We have studied the medium effects on the frequency-dependent polarizability of water by separating the total polarizability of water clusters into polarizabilities of the individual water molecules. A classical frequency-dependent dipole-dipole interaction model based on classical electrostatics and an Unsold dispersion formula has been used. It is shown that the model reproduces the polarizabilities of small water clusters calculated with time-dependent density functional theory. A comparison between supermolecular calculations and the localized interaction model illustrate the problems arising from using supermolecular calculations to predict the medium perturbations on the solute polarizability. It is also noted that the solute polarizability is more dependent on the local geometry of the cluster than on the size of the cluster.