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A Tale of Three Classes
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A Tale of Three Classes

Classification is one of the great conundrums of workers compensation. Whatever a company's primary class, they would prefer one with a lower rate (assuming, of course, that the rate does not suddenly spike upward). But sometimes tinkering with class codes has a disastrous result. Here is a cautionary tale from New York.

Statewide Fireproof Door is a small family business that does what the name says it does: they make and install fireproof doors. For many years they operated in class code 3076 "Fireproof Equipment" with a 2014 loss cost factor of $5.37. Their agent (who shall be nameless) suggested they seek classification within class code 3066 "Sheetmetal" with a current loss cost of $3.93: this would have saved the company 27 percent.

Bad idea. At the end of the audit process, where first the company prevailed but ultimately lost, the New York Compensation Insurance Rating Board (NYCIRB) determined that neither class accurately reflected the work. The Board placed the company in class 3060 "Door or Window Manufacturing," where the loss cost rate is a whopping $22.19. End of story, end of business. Unable to absorb an 82 percent increase in premium – from $24,000 to about $92,000 --  the company has sold off its equipment and shut its (conventional) doors.

As company owner Darrel Caneiro put it, "we wouldn't have opened this can of worms (if it weren't for our insurance broker." Ouch.

There has been a modest firestorm in response to the company's closing, with angry fingers raised (in the wrong direction) toward the NYCIRB. The Bureau only did its job: the language of the manual explicitly states that door manufacturing falls under class 3060. Ironically, Statewide had benefited from a misclassification going back many years.

The moral of the story is both clear and slightly alarming: your company class might not be ideal "it might not reflect every aspect of what you do" but a classification audit might well make things worse. Classification manuals are interpreted with a literalism that would make biblical scholars blush. You might be involved in making fireproofing equipment, but ultimately, a door is just a door.

We will have more to say about the classification conundrum. It seems that all classification issues point in the direction of 8810, Clerical and Office, where everyone wants to put their workers because the rates are as low as they can go. But therein lies a tale for another time.

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