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Blog Industry Insights

Why choosing NAICS codes to classify small commercial insurance risks is so important for agents, yet so difficult, and how can they do it better


Choosing the correct North American Industry Classification System (NAICS) codes to classify small commercial insurance risks is important for agents because it helps them to accurately identify the industry and business activities of their clients. This information is essential for determining appropriate coverage and pricing, as well as for identifying potential risks and exposures that are unique to the client's industry.

However, selecting the appropriate NAICS codes can be difficult for agents due to several reasons:

  1. Complexity: The NAICS system includes over 1,000 codes, making it complex and challenging to navigate. Agents need to have a thorough understanding of each code to choose the right one for their clients.

  2. Ambiguity: Some industries and business activities may fit into multiple NAICS codes, making it difficult to determine the most appropriate one. This can lead to inconsistencies in risk classification and pricing.

  3. Constant changes: The NAICS system is updated regularly to reflect changes in the economy and business landscape, which means that agents need to stay up-to-date with the latest changes to ensure accurate classification.

  4. Limited information: Small businesses may not have detailed information on their industry or business activities, which can make it difficult for agents to accurately classify risks.

Despite these challenges, choosing the correct NAICS codes is critical for agents to provide the best possible service to their clients. To overcome these challenges, agents can invest in technology, such as AI, that helps them automate the classification process and stay up-to-date on changes to the NAICS system. They can also work closely with their clients to gather detailed information on their industry and business activities, ensuring that they are classified correctly.