Insurer appetite indexed on the Ask Kodiak Platform is based on North American Industry Classification System Codes (NAICS). NAICS is the replacement for Standard Industrial Classification (SIC) and was first introduced in 1997. A collaborative effort by United States Office of Management and Budget (OMB), Statistics Canada, and Mexico's Instituto Nacional de Estadística y Geografía (INEGI), NAICS codes are updated every five years to reflect changes in the economy.
In order to provide for the highest levels of classification precision, our methodology makes all levels of the NAICS hierarchy up to and including the sub descriptions associated with 6 digit national industry codes.
Our technique for mapping to other classification taxonomies is based on text description, not numeric codes.
NAICS Structure & Definitions
NAICS is hierarchical in nature, with related business grouped at the highest level by sector getting more specific about the operations of the business at increasing depth in the hierarchy.
There are 20 sectors in both 2017 and 2022 NAICS editions. Each 2 digit (a two digit code, e.g. 11: Agriculture, Forestry, Fishing, and Hunting) sector contains one or more sub-sectors (a three digit code, e.g. 111: Crop Production), each sub-sector contains one or more industry groups (a four digit code, e.g. 1133: Logging), each industry group contains one or more international industries (a five digit code, e.g. 11321: Forest Nurseries and Gathering of Forest Products) and each international industry contains one or more national industries (a six digit code, e.g. 113310: Logging).
In our documentation we refer to sectors, sub-sectors, industry groups, international industries, and national industries collectively as groups.
Each six-digit national industry NAICS group may have one or more descriptions which provide further specificity on the operation of the business. As an illustrative example, national industry 811114: Specialized Automotive Repair has many associated descriptions, all of which are listed below:
- Automotive brake repair shops
- Automotive suspension repair shops
- Automotive exhaust system replacement and repair shops
- Automotive electrical repair shops
- Automotive transmission repair shops
- Automotive tune-up shops
In our documentation, we refer to the hashes created as a combination of 6-digit NAICS national industry code and description as HD NAICS Codes or Codes.
High Definition NAICS (NAICS HD)
As of the 2017 NAICS Edition, there were roughly 1,100 6-digit national industry codes in the model. However Within these national industry codes exist more than 20,000 sub-descriptions. For purposes of precision, it is useful to make these sub-descriptions addressable. We call this approach High Definition NAICS (or NAICS HD). In the same way that a 4k television provides for a higher degree of clarity than a standard definition set, NAICS HD provides for dramatically enhanced precision over the standard NAICS national-industry code.
For the insurance industry, classification at the NAICS sub-description level is critical to understanding the nature of the risk. As an illustrative example, take 2017 NAICS National Industry 453998, All Other Miscellaneous Store Retailers (Except Tobacco Stores). It has 27 distinct sub-descriptions:
- Architectural supply stores
- Art supply stores
- Auction houses (general merchandise)
- Batteries, except automotive, dealers
- Beer making supply stores
- Binocular stores
- Cake decorating supply stores
- Calendar shops
- Candle shops
- Cemetery memorial dealers (e.g., headstones, markers, vaults)
- Closet organizer stores
- Collectors' items (e.g., autograph, card, coin, stamp) shops (except used rare items)
- Electronic cigarette stores
- Emergency preparedness supply stores
- Fireworks shops (i.e., permanent location)
- Flag and banner shops
- Flower shops, artificial or dried
- Home security equipment stores
- Hot tub stores
- Janitorial equipment and supplies stores
- Marijuana stores, medical or recreational
- Monument (i.e., burial marker) dealers
- Police supply stores
- Religious goods (except books) stores
- Swimming pool supply stores
- Trophy (including awards and plaques) shops
- Wine making supply stores
For Commercial Insurers, the risk associated with Fireworks Shops are very different than that of a Cake Decorating Supply Store!
Creating Unique Identifiers for Each Sub Description
Our technique for making sub-descriptions uniquely addressable is to generate an MD5 hash of the national industry code and the sub-description. This technique guarantees accurate identification of the precise sub-description. Further, anyone implementing the technique can generate this value on demand in any modern programming language.
id = md5(nationalIndustryCode + subDescription); // an example: wineStores = md5('453998Wine making supply stores') //FF35D4A284D474D944EBDB7F20711414
Computed identifiers are provided on this site in the "Identifier" section when viewing a specific National Industry Sub-Description.
Why Not Just Make Up A Sequence Number?
This MD5 stuff sounds hard, why not just make up a sequence number, like 453998-10 to mean Cemetery memorial dealers (e.g., headstones, markers, vaults)?
The Illustrative Example above for NAICS National Industry 435998 makes clear why this technique is perilous. In the 2017 NAICS edition, Cemetery memorial dealers were the 10th sub description, however in the 2012 NAICS edition Fireworks Shops were the 10th sub-description. Use of sequence numbers is untenable and if used in classification will expose an insurer to undue risk.
For Which Editions are HD Codes Available?
The Ask Kodiak team has modeled HD NAICS codes for all supported NAICS editions beginning with 2012. HD Codes are not available for editions 2007 and earlier.
Ask Kodiak helps customers map their legacy classification models to NAICS. Our methodology bases mappings on business descriptions, not codes. Insurance industry codes are typically unreliable for classification purposes as they are often too broad to be of use or mean different things depending on the date or state to which they apply. Our model is thusly based on the business meaning of a legacy classification and maps that text description to 1-n NAICS National Industry Sub-Description Identifiers.
Some of these mappings have been made available on this site for your reference. When browsing a NAICS edition here you will find this list of mappings where available as a list on the bottom of 6 Digit National Industry and National Industry Sub-Description pages.
I don't want to spend all day on this. Can you automate my mappings?
Heck yes, we do this all day. We have the best class mapping tools in the insurance industry hands down. Drop us a line for more info.