If you work in the insurance industry, chances are you have been plagued by industry codes. They are an awful and sad necessity. I have spent more hours working on industry-code related projects throughout my career than I would wish on my worst enemy.
Industry codes help facilitate a number of analytical tasks in the commercial insurance industry.
1. Underwriters use industry codes when rating and pricing a risk.
2. Carriers use industry codes to analyze their portfolio of business.
3. Agents use industry codes to classify client submissions.
4. Brokerages use industry codes when prospecting company types.
Given the amount of time spent using industry codes, you would think someone would improve them… But alas, both SIC and NAICS are government-structured and as a result, here are some fun observations about why they are so horrible.
1. The descriptions are written for robots
I dare you to search for “Bar” or “Bank” when looking for a description of a company in NAICS. Bar ends up being “Drinking Establishments (Alcoholic Beverages)” and Bank is “Activities Related to Credit Intermediation.” Who writes these?
2. SIC has not been updated since 1987
SIC codes are as up-to-date as a fax machine. A high percentage of carriers are still using SIC to classify risks. The most common reason is their rating engines are running on platforms that have been in place for the past 20+ years. As a result, any new industry created in the past 27 years does not have a code. Try to find internet related companies in SIC. Not there.
3. Some businesses just do not exist
The easiest example of this is newly formed firms: Drone operators and marijuana dispensaries. There are a number of other company types that just don’t quite fit well into a category. It takes about 10 years for industry codes to catch up to innovation. That’s too slow.
4. A single category can be ridiculously broad
Look at NAICS code 7139. In this one category you will find aerobic centers, archery ranges, carnival ride concession operators, ice skating rinks, nudist camps without accommodations, gocart race tracks, and yacht clubs. There might be a string that ties all of those together, but from an insurance perspective, I think we can all agree that they are different types of risks.
Will this pain ever end? It depends. If your company is using industry codes in a system built 20 years ago, probably not. But there may be hope.
EvoSure is about to launch the first simple-to-use industry tool to ever exist in the commercial insurance industry within EvoSure Market Finder. We know industry code classifications were not built for commercial insurance. They were made for government census evaluations. So we are going to make codes more relevant, easy to find, and up-to-date. We will achieve all of this while still helping our members map back to the number they need for the systems they use.
If you or your firm is interested in finally improving the awful industry code pain that has plagued the industry for the past 20 years, we not only would like you to become a member, we would like to share the tool with you just to be helpful.
