Understanding and Influencing Insurance Risk: The Dual Approach of Frequency and Severity

The strata insurance market continues to evolve post pandemic, with more complexity and scrutiny placed on the properties the insurers cover.

This has been driven in part by ongoing inflation, large claims events – both local and global, and the ever-present issues in building quality and materials. However, another driver is the increasing sophistication in insurers understanding of risk made possible by the deep pool of data surrounding the Owners Corporation properties that they insure.

Chances of flood, storm, or fire can all be calculated for a specific property, not just the surrounding suburb. Crime statistics, localised wind speed, evaluation and the lay of the land are all digitally recorded and can factor into the risk profile of the properties you manage.

All of this combined with ongoing historical claims information allows insurers to understand the risk of any given property in a deeper and more specific way than ever before.

Demystifying and understanding how insurers assess the risk of the properties they cover and what contributes to this risk is key to ensuring that your owners and committees have the best chance of receiving premiums that correctly reflect their risk and opens options for insurance in the wider market.

How Insurers Assess Risk – The Balance of Frequency and Severity

Insurance risk assessment revolves around two central principles: Probability (Frequency) of a Peril Occurring and its Severity should it occur.  These two aspects together form the basis of how insurers price policies.

Frequency – Reducing the Probability of Perils

Insurers assess the probability, or risk, of a particular peril or event occurring. They look at historical data, weather patterns, building construction, location, and many other factors to calculate the likelihood of various events.  Owners Corporations can take proactive measures to reduce that likelihood of events occurring. Here are some ways:

Burst Pipe Prevention: Regular plumbing inspections, and timely maintenance using high-quality materials.

Impact Damage Mitigation: Installation of bollards, secure parking arrangements, and proper signage.

Theft Reduction: Implementing security systems, controlled access, and community awareness programs.

Identifying Patterns: Repeated claims of the same type, e.g. burst pipes, will attract scrutiny, specific excesses, and increased premiums; address the underlying causes if a pattern arises.

Severity – Minimising Impact if Perils Occur

Insurers assess the average size or impact of a claim should the event occur.  Even with the most comprehensive prevention, events can still happen, this is what insurance is in place for. Here’s how to reduce their impact:

Fire Damage Control: Beyond ESM activities, advanced sprinkler systems, flame-retardant materials, and regular fire drills can lessen fire damage and risk to life.

Water Damage Limitation: Installing smart water leak detectors and proper drainage systems can prevent extensive water damage.

Vandalism Deterrence: Community engagement, well-lit areas, and prompt graffiti removal can deter vandalism and reduce its impact.

Natural Disaster Preparedness: For events like earthquakes or cyclones, structural reinforcements and building codes adherence can minimise risk.

Working with Your Broker

Engaging your broker in your efforts to work through ways you might improve frequency and severity can lead to premium advantages.  Once this work has been done, you then need to make sure that insurers learn of the efforts you have taken:

Showcase Your Measures: Detail your strategies and investments in reducing both frequency and severity.

Request Specific Solutions: Insurers are calculating the risk of a property based on the risks specific to that property, request that the proactive measures you’ve enacted are factored in and result in a policy that accurately reflects your specific situation.

Conclusion: Take Control of Frequency and Severity

At Strata Insurance, we believe understanding and acting on frequency and severity empowers Owners Corporations to take control of their insurance premiums. By systematically and proactively addressing both these aspects and working closely alongside your brokers, you can make a compelling case for lower premiums.

Walk away with these thoughts:

How are you reducing the probability of risks?

How are you lessening their severity if they occur?

Prevention is always better than a cure.

Strata Insurance is here to guide and empower you and your owners corporations in undertaking this insightful journey towards easy, cost-effective protection for Strata Properties. Feel free to contact us to learn more.


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