-percent yearly maximum. This provides relief from the occasional fluctuation that may occur from one year to the next.
Approximately 70 percent of all Ohio employers are base-rated.

Experience Rating
Experience rating is an incentive system to promote safe working conditions. Employers who become experience rated can be credit-rated or penalty-rated, depending on the claims cost record of their particular business.

How does BWC determine if an employer should be experience rated?

BWC reviews payroll information received from every employer.
Associated to every manual classification rate is an expected loss rate.
If an employer's payroll and manual classification rates are such that the expected loss reaches $2,000 or more, then that employer automatically becomes experience rated.

An employer with a better-than-average loss experience, compared to others in the same classification, will receive a credit and pay a rate lower than the base rate. The maximum credit is 65 percent.

An employer with a bad loss experience, compared to others in the same classification, will be penalized and pay a rate higher than the base rate. There is no limit on the maximum penalty.

Smaller employers are excluded from experience rating for their own benefit. One serious accident could cause a smaller employer's rates to increase severely, and the employer's premium stability could be dramatically altered for the next four experience-rating years.

Approximately 20 percent of Ohio's employers are experience-rated.

Experience Exhibit
An employer's experience is a statistical snapshot of claims costs for the oldest four of the most recent five-year period.

Each August, BWC provides an experience exhibit on this website for experience-rated, state-fund employers. An experience-rated employer is an employer who is expected to have $8000 or more in losses.
The experience exhibit shows all lost-time claims within the experience period, including compensation awards, medical payments and claim reserves.
All medical-only claim expenditures are grouped by injury year. Reserves are not set for medical-only claims.
The exhibit also lists the base rates for each manual classification and shows any experience modification, the percentage that is applied to the base rate used to determine premium.
The experience modification is applied as the result of a credit for an employer with a better than average loss experience (credit rating) or a penalty for an employer with a poor loss experience (penalty rating).

Assessments and Blended Rates
The actual rate that appears on the employer's payroll report and is used to calculate workers compensation premiums is called a blended rate. The blended rate consists of several assessments added to the premium rate.

The assessments underwrite administrative costs, the operating costs of BWC and the Industrial Commission of Ohio, and fund the Disabled Workers Relief Fund (DWRF).

The Disabled Workers Relief Fund is for injured workers who have been declared permanently and totally disabled. DWRF is a supplemental benefit to those injured workers whose regular benefits have not kept pace with inflation.

There are two separate DWRF assessments. The first DWRF assessment (10 cents per $100 of payroll) covers injuries that occurred prior to Jan. 1, 1987. BWC bases the additional DWRF assessment on a percentage of the premium rate. This additional assessment covers injuries occurring on or after Jan. 1, 1987.

One percent of the premium an employer pays is used to finance BWC's Division of Safety & Hygiene. The mission of the Division of Safety & Hygiene is to educate employers to help prevent industrial accidents and occupational diseases.

The remaining premium is used to pay compensation and medical benefits for injured workers' claims.