ISO class codes used by insurance companies to organize businesses into categories based on their types of operations, explains About.com. These codes are useful because businesses of a similar type require similar liability coverage.
The idea behind ISO categorizations is that businesses that are performing similar tasks are prone to similar liability claims, have similar risks, and should therefore be charged a similar rate, states About.com. In this way, the ISO class codes are a simple way for insurance companies to assess what type of liability coverage a business needs and how much it should be charged for the coverage.
Each liability classification is denoted by two class codes, notes About.com. One class code references premises and operations coverage. Premises and operations coverage deals with claims filed against a business by a third party for incidents that occur at the business. The other class code denotes products and completed operations coverage, which covers claims filed against a business for injury sustained because of faulty products or work. If a business does not produce finished products or completed work, it does not need this second class code, and the first class code is therefore the only one applied to that business.