Valen Technologies, an advanced data and analytics provider for property & casualty insurance leaders, reveals the first of its Valen Network Data (VND) reports, revealing trends identified within Valen’s vast consortium data pool. Valen has a large data consortium for workers’ compensation, pulling from 4 million recent policies. Valen is mining this information to provide insurance carriers with proprietary insights that will assist them in improving underwriting performance.
Examining the four-year period between 2008 through 2011, the first VND report provides insight into which industries have the highest payroll misclassification. Of the 20 distinct industries identified by the North American Industry Classification System (NAICS), construction has the largest percentage of misclassified payroll resulting in an average of 14 percent, or $76.8 billion in post-recession payroll, according to the VND report. The misclassified payroll in construction is highly concentrated in 15 job classification codes, according to Valen.
“We understand that workers’ compensation is a difficult line of business to predict accurately, and misclassification is a struggle for every insurer. For this reason, we are utilizing our data to expose interesting trends and insights to the industry, for carriers to act upon,” says Dax Craig, president and CEO of Valen Technologies. “Carriers who identify misclassification using various predictive tools are able to better identify those policies that are likely to contain misclassified exposure. These carriers are thus able to better manage operating costs and ensure better adherence to their underwriting appetite.”
Misclassification affects premiums and rates for insurers, and is a result of common payroll shifts from one class code to another, class codes being added or removed, or codes that are incorrectly allocated to portions of a policyholder’s payroll. Misclassified payroll is typically identified following a post-term audit, comparing initial payroll allocation to post-audit allocation, according to Valen.
Top Class Codes
After conducting a nationwide study of misclassification, Valen researchers were able to narrow the findings to 15 job classification codes. Valen’s data modeling team analyzed 106 class codes within construction, classifying the top 15 as key drivers of misclassification, which account for 75 percent, or $57.6 billion of the total $76.8 billion in misclassified payroll. The total misclassified payroll amount is based on the most recent Bureau of Labor Statistics 2010 payroll for construction.
A breakdown of the jobs related to these class codes follows:
- Electrical Technician
- Electrical Machinery Repair
- Concrete Construction
- Heating, Ventilation, Air Conditioning (HVAC)
- Road Construction
- Door Installation
“In this age of big data, we want to help insurance carriers minimize costs resulting from misclassification,” says Craig. “We see the industry embracing technology more and more, helping to mitigate and offset these types of errors, and taking action against what was previously unknown. We are dedicated to continue to provide efficient underwriting practices for insurers.”
The first of Valen’s Network Data reports is available online.