How Insurance Companies Use NAICS Codes
(Industry Classifications)

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Learn how insurance companies use NAICS codes to classify your industry and calculate your premiums. Commercial insurers use NAICS codes to determine if your business is in a high risk industry classification and to determine your premium.

How Insurance Companies Use NAICS Codes

How Insurance Companies Use NAICS Codes

What's the best way to describe your company's business operations? What type of industry are you involved in? What kinds products or services do you sell? These are some of the questions asked by commercial insurance companies when trying to classify your business by North American Industry Classification System (NAICS) code.

The NAICS was established in 1997 to replace the no longer sufficient SIC system. Insurance companies use NAICS codes to identify customers by industry code. NAICS codes classify the economy into 20 sectors, which are separated into 99 3-digit subsectors, which are divided into 311 4-digit industry groups, which are further subdivided into 709 5-digit industries, and finally disaggregated into 1057 6-digit U.S. industries.

The first two digits designate the largest business sector, the third digit designates the subsector, the fourth digit designates the industry group, and the fifth digit designates particular industries. The last digit designates national industries.

But how does your business classification affect your premiums and insurance cost? Let's look at some of the the issues around how insurance companies use NAICS codes.

Business NAICS Codes

How insurance companies use NAICS codes. Insurance companies selling commercial insurance use NAICS codes in many ways - to analyze and classify the businesses they insure, or choose not insure. Industry codes help insurers with several analytical processes involving marketing, underwriting, exclusions, loss control, forms, pricing and other operations.

Every company will have a primary NAICS code. This code indicates a company's primary line of business operations. What determines a company's primary NAICS code is the code definition is their primary activity - the activity that generates the most revenue for the business. Some small business NAICS code classifications can result in you paying higher premiums for your business insurance. It is important that your business is classified properly.

NAICS Structure

The structure of NAICS is hierarchical. The first two digits of the structure designate the NAICS sectors that represent general categories of economic activities. NAICS classifies all economic activities into 20 sectors. The NAICS sectors, their two-digit codes, and the distinguishing activities of each are:

How Insurance Companies Use NAICS Codes - The Bottom Line

We hope this information on how insurance companies use NAICS codes has been helpful. Your classification determines how much you pay for your commercial insurance and much more.

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