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Misclassified comp risks bring premium surprises, distort loss analysis - Business Insurance Skip to content Register for free Search Search Log In Risk Management Cyber Risks Pricing Trends Mergers & Acquisitions Technology Sponsored Content WSIA RISKWORLD Workers Comp & Safety Workers Comp Cost Control Pain Management Workplace Safety International EMEA Asia-Pacific Latin America People Events BI Intelligence Top 100 Agents & Brokers Best Places to Work 2026 Lists Directories Insurance Pricing BI Stock Index Magazine Current Issue Past Issues Subscribe Women to Watch ALL INsurance Resources Risk Perspectives Sponsored Content Webinars White Papers Risk Management Cyber Risks Pricing Trends Mergers & Acquisitions Technology Sponsored Content WSIA RISKWORLD Workers Comp & Safety Workers Comp Cost Control Pain Management Workplace Safety International EMEA Asia-Pacific Latin America People Events BI Intelligence Top 100 Agents & Brokers Best Places to Work 2026 Lists Directories Insurance Pricing BI Stock Index Magazine Current Issue Past Issues Subscribe Women to Watch ALL INsurance Resources Risk Perspectives Sponsored Content Webinars White Papers Risk Management Cyber Risks Pricing Trends Mergers & Acquisitions Technology Sponsored Content WSIA RISKWORLD Workers Comp & Safety Workers Comp Cost Control Pain Management Workplace Safety International EMEA Asia-Pacific Latin America People Events BI Intelligence Top 100 Agents & Brokers Best Places to Work 2026 Lists Directories Insurance Pricing BI Stock Index Magazine Current Issue Past Issues Subscribe Women to Watch ALL INsurance Resources Risk Perspectives Sponsored Content Webinars White Papers Risk Management Cyber Risks Pricing Trends Mergers & Acquisitions Technology Sponsored Content WSIA RISKWORLD Workers Comp & Safety Workers Comp Cost Control Pain Management Workplace Safety International EMEA Asia-Pacific Latin America People Events BI Intelligence Top 100 Agents & Brokers Best Places to Work 2026 Lists Directories Insurance Pricing BI Stock Index Magazine Current Issue Past Issues Subscribe Women to Watch ALL INsurance Resources Risk Perspectives Sponsored Content Webinars White Papers Misclassified comp risks bring premium surprises, distort loss analysis by Louise Esola Workers Comp , Workers Comp Cost Control Sep 16, 2026 An incorrect workers compensation classification can leave an employer facing a substantial premium adjustment, distort how its loss experience is evaluated and complicate its ability to qualify for work, experts say. A recent National Council on Compensation Insurance report illustrates the problem: Among policies inspected under the general storage warehouse classification in 2025, 56% required a governing classification change. Of those, 78% moved to retail or wholesale classifications. Class codes help connect workers compensation premiums to the likelihood and potential cost of workplace injuries by grouping employers with similar exposures. Office work, for example, generally presents less injury risk than construction involving heights, heavy equipment and physical labor. An incorrect classification can mean pricing coverage against a group with substantially different risks. Experts say class code discrepancies are often unintentional. NCCI inspects businesses to ensure that policy classifications reflect their operations and that classification rules are applied consistently. Its annual analysis identifies recurring reclassification patterns to help insurers spot problems before policies are issued, according to its report. “When a business is assigned the wrong classification, its premium may not accurately reflect its actual risk profile,” said Nicone Gordon, Boca Raton, Florida-based executive director of workers compensation infrastructure operations at NCCI. Once a classification is corrected, the premium is recalculated using the rate for the appropriate classification, although the financial impact varies, she said. An incorrect assignment can mean an employer pays too much or too little, potentially leading to a “significant” premium adjustment, said Matthew Hannon, New York-based U.S. national casualty practice leader at Aon. The effect on an employer’s experience modification can be equally important; the modification reflects an employer’s loss experience relative to expectations for its exposures and can affect whether it meets a customer’s contractual requirements, he said. Mr. Hannon described a client whose classification correction generated additional premium but also lowered its experience modification because its losses were more consistent with the proper classification. Mr. Hannon explained that some work contracts bar a company’s employees from working at their sites if the employer’s experience modification exceeds a specified threshold. Correcting the client’s classification lowered its modification and resolved that obstacle. Classification disputes can also create friction between employers and insurers, Mr. Hannon said. He has seen both sides challenge assignments, with brokers helping work to through the disagreement. Broad descriptions and gray areas can make choosing the appropriate classification difficult, he said. “The goal is to find the correct class code,” Mr. Hannon said. The warehouse findings illustrate how a business’s surroundings can obscure its operations. Misclassification can occur when reviewers focus of a facility’s appearance rather than what the business does, Ms. Gordon said. NCCI inspections identified wholesale businesses that used warehouse space to store, pick, pack and ship products they owned and sold, she said. Those warehouses supported broader mercantile operations rather than functioning as standalone storage businesses. The distinction turns on ownership of the goods and the services provided. The storage warehouse classification applies to businesses storing general merchandise for others, with no equity in those goods, when no more specific classification applies, Ms. Gordon said. E-commerce does not change the underlying question, she said: Is the employer storing goods for others or using the warehouse to support its own sales and distribution? Accurate coding also matters to employers trying to understand their losses, said Dan Link, Rolling Meadows, Illinois-based senior vice president, consultative analytics at Gallagher Bassett. “Accurate class codes provide the foundation for meaningful workers compensation analytics,” Mr. Link said in an email. Aligning exposure data with the workforce helps employers identify trends, examine loss drivers and target prevention efforts, he said. To prevent classification problems, Ms. Gordon encouraged employers and insurance professionals to understand the rules and use NCCI’s educational resources. Its online learning center offers free classification training, and its customer operations staff answers questions from agents and brokers, she said. 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