General Liability classification is no laughing matter

By Sharon Carney  |  September 10, 2013

Newsflash: George Carlin was never a premium auditor. He was a comic genius who used the mundane and obscure details of life to shine a light on how silly and ridiculous our rules and traditions — and our reactions to them — can be. And to hilarious effect.

General Liability classification is based on a series of rules and details, some obscure and some mundane. But to premium auditors, it’s no laughing matter. GL classification is an incredibly important and complex function. Properly classified risks help establish premiums, maintain your company’s profitability, and increase customer satisfaction and retention.

Here’s a two-question pop quiz to demonstrate the difficulty for premium auditors:

1.      True or False:
For general liability policies, the first number in the five-digit classification code will determine the risk type and which business group rules apply.

(If you’re not sure of the answer, I’ll share it with you in a bit. Read on.)

2.   Included or Excluded:
Rule 29.C of ISO’s General Liability Manual states that the installation of products sold by a mercantile risk is a classification inclusion. But the note to “Machinery or Equipment Dealers NOC,” code 15062, states that installation work should be classified separately, making it an exclusion. 

(Are you laughing yet?)

Although GL classification is no laughing matter, if you’re a premium auditor, you’re probably shaking your head and grinning.

Premium auditors have known the truth about GL classification for years.

Classification is a process full of twists and turns that can catch you by surprise. As the saying goes, “The devil is in the details.” If you’re not careful, the details can undermine your company’s ability to meet financial goals and nurture customer relationships.

To start, there’s no single source of information that provides a simple (or straightforward) answer. To classify a risk, you need to consider general rules, business group rules, classification rules, and the underlying notes. Complex rules, new classifications, and the removal of favorite classifications can make general liability classification a challenge. And when the various rules and notes conflict, you’ve got a potential mess on your hands. What do you do?

To help overcome classification challenges, companies have spent millions of dollars on training programs over the years. Formal training can improve results significantly.

On the other hand, you never know when you’re going to need answers to questions immediately. So the best kind of training is that which you can access on demand, 24/7. Flexible training programs allow auditors to fit courses into their workdays as their schedules and workloads permit.

What types of training does your company offer — and what training formats do you prefer?

Consider an online, on-demand GL training program for your company. Your premium auditors may still not be laughing — but at least they’ll have smiles on their faces.

Sharon Carney

Sharon L. Carney is assistant vice president of the Premium Audit Advisory Service (PAAS), a unit of ISO, and has more than 30 years of insurance industry experience.