There’s no getting away from the fact that the insurance industry is built on a gamble, that policyholder assets will not be compromised during the period of coverage. 

As with any gamble, you, the insurer, takes on risk when offering a policy. If you lack a complete understanding of this risk, the chance of making a loss is significantly higher than it should be. This is where an insurance risk survey can be helpful.

In this article, we discuss the purpose of pre-policy survey and how they can impact policy and overall business profitability.

What is an insurance risk survey?

In short, an insurance risk survey helps you understand the risks associated with insuring a prospective business. The process involves two key stages:

1. Risk identification: In-depth analysis of the business to identify potential risks.
2. Risk evaluation: Quantitative and qualitative calculations that communicate the likelihood, severity and possible impacts of the risks in question.

The quantitative aspect of risk evaluation centres around using statistical methods to make data-driven estimates regarding the chances of a risk leading to an actual incident. However, not all elements of risk are so easily quantified.

Whereas quantitative analysis relies on numbers. Qualitative risk evaluation is based on the expert judgement of experienced assessors, both of the immediate risks and those associated with potential future scenarios.

Why is this necessary?

Insurance risk surveys are essential to uncovering the real risks you face when insuring a business.

The more you understand about the risk associated with the business, the more informed your decision will be, not just in terms of whether you should or shouldn’t insure the business, but the specifics of the policy you offer.

With all the essential information, you can offer the applicant sufficient coverage and set fair premiums.

When is an insurance risk survey required?

Insurance risk surveys aren’t always strictly necessary. But in certain circumstances, they are essential in protecting against loss and ensuring profitability.

Below are some insurance scenarios in which risk assessments are considered standard procedure:

• High-value or complex assets: For high-value properties, unique or custom-built homes, large commercial buildings, high net worth individuals, events, or specialised equipment, risk assessments are standard to ensure adequate understanding of potential risks.
• Commercial insurance policies: For businesses, especially those with manufacturing, industrial, or hazardous operations, risk surveys are essential to evaluate operational risks, safety protocols and regulatory compliance.
• High-risk geographies: Properties in areas prone to natural disasters (e.g., storms and floods) usually require risk assessments to gauge the environmental hazards and resilience of the asset.
• New or unfamiliar industries: When insurers are underwriting risks for industries with unique or emerging risks (e.g., technology startups), surveys ensure they are pricing policies appropriately based on industry standards and specific risks.
• Customised or tailored policies: For policies with custom or complex terms and coverage options, insurers rely on detailed assessments to ensure the policy reflects the true risk and to avoid gaps in coverage.
• Insured’s risk history or claims experience: If an applicant has a history of frequent claims or risk incidents, a risk assessment may be required to understand whether they’ve addressed past issues or if similar risks are still present.
• Liability-centric policies: In industries where liability coverage is key (such as healthcare, law, and architecture), assessments may focus on the insured’s procedures, regulatory adherence, and safety standards to gauge liability exposure.

Can’t I just carry out an insurance risk survey myself?

Depending on your knowledge of and access to details about an asset, as well as your understanding of probability, you may be able to carry out some form of basic risk analysis.

However, conducting a thorough risk assessment is generally not something insurers should do on their own. This is because a comprehensive risk assessment requires specialised skills, deep domain knowledge, and unbiased judgment—all of which are essential to gaining an accurate view of potential risks associated with an asset.

The benefits of risk insurance surveys

Here are some reasons why insurers are often better off relying on independent experts for these assessments:

• Depth of expertise: Risk surveyors are typically trained in specific fields, like engineering, construction, environmental science, or financial analysis, depending on the asset type. This level of specialisation equips them to notice nuanced risk factors that might be missed by someone without focused training.
• Objectivity: When an insurer assesses risk on its own, there’s a risk of unintentional bias. Insurers may inadvertently overestimate or underestimate risks based on their desire to acquire or retain clients. Third-party risk assessors, however, can provide a neutral, unbiased view of the risks, ensuring that the assessment is purely based on data and expert judgement.
• Access to advanced tools and data sources: Comprehensive risk assessments often require sophisticated tools, data models, and up-to-date data, such as regional environmental risk profiles or structural ageing models. Risk assessment professionals generally have access to these resources and know how to use them to derive accurate insights, making their assessments more precise and reliable.
• Efficient use of resources: Conducting in-house assessments could mean pulling resources away from core underwriting activities and client management tasks. By outsourcing, insurers can dedicate their resources to critical operational areas.
• Improved liability management: If an insurer conducts an in-house risk assessment and something goes wrong, it could open the company up to liability claims. Independent assessments, by contrast, create a buffer by providing a third-party professional perspective, reducing the chance of errors that could result in liability issues later on.

Are insurance risk surveys worth the investment?

Insurance risk surveys require an upfront investment, but the returns can significantly benefit an insurer’s bottom line. Let’s explore the cost-benefits of insurance risk surveys.

• Reduction in claims and losses: Conducting thorough assessments allows insurers to price premiums accurately based on real risks, helping prevent losses from underpriced policies. The upfront cost of a risk assessment is often far less than the potential expense of frequent or unexpected claims.
• Improved profit margins: With an accurate risk picture, insurers can better align premiums with the actual risk level, protecting profit margins and avoiding unnecessary claims payouts. This fine-tuning in pricing leads to more stable revenue and healthier long-term profitability.
• Cost savings through targeted coverage: Risk assessments enable insurers to refine coverage details, allowing them to avoid over-coverage and reduce premium discrepancies. This means policies can be tailored to avoid over- or under-insurance, minimising costly adjustments.
• Customer retention and satisfaction: Risk assessments foster transparency and demonstrate due diligence to policyholders, helping build client trust. By setting fair, risk-based premiums, insurers show clients that their coverage is well-calculated, which can improve satisfaction and retention rates.

Insurance risk management with Cardinus

Cardinus is a leading provider of outsourced risk management solutions for the UK insurance market, specialising in Insurance Risk Surveys, Reinstatement Cost Assessments, and Fire and Health & Safety Risk Assessments and Consultancy.

Our nationwide network of experienced surveyors supports a wide range of industries and sectors, delivering comprehensive risk surveys for underwriting and marketing purposes.

If you’re looking to assess and understand the potential risks associated with a property or business, we’re here to help. Get in touch at [email protected].