As part of its core services, NCCI conducts classification inspections in all NCCI states through its Classification Inspection Program (Program). The intent of this Program is to monitor the accurate and consistent application of the classification system to maintain its overall integrity. One key component of the Program is to conduct inspections of a policyholder’s operations to determine whether the governing classification code or other classification code(s) identified on the policy reflect the current business operations.
Inspection Data
Based on an analysis using data obtained from the Program between 2021 and 2023, the table below shows the top 10 reclassified governing codes and the top code to which NCCI reassigned each of these governing codes.
In NCCI’s recent “Top Reclassified Code” articles, several reclassified codes have consistently shown up on the list; however, the ranking order may have changed.
In this article, we will primarily focus on Code 8292—Storage Warehouse NOC, Code 5437—Carpentry—Installation of Cabinet Work or Interior Trim, and Code 9015—Building or Property Management—All Other Employees and the reasons why NCCI commonly reclassifies these codes.
Code 8292—Storage Warehouse NOC
Code 8292 takes the No. 1 spot on NCCI’s list of top reclassified codes in 2023. More than 60% of the policies inspected with Code 8292 as the governing classification resulted in a change to their governing class code. The data showed that NCCI reclassified over 75% of those policies to a mercantile code.
Reassignment of Code 8292 to a Mercantile Code
A primary reason for the reassignment from Code 8292 to a mercantile code is that the employers operated businesses that engaged in the sale of goods or merchandise. Most of these businesses maintained warehouses to store their goods.
Warehouses maintained by mercantile businesses for the management, storage, and distribution of their own goods are included within the governing classification of the business and are not separately rated to a warehousing classification.
Code 8292 applies to employers that store or warehouse general merchandise for other businesses and have no equity in the merchandise being stored.
The top mercantile code the policies were reclassified to was Code 8018—Store—Wholesale—NOC, which accounted for 44% of the policies that were reclassified to a mercantile code.
The inspection data showed that the majority of these businesses performed e-commerce; mail order; pick, pack, and ship; or general wholesale operations. Additionally, some employers provided contract-repackaging services, which are also included in Code 8018.
The remainder of these classification reassignments were distributed among 19 other mercantile codes.
Code 5437—Carpentry—Installation of Cabinet Work or Interior Trim
Code 5437 enters the list for the first time, taking the No. 10 spot on NCCI’s list of top reclassified codes in 2023. More than 25% of the policies inspected with Code 5437 as the governing classification resulted in a change to their governing class code. Of those policies, NCCI reclassified more than 30% to Code 5645—Carpentry—Construction of Residential Dwellings Not Exceeding Three Stories in Height.
While both codes apply to construction operations, there are key differences between the codes. This table highlights some of the differences between Code 5437 and Code 5645.
Reassignment to Code 5645
NCCI reassigned employers from Code 5437 to Code 5645 because the:
- Trim carpentry work was being performed by the employees of a carpentry or general contractor that was responsible for the construction of the entire residential dwelling
- Contractor performed remodeling or repair work that included framing or structural work
Code 9015—Building or Property Management—All Other Employees
More than 25% of the policies inspected with Code 9015 as the governing classification resulted in a change to their governing class code. Of those policies, NCCI reclassified more than 20% to Code 9012—Building or Property Management—Property Managers and Leasing Agents & Clerical, Salespersons.
Since the phraseology for Code 9012 includes clerical and salesperson exposures, NCCI’s Basic Manual rules prohibit the use of Code 8810—Clerical Office Employees NOC and Code 8742—Salespersons or Collectors—Outside. As such, that exposure must be assigned to Code 9012 as it is the code that best describes the employer’s operations and property management.
As the majority of payroll and staff were originally included in Code 8810, Code 8742, or both codes, the shift to Code 9012 made this class code the governing classification.
Notable Trends in Reclassified Codes
Additionally, in reviewing the data for the 2023 article, we saw positive movement between this year’s data and the data used for the 2022 top reclassified codes article. Two items of note are:
Code 8810—Clerical Office Employees NOC and Code 8742—Salespersons or Collectors—Outside
NCCI’s "Top Reclassified Codes in 2022" showed that more than 60% of the policies inspected with Code 8810 or Code 8742 as the governing classification resulted in a governing classification change.
As noted in last year’s article, more than 50% of the governing code changes for Code 8810 and Code 8742 were to Code 8723—Insurance Companies—Including Clerical & Salespersons. In the data for 2023, that number was just over 36%, indicating a downward trend from the prior year’s data of approximately 14%.
NCCI filed Item B-1419—Revisions to Basic Manual Classifications and Appendix E—Classifications by Hazard Group in 2012 which established Code 8723 for insurance companies.
Code 0042—Landscape Gardening & Drivers
NCCI continues to reclassify employers from Code 0042 to Code 9102—Lawn Maintenance—Commercial or Domestic & Drivers. Of the policies inspected, the data for 2023 shows that NCCI reclassified 69% to Code 9102, indicating a 4% reduction from the 73% shown in the 2022 analysis.
The reclassification typically occurs when the work the employer performs is better described as lawn maintenance, which is assigned to Code 9102 versus Code 0042, which is for new landscaping installation work.
Underwriting Circulars
NCCI releases various underwriting circulars on classifications and other topics related to rules or forms to provide guidance for properly classifying business operations. These circulars are available for affiliates on ncci.com.
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Class Look-Up Tool
NCCI’s Class Look-Up tool allows users to look up classifications, statistical codes, and related filed and nonfiled content. Users can filter or refine results by selecting or deselecting specific code elements. The tool also provides a code and phraseology snapshot that includes information about the specific code selected and five years of rate history. This tool is free for use by authenticated users.
Summary
Assigning the appropriate classification code at policy issuance is an important step in maintaining the integrity of the classification system. NCCI’s Basic Manual contains the filed and approved phraseology and notes for each classification code. NCCI’s Scopes® of Basic Manual Classifications, a supplement to NCCI’s Basic Manual, is a guide to understanding and assigning classifications. Using NCCI’s Class Look-Up tool and manuals, in addition to asking appropriate questions regarding an employer’s operations, can greatly reduce the number of reclassified codes.
NCCI is sharing its cumulative findings to provide information about emerging trends identified within its Classification Inspection Program. The general code information provided includes examples of reclassification areas that were identified. Without a specific inspection to reference, NCCI can only provide general information on the codes involved.
If you have any questions, please contact our Customer Service Center at 800-NCCI-123 (800-622-4123) or email us at customer_service@ncci.com. We’re here to assist you Monday–Friday, 8:00 a.m.–8:00 p.m. ET.
This article is provided solely as a reference tool to be used for informational purposes only. The information in this article shall not be construed or interpreted as providing legal or any other advice. Use of this article for any purpose other than as set forth herein is strictly prohibited.
