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The primary purpose of the classification system is to facilitate the accurate collection of data so that the cost of workers' compensation insurance can be distributed as equitably as possible. To do that, the classification system is designed to divide payroll and loss data into groups in order to match the premium that you pay to the average potential risk of injury.

For insurer data reporting purposes, California businesses are classified using the Standard Classification System found in Part 3 of the California Workers' Compensation Uniform Statistical Reporting Plan—1995  (Uniform Statistical Reporting Plan). The Uniform Statistical Reporting Plan is part of the California Code of Regulations and is approved by the Insurance Commissioner. The Standard Classification System, which contains approximately 700 industry classifications, describes groups of employers whose businesses are relatively similar. Each classification reflects the type of operations common to that group of employers. An insurer may deviate from the Standard Classification System for underwriting purposes; however, for data reporting purposes, all insurers must use the standard classification system found in the Uniform Statistical Reporting Plan. A pure premium rate, expressed as a rate per $100 in payroll, is calculated by the WCIRB for each classification. The pure premium rate is based upon loss and payroll data submitted to the WCIRB by all insurance companies, and it reflects the amount of losses and loss adjustment expenses an insurer can expect to pay in benefits due to workplace injuries.

For most industries, classifications are assigned by analyzing an employer's overall California operations and identifying one classification that describes the business as a whole. This approach is based on the premise that, in general, employers within a specific industry operate in a similar manner and engage in comparable processes. The resulting pure premium rate for the classification reflects the average anticipated cost of benefits, per every $100 of payroll, incurred by businesses within the particular industry. This approach is relatively easy for employers to administer in that most employers are assigned to only one classification. Consequently, this system promotes the gathering of accurate payroll and loss data and enables the WCIRB and insurers to develop rates specific to a particular industry. Some industries have their own special classification procedures. See Special Industries for more information.

We welcome your feedback on this guide. Please send comments and suggestions to communications@wcirb.com.