Regarding a risk profile that is high frequency and low severity, what is the insurer's expectation?

When considering a risk profile characterized by high frequency and low severity, insurers typically anticipate a scenario where many claims occur, but each claim has a relatively small financial impact. This means that while the insurer may handle a large volume of claims, the individual amounts claimed will not significantly affect the overall profitability or risk exposure.

High frequency indicates that there is a greater likelihood of occurrences—meaning that incidents happen often enough to generate multiple claims within a given period. Low severity suggests that the financial losses associated with these claims are minor, so while there may be many incidents reported, the cost associated with each is manageable for the insurer.

This understanding is fundamental for an insurer's underwriting and risk management strategies. The focus is on managing and processing a potentially high volume of smaller claims, which can be a part of their business model, rather than gearing up for very few but very large claims which would significantly stress their resources and reserves. By recognizing the nature of the risk profile, insurers can effectively plan for their claims processes and reserves.