What Does Segregation of Exposure Units Mean?
The segregation of exposure units is the process of literally separating things that represent risks to the insured into two different areas. For example, a company may store assets in two different banks to reduce the risk of losing all of the assets if one of the banks is robbed. Segregation of exposure is essentially a way to hedge against risk.
Insuranceopedia Explains Segregation of Exposure Units
Segregation of exposure units is a risk management strategy. Insurance companies may advise policyholders to participate in the practice in order to reduce the chance of total losses. Risk management can be helpful to both the policyholder and the insurance companies because losses are not good for either party.
Segregation of exposure units is used to protect a wide range of assets and operations.