National Council on Compensation Insurance (NCCI)
The National Council on Compensation Insurance or NCCI is a national rating bureau that focuses on workers' compensation insurance. It is a non-profit organization owned by insurance companies. The NCCI provides services to insurers, state governments, insurance agents, regulatory authorities, legislatures, and other parties.
The NCCI performs rating and other functions on behalf of insurers in thirty-six states. These states are called NCCI states. Each year, workers' compensation insurers in these states report their premiums and losses to the NCCI. The organization collects the data, analyzes it, and then uses the results to provide services to insurers. Here are some of the functions the NCCI performs:
- Creates and publishes a uniform classification system
- Calculates rates or loss costs, and makes filings to state regulators
- Creates and publishes an experience rating plan
- Creates an experience rating worksheet for individual employers
- Analyzes costs of proposed and enacted legislation
- Creates and publishes workers' compensation policy forms and endorsements
- Prepares statistical reports
- Conducts research on claims, disability, and other issues related to workers compensation
- Provides access to current regulatory information
- Educates insurance industry professionals on matters related to workers' compensation
Rate-Making and Classification
Two key functions performed by the NCCI have a direct effect on employers. These include rate-making and the classification system.
In many states, the NCCI calculates loss costs rather than rates. Loss costs typically include losses (benefits paid to injured workers) plus loss-adjustment expenses. Insurers add charges for commissions (to agents and brokers), taxes, licenses, and profit to calculate a final rate.
For each of the thirty-six states, the NCCI periodically evaluates the current loss costs or rates to ensure they are adequate but not excessive. This process involves several steps. First, the NCCI reviews the aggregate premium and loss data it has collected from insurers operating in a particular state.
This is to determine whether insurers have experienced more or fewer losses in that state than initially projected. Next, the NCCI evaluates premium and loss data for each class code. Losses may have been higher than expected in some industry groups but lower than expected in others. Depending on the results, the NCCI may recommend an increase or decrease to some or all of the loss costs or rates used in that state.
NCCI's classification system is used to categorize employers based on the nature of their business. Businesses that perform similar operations are assigned to the same category. Each classification is identified by a written description and a four-digit code. For example, Hardware Stores are assigned class code 8010.
Standard Policy Forms
The NCCI has developed a standard policy form called the Workers' Compensation and Employers Liability Insurance Policy. This form was revised in 2011. It can be identified by its form number, WC0000000B. It is used in the thirty-six NCCI states, and in many independent states as well. The NCCI has developed a variety of endorsements that can be used to add, remove, or modify coverage under the basic policy form. An example is the Voluntary Compensation endorsement.
Advisory Services Only
The NCCI is an advisory organization, not a regulatory commission. It can recommend increases or decreases in loss costs or rates but states ultimately decide whether to implement those recommendations. Moreover, states may adopt the NCCI's products to suit their needs. Thus, many states utilize a modified version of the NCCI's classification system, rules, and endorsements. For instance, a state may have developed its own four-digit code for a particular classification in place of the standard code. A state may also develop its own version of one or more NCCI endorsements.
Independent and Monopolistic States
Fifteen states do not utilize the services of the NCCI. Four of these states are called monopolistic states because they require employers to purchase workers' compensation insurance from a state-operated insurance fund. These states prohibit the sale of workers' compensation policies by private insurers. The monopolistic states are Wyoming, Washington, Ohio and North Dakota.
The remaining eleven states that don't utilize the NCCI's services are called independent states. These states rely on their own workers' compensation bureau to perform rate-making and other essential functions.