What is a claims ratio (often referred to as a loss ratio) when it comes to your Body Corporate policy? It is extremely important for a Managing Agent & the Trustees to be able to interpret this, especially when it comes time for your policy to renew and if you are re-quoting.

The claims ratio is expressed as a percentage, example 50%. Simply what this means is that for every R 1,000.00 collected by the insurer, R 500.00 was paid out towards claims during that year. Insurers will always look at the rolling 3 year claims ratio to enable them to get an accurate idea as to how the Body Corporate insurance portfolio is currently functioning.

A claims ratio of above 65% means that the insurer is going to start possibly running at a loss, as roughly 25 – 35% of the of the premium is made up of administration and underwriting costs for the insurer.

The frequency of claims is also an extremely important factor that the insurer considers when reviewing the rates for the Body Corporate. A once off large claim that pushes your claims ratio to 65%, will be viewed in a less scrutinising manner compared with another Body Corporate whose 65% claims ratio is made up of 25 claims over 6 months. The higher claim frequency gives the insurer an indication of the claims and what the propensity for multiple future claims might be.

The insurance policy is in place to cover sudden & unforeseen events, and the managing agents along with the trustees should be guided by the insurance broker who should carefully manage the claims that are placed and registered with the insurance company so as to manage the effect that claiming has on the insurance premium and assist in maintaining a healthy claims ratio for the body corporate.

Rule 29.1.(a) states that the trustees must negotiate the insurance premium, excesses and rates. All 3 of those items are available for negotiation with your insurer, and the answer will always be based off of the Body Corporates’ 3 year claims ratio.  

One of the goals of the trustees is to steward the funds of the body corporate responsibly. Negotiating lower premiums can certainly be one way, however often managing the claims ratio will guarantee your body corporate favourable rates.

To review your Body Corporates insurance policy against the current market rates, please click on the link below.