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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:

  • 11 Agriculture, Forestry, Fishing and Hunting – Activities of this sector are growing crops, raising animals, harvesting timber, and harvesting fish and other animals from farms, ranches, or the animals’ natural habitats.
  • 21 Mining – Activities of this sector are extracting naturally occurring mineral solids, such as coal and ore; liquid minerals, such as crude petroleum; and gases, such as natural gas; and beneficiating (e.g., crushing, screening, washing, and flotation) and other preparation at the mine site, or as part of mining activity.
  • 22 Utilities – Activities of this sector are generating, transmitting, and/or distributing electricity, gas, steam, and water and removing sewage through a permanent infrastructure of lines, mains, and pipe.
  • 23 Construction – Activities of this sector are erecting buildings and other structures (including additions); heavy construction other than buildings; and alterations, reconstruction, installation, and maintenance and repairs.
  • 31-33 Manufacturing – Activities of this sector are the mechanical, physical, or chemical transformation of materials, substances, or components into new products.
  • 42 Wholesale Trade – Activities of this sector are selling or arranging for the purchase or sale of goods for resale; capital or durable nonconsumer goods; and raw and intermediate materials and supplies used in production, and providing services incidental to the sale of the merchandise.
  • 44-45 Retail Trade – Activities of this sector are retailing merchandise generally in small quantities to the general public and providing services incidental to the sale of the merchandise.
  • 48-49 Transportation and Warehousing – Activities of this sector are providing transportation of passengers and cargo, warehousing and storing goods, scenic and sightseeing transportation, and supporting these activities.
  • 51 Information – Activities of this sector are distributing information and cultural products, providing the means to transmit or distribute these products as data or communications, and processing data.
  • 52 Finance and Insurance – Activities of this sector involve the creation, liquidation, or change in ownership of financial assets (financial transactions) and/or facilitating financial transactions.
  • 53 Real Estate Rental and Leasing – Activities of this sector are renting, leasing, or otherwise allowing the use of tangible or intangible assets (except copyrighted works), and providing related services.
  • 54 Professional, Scientific, and Technical Services – Activities of this sector are performing professional, scientific, and technical services for the operations of other organizations.
  • 55 Management of Companies and Enterprises – Activities of this sector are the holding of securities of companies and enterprises, for the purpose of owning controlling interest or influencing their management decisions, or administering, overseeing, and managing other establishments of the same company or enterprise and normally undertaking the strategic or organizational planning and decision-making role of the company or enterprise.
  • 56 Administrative and Support and Waste Management and Remediation Services – Activities of this sector are performing routine support activities for the day-to-day operations of other organizations.
  • 61 Educational Services – Activities of this sector are providing instruction and training in a wide variety of subjects.
  • 62 Health Care and Social Assistance – Activities of this sector are providing health care and social assistance for individuals.
  • 71 Arts, Entertainment, and Recreation – Activities of this sector are operating or providing services to meet varied cultural, entertainment, and recreational interests of their patrons.
  • 72 Accommodation and Food Services – Activities of this sector are providing customers with lodging and/or preparing meals, snacks, and beverages for immediate consumption.
  • 81 Other Services (except Public Administration) – Activities of this sector are providing services not elsewhere specified, including repairs, religious activities, grantmaking, advocacy, laundry, personal care, death care, and other personal services.
  • 92 Public Administration – Activities of this sector are administration, management, and oversight of public programs by Federal, State, and local governments.

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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