Similar to using numbers in a chart of accounts to organize assets and liabilities, government categorizes businesses by industry using Standard Industrial Classification codes (SIC codes). SIC codes consist of four-digit numbers used by private data organizations, government agencies, marketers and more for categorization purposes.
The Standard Industrial Classification Code system can be divided into 83 two-digit main groupings, 416 three-digit industry groups and over 1,000 four-digit industries – for example the insurance agents, brokers and related services are classified under 6411.
What is a SIC Code?
A Standard Industrial Classification Code, or SIC code for short, is a four-digit numerical code used to categorize businesses based on their primary business activity. SIC codes help promote uniformity in statistical data presentation and make it easier for companies to compare their economic status against similar industries. Government agencies, private companies, academics analyzing business activity as well as certain paperwork such as loan applications or government documents use them regularly.
Companies use Standard Industrial Classification codes (SIC codes) to define which industry groups their primary focus falls under. Some may also employ secondary codes that denote their involvement in related industries that fall outside its primary scope – for instance Apple Inc has two codes identifying it as electronics and computer/office equipment manufacturers – one being 3571 while its secondary code 7102 confirms this classification.
Insurance companies utilize Standard Industrial Classification codes in a number of analytical processes, including marketing, underwriting, exclusions forms loss control pricing. They utilize them to assess riskiness when insuring certain businesses as well as identify competitors and understand their market.
SIC codes function similarly to accounts numbers in a chart of accounts, with each digit representing a different category – for instance assets might receive an allocation starting with 100 while liabilities might receive one starting with 200. Government agencies use SIC codes to classify businesses; each of the digits holds special significance.
SIC codes identify the major industry group to which a business belongs, followed by an alphabetic classification system consisting of over 430 three-digit industry groups that further narrows down to particular types of businesses – for instance, 6411 is the SIC code for insurance agents, brokers, information and educational insurance services and related service businesses; all insurance agent SIC codes begin with those two digits while any remaining ones may be used later to identify more specific subcategories within 6411.
How do SIC Codes Work?
As with the accounts in your chart of accounts, each SIC code has its own special meaning. The first two digits identify which major sector group a business belongs to (there are 11 major groups and each subdivides further into smaller subcategories); while the final digit identifies specific industries within that larger group.
Companies also employ secondary SIC codes that identify their involvement in industries that aren’t their main focus, making it possible to aggregate statistics on activities unrelated to core operations of the business. Furthermore, multiple codes can be combined together to produce more refined classifications.
SIC codes with nine-digit designations can be used to categorize businesses under miscellaneous industries not otherwise classified (NEC). NEC categories cover specific service industries not covered by other SIC divisions and choosing the correct code is crucial in helping governments collect accurate statistics on businesses – choosing an accurate SIC code may have an impactful impact on lending rates, credit limits, insurance premiums and hiring decisions.
The Standard Industrial Classification System (SIC) was initially intended for use within the United States; however, with global trade and economic expansion leading to expanded data collection needs outside its original boundaries, the North American Industry Classification System (NAICS), with six-digit industry groups and more comprehensive approaches was created and replaced the SIC system in 1997.
Companies House, the official records office for England and Wales, provides businesses with access to 732 Standard Industry Classification codes (SIC codes) which range from “bread baking, including retail” to as narrowly focused as “repair of garden trimmers.” Picking an inappropriate code could have serious repercussions for their company; however, our experience indicates that Companies House never penalised companies who made honest attempts at selecting an incorrect SIC code.
How Do SIC Codes Benefit Insurance Companies?
In the insurance industry, SIC codes play a vital role. They identify a business’ industry class which is integral to calculating premiums. Furthermore, SIC codes enable insurance agents to gain greater insight into clients’ operations and risks so they can develop targeted marketing and sales strategies more efficiently. Furthermore, filing taxes, applying for government contracts or loans often requires having this code at hand as proof.
SIC codes are four-digit identification numbers used to classify businesses by industry. The first two digits indicate major group membership; third and fourth digits offer more specific classification. For instance, retail stores selling home flooring would fall into major group 57 while their industry code (5713) indicates it.
The SIC Code system was devised to standardize and organize economic data gathered by various government agencies into an easily-read format for statistical presentations. Today it is used by the SEC, federal and state tax departments as well as private businesses – lending institutions use SIC codes when reviewing loan applications while banks determine whether a company may qualify for credit.
While SIC codes offer many advantages, they do have their limitations. The system was initially intended only for use within the United States; as trade expanded further and was conducted across Mexico and Canada, a more adaptable classification system needed to reflect these changes; therefore leading to the North American Industry Classification System, or NAICS, being created.
NAICS is a six-digit code system created to reflect the ever-evolving economic conditions of North American markets. While SIC codes contain eleven major groups, NAICS contains over 1,000 four-digit industries and is updated frequently to incorporate emerging trends while upholding accuracy and integrity.
How Do SIC Codes Benefit Insurance Agents?
Insurance agents depend on SIC codes to help them understand the risks associated with certain industries and which companies are likely to file claims and which may carry greater risk – all vital pieces of information that help determine premiums for business owners.
SIC codes also offer insight into the overall economic environment in which businesses operate. Insurance agents can utilize SIC codes to analyze trends in business climate and spot opportunities to expand market share – an effective strategy for building long-term client relationships.
Similar to chart of accounts numbers, SIC code numbers serve to categorize businesses by industry. The first two digits indicate the major group, while the final two provide further detail – for instance if your company’s primary line of business was manufacturing then 6411 would be used; and final two digits can provide information regarding products or services your business produces.
The Standard Industrial Classification Code System is currently the most prevalent method for classifying businesses by industry. Although supplanted in 1997 by North American Industry Classification System (NAICS), NAICS codes have yet to successfully replace SIC codes due to their long history and companies’ unwillingness to switch classification systems.
Being aware of their SIC code is crucial to remaining competitive in today’s globalized economy, and for any new or established business to understand how their code impacts premiums, marketing campaigns and overall business health.
Next time you visit an insurance agent, bring along your SIC code. This will enable them to better comprehend your business and give you an accurate quote that saves both money and provides adequate protection. Don’t wait any longer; start saving today by getting your SIC code!
