Industry classification is integral to the quoting and binding process, especially for small business. Your carrier needs to know your industry in order to make sure they're asking you the right questions and giving you the proper paperwork, among other things.
But business owners are often confused about how to classify themselves—we've found that a lot of people don't have a good grasp on what their industry code is supposed to be, which means they use the wrong code when applying for insurance. In fact, confusion about industry codes was one of the top reasons for policy rejections in 2018.
So why does it matter? Well, consider this: if you were a restaurant owner filling out an application, but you wrote "grocery store" because you thought that was more closely related to what you do than "restaurant," chances are that the underwriter would see your grocery store classification and ask very different questions than they might ask someone who owns a restaurant. In this case, they might ask whether you sell alcohol or prepared food (and if so, how much), or how many square feet of walk-in freezer space you have. These questions would apply to a grocery store but not necessarily a restaurant, and as a restaurant owner not knowing these details could be critical to assessing risk.
When delivering insurance quotes and proposals, it's important to classify risks accurately, according to the industry in which they work. This is especially true for small businesses because their employees often perform a variety of jobs. This means that there is a greater chance of misclassification and the resulting audit adjustments leading to premium overcharges.
Many classification systems are outdated and do not reflect what a company actually does. It's important, therefore, that insurers have both the tools and know-how to make sure their clients are properly classified. With recent advances in artificial intelligence and NLP, it's now possible to instantly match a business with the correct industry code so that you can quote and bind with confidence.
Want to learn more about automating classifications? Send us a note at firstname.lastname@example.org or contact us here.