What Is SIC Code? Everything You Need to Know
TLTR: This blog answers the question “what is SIC code?”, what use it has for businesses, what benefits it has for insurance companions, and how it is different from NAICS codes.
When you’re arranging a file of important documents, you might classify them by assigning numbered codes to each category. You might assign your family’s medical report a code of 100. Similarly, you might assign your financial accounts a code of 200, and so on.
You could further divide the categories into more specific sub-categories. For example, you might categorize your financial assets as 201 and your liabilities as 202. Or your wife’s medical report as 101 and your son’s report as 102.
The U.S. government uses a similar process to categorize businesses according to the industry they belong to through the means of SIC codes.
In this blog
What Is SIC Code?
These four-digit codes have largely been replaced by six-digit codes called North American Industry Classification System (NAICS) in 1997. Furthermore, the NAICS code was implemented to standardize the data collection processes between Canada, U.S., and Mexico which had entered into the North American Free Trade Agreement (NAFTA).
Despite getting replaced, the NAICS code system hasn’t been able to fully replace SIC standardized codes. The Security and Exchange Commission (SEC), a major government agency that regulates the market still uses SIC codes. This is partly because of its long history and also because of the reluctance of businesses that have been using these codes since their inception to switch to a new classification system.
Because of this very reason private data organizations had to update the SIC system by adding additional classifications. This lead to there currently being over 10,000 six-digit SIC codes at the most defined levels.
Note: Six, seven, or eight-digit codes are not official U.S. government SIC codes. Private data companies created them to help them further classify industries for identification and marketing processes.
While all businesses have one primary SIC code that categorizes the core industry of business, a single business can have up to five secondary codes.
Secondary SIC codes identify the business’s involvement in other industries that aren’t its primary focus. The secondary industries may or may not be connected to your primary industry.
Note: Most U.S. companies now have both a SIC and a NAICS code.
What SIC Codes Are Used For
In the general sense, governments, lenders, and private businesses use SIC codes to categorize their current and potential customers by industry. These codes are also used to classify companies for tax purposes.
The Bureau of Labor Statistics updates these codes every three years and uses them to create reports on the workforce, wages, and pricing issues.
Financial institutes like banks use these codes to promptly identify the industry a company belongs to when deciding to extend credit.
The federal government might use the codes to compare manufacturing businesses for an economic analysis project.
The first SIC codes were assigned to categorize and analyze the economic activities across multiple industries and government agencies.
It also sought to encourage the presentation of statistical data collected by various government entities to be standardized.
Since its inception, SIC codes have been implemented in various nations, including the U.K.
This code system primarily classifies the industry into 11 divisions:
- Agriculture, forestry, and fishing
- Insurance, finance, real estate
- Transportation and public utilities
- Retail trade
- Wholesale trade
- Public administration
- Non-classifiable establishments
These are further split into 83 two-digit main groupings, 416 three-digit industry groups, and over 1,000 four-digit industries.
The first two digits of the code represent the major industry group, the third digit represents the industry group, and the fourth digit identifies the specific industry.
For example, if you’re a business that sells home flooring products such as tiles and carpets, the code of your business will start with “57” because it represents retail businesses that sell home goods, which includes flooring. Then, the digit 1” will be added to the number because it’s specific to home furniture and furnishing. Finally, digit “3” will be added to complete the code as it categorizes retail stores that sell floor coverings.
“57” symbolizes the major group which is home furniture, furnishing, and equipment stores
“571” represents the industry group which is home furniture and furnishing stores and,
“5713” symbolizes the industry sector which is floor covering stores
Limitations of The SIC Code System
For all its uses, there are certain jarring limitations when it comes to using the SIC system today. Some of its limitations are as follows:
Mistaken classification of employee groups
The system doesn’t take into account the specifics of the employee positions. For example, administrative assistants in the automobile sector, serve all levels of the company. Yet the SIC classifies them as “Basic Sector” manufacturing positions when they should be classified as “Non-Basic.”
Doesn’t account for modern businesses
These codes were developed primarily to cater to the traditional industries prior to the 1970s. Since then, businesses have changed from majorly manufacturing-based to almost equally service-based.
Slow to recognize new industries
As a result of its limitations regarding accounting for modern businesses, it has been slow in identifying new and emerging industries, such as those belonging to the computer, software, and IT sectors.
What Is SIC Code in Insurance?
When it comes to insurance, Insurance professionals use SIC codes to define and classify businesses based on the products and services they provide. So, these codes serve as a valuable tool for insurance providers in assessing the risks associated with their clients.
For example, an individual applied for commercial vehicle insurance. In that case, the insurance company may ask them to provide the code for their business to determine if you belong to a high-risk industry. This code will provide the insurance company with information regarding the types of work their employees or drivers are likely to perform, along with the risks they are likely to face while on duty. Carriers can use this information to help determine the premium.
Some of the top ways SIC codes are used in insurance are:
Assists in Analytical Processes
SIC codes aid insurers with several analytical processes like underwriting, marketing, exclusions, loss control, pricing, and other related activities.
Identify Potential Customers
Insurance companies can use SIC codes to identify potential customers and marketing endeavors. For example, if you want to target potential clients within a specific industry, you can use their SIC codes to quickly determine if they’re a good fit to target.
Assists in Market Analysis
If an insurance company is looking to conduct a market analysis, you can use the SIC codes to compare your business to a similar business that falls under the same category. Since you’re using SIC, codes you can rest assured that you’re comparing businesses under the same industry.
Assists in Government Regulatory Tasks
If you’re planning on starting an insurance agency, you’ll need your SIC code to file taxes, fill out loan applications, and other documentation. You will also need the code if you’re looking to apply for government contracts and loans.
Insurance business fall under the major group “64”. So all types of insurance businesses will start with these two digits. Insurance agents, brokers, information and educational insurance services, and related service businesses fall into SIC code “6411”.
Note: Insurance companies fall under the major group “63”.
SIC codes have been extended to up to eight digits for more specific classifications within the 6411 categories.
How can insurance companies use SIC codes?
Apart from the uses mentioned, insurance companies can use SIC codes in a variety of ways. Some of the top ways are as follows:
Understanding the scope of competition that a new business might face can help them assess how profitable an insurance business venture is in a particular state or insurance line. You can cluster similar types of insurance companies and conduct a profitability analysis.
Create Targeted Marketing Campaigns
Insurance companies can create targeted marketing campaigns by generating a list of accounts by SIC code groups. Furthermore, they can then create custom marketing campaigns focused on those groups.
Insurance companies can identify the competition in their industry or region by identifying similar companies.
By using SIC codes, insurance companies can retrieve information regarding how risky a business or a client is to insure. This can help them establish a premium based on the level of risk the client poses for the business.
What Is the Difference Between SIC Codes and NAICS Codes?
NAICS classifications are more specific compared to SIC classifications. Furthermore, an important distinction between the two code systems is that the American government officially stopped using SIC codes as far back as 1987. It’s only a number of private companies that continue to update the SIC codes.
While private companies have managed to make the SIC codes even more specific than NAICS codes, they are not officially recognized by the U.S. government. Furthermore, the codes themselves may vary between data companies. It can lead to catastrophic errors in data collection and other related services. So, it is recommended for companies to only use the nationally recognized NAICS code for government-related purposes.
A Standard Industrial Classification (SIC) code is a system for classifying industries by a four-digit code. Government agencies use it primarily to classify companies according to the industry they belong to. While the SIC code system was replaced by the North American Industry Classification System (NAICS) in 1997, some American government departments still use it to this day.
SIC codes can be of immense value to insurance companies. Apart from helping them identify potential customers, they can also assist them to create targeted marketing campaigns, help with competitive analysis, and risk analysis activities.
You will also need SIC code to conduct activities like filing taxes, filling out loan applications, and other related documents.
Did you find this insurance blog helpful? Let us know in the comments below.
Where Do I Search For SIC Code?
You can use the U.S. Department of Labor’s OSHA website to search for a SIC code. You just have to enter a keyword in the search box to do so. Clicking on the “SIC Manual” link that is provided on the website can also redirect you to the link.
You can also retrieve the SIC code from the NAICS Association website by clicking on an entry in the drill-down list.
Where Do I Search For SIC Code?
Technically, yes. However, the quality of these leads may be sub-par. Some agents argue whether buying leads is even ethical. Many of these purchased leads may have changed their numbers, addresses, or even purchased auto insurance before you got hold of them.
For auto insurance leads with a high conversion ratio, always make sure to curate your own list of leads.
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