Design of an Insurance Policy Model Applied to Natural Stone Facade Claddings

Miguel Macedo,Carlos Oliveira Cruz,Ana Silva,Jorge De Brito

doi:10.3390/buildings9050111

Abstract

The insurance market deliberately excludes the buildings’ envelope from their insurance policies, neglecting all the damage that can be caused by the degradation process or ageing of the materials. This stance is mainly due to the lack of knowledge in terms of risk and costs associated to the failure of these elements. Even though the building and its elements are the most valuable asset of any owner, most often homeowners do not adopt effective preventive measures to mitigate the deterioration and obsolescence of their assets. This study proposes an innovative methodology for the design of insurance policies for buildings’ envelopes, applied to natural stone facade claddings. The insurance product is defined based on deterministic and stochastic service life prediction models, established through the past degradation history of 142 natural stone claddings analyzed in service conditions in Portugal. Single-parameter (only analyzing the cladding’s age) and multiparameter (encompassing the relevant variables) models are applied in the calculation of the insurance premium. The expected claims are related with the performance of maintenance actions and established according to three degradation levels. The results obtained reveal that an increased knowledge about the insured cladding leads to a reduction of the risk margin and consequently, to a lower annual value of commercial premium paid by a household. This study proposes an innovative solution for tailoring the insurance products, in terms of the risk of failure of the buildings components, as well as the financial charges related with the maintenance of these elements, channeling the risks to the market.

Highlights

An insurance policy is a classical management tool to mitigate the risks of a given event, redistributing the costs of unexpected losses
An insurance product based on a deterministic model will not be able to compete against an insurance based on a stochastic model with a 50% risk margin, because it provides the same coverage and risk charging, with a higher premium; In the deterministic approach, the commercial premium’s difference between single-parameter and multiparameter is below 2€, which reveals the lack of preponderance of the discrimination of the cladding’s characteristics in these models; In the stochastic models, the lesser the assumed risk margin, the greater the premium
The difference is more expressive for smaller risk margins (5%); These results reveal that the design of an insurance product knowing the characteristics of the insured object allows reducing the costs for the policyholder, which increases the possibility of acquiring this insurance policy

Summary

Introduction

An insurance policy is a classical management tool to mitigate the risks of a given event, redistributing the costs of unexpected losses. The insurer investigates the loss, verifying the coverage for a particular risk, determining whether a policy is in force and, if so, estimates the related-costs; and (v) the last stage is the renewal; most policies run for 12 months and are renewed at the end of that period. (i) insured, which is the party receiving a benefit on the occurrence of a specified event; (ii) the period of insurance, during which the policy covers a specific risk; and (iii) the indemnity, which is the total amount payable by the insurance company on each accepted claim. In a simple actuarial perspective, the fair premium for a generic risk, for a specific insured, is estimated by the expected value of the claim (cost and probability of occurrence), when that risk occurs. In actuarial practice, a solidarity principle is usually applied, and the premium is estimated by evaluating the total damage of a specific risk in all the individuals belonging to the same risk class and dividing the costs among them [3]

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Conclusion