Insurers collect a mountain of data in the course of doing business. Those carriers send their workers’ comp stats to rating bureaus to analyze the workers' comp claims. The bureaus analyze trends, crunch numbers and come up with objective rates – and insurance carriers are happy to go elsewhere for this time-consuming and necessary job.
Rating bureaus also create codes that classify businesses according to what they do and the risk involved. Each business is given a 4-digit, (or in some states, a 3-digit) code, known as the class code, that reflects the jobs its employees perform. For instance, an accounting firm has a different code than a plumbing company. By knowing what each industry-type does, insurers can price their premiums more accurately.
The bureaus also determine experience modification rates, also known as MODs. The class code and the MOD are among the factors that determine a company’s premium rate.
Most states choose to join the main rating bureau for the United States – NCCI, or the National Council on Compensation Insurance. But just as states show their independence in their DWC names, some opt to go their own way and create their own rating bureaus. Examples include New York, California and New Jersey.
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