How Do Insurers Use General Liability Insurance Class Codes When Underwriting?

Insurers take many factors into account when they’re calculating premiums for businesses’ insurance policies. One factor they consider when underwriting general liability insurance policies is a business’ general liability class code. Here’s a look at what these class codes are and how they can impact businesses’ general liability premiums.

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What Are General Liability Class Codes, and How Do Insurers Use Them When Underwriting General Liability Insurance Policies?

General Liability Class Codes Help Quantify Risk

General liability class codes offer insurers a way to quantify the risk they assume when underwriting general liability insurance policies. Each class code has a rate associated with it, which is used to help calculate premiums.

For example, the class code for a bank in New Jersey might assess a rate of $0.30 per hundred square feet. If a single branch has a 10,000-square-foot building, the bank’s class code would assess a premium of $30 for the branch ($0.30 per hundred square feet x 10,000 square feet).

These codes are referred to as “class codes” because they’re generally applied to all businesses within a class that face similar risks. If an insurer did assess a rate of $0.30 per hundred square feet to one bank, they likely would to all other banks that sought general liability coverage. Other similar businesses that fall within the same class would also pay this rate.

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There Are General Liability Class Codes for All Kinds of Businesses

Insurers have developed general liability class codes for pretty much every kind of business they offer general liability coverage to. Most insurance companies have codes for banks and financial services, tradespeople, retail stores, restaurants, consultants and many, many other businesses.

The rate associated with each class code is usually specific to that class. While the above example with the bank mentioned a per-square-foot rate, other class codes would likely have rates based on different units. Class codes might also be based on:

  • The number of employees a business has

  • How many sales a business makes

  • The number of units a rental building has

  • Any other relevant unit

 

General Liability Class Codes Are Based on the ISO But Rates Vary

Many insurers base their general liability class codes on data collected by the Insurance Services Office (ISO), but insurance companies don’t have to use the ISO’s information. Some consider other organization’s data, such as that provided by the North American Industry Classification System (NAICS), the Standard Industrial Classifications (SIC) or the National Council on Compensation Insurance (NCCI). Additionally, insurers are free to use their own information that they collect themselves.

Because insurers don’t all use the same set of data, there isn’t a standard set of general liability class codes. In most cases, insurer’s lists of codes vary slightly, and the rates associated with each code are frequently a little different.

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Consider Class Codes When Getting General Liability Insurance for Your Business

When you’re looking for general liability insurance for your business, feel free to ask your independent insurance agent about your business’ class code. They’ll be able to tell you how your business is classified and check what rate each insurer is charging for your business’ class. Class codes don’t account for all of a general liability policy’s premiums, but they impact how much a policy costs. By comparing the class codes and rates insurers are assigning to your business, you’ll be better able to find the insurance company that will offer your particular business the best deal on general liability coverage.