What Does Earned Exposure Mean?
Earned exposure is the actual amount of exposure an insured item has been exposed to over a specific period of time.
Exposure is an asset's susceptibility to a loss. It is the reason policyholders buy insurance in the first place. And earned exposure is one tool that allows insurance companies to keep track of their liabilities after issuing policies.
Insuranceopedia Explains Earned Exposure
Earned exposure essentially refers to the amount of potential loss an insurance company has covered on a given policy over the course a specified period of time.
Suppose, for instance, that an insurer issues a commercial liability policy to a restaurant that has a coverage limit of $1,000,000. The insurer, then, is exposed to $1,000,000 of potential liability. However, until the restaurant owner files a claim against this policy, the insurance company's earned exposure from it sits at $0.
Now, if the insurance company wants to measure its earned exposure from the policy between January 1st and March 31st, it will review the claims paid to the insured (if any). If a patron slipped on a slippery sidewalk outside the restaurant in late January and sued the company for $140,000 and another patron, and another patron experienced food poisoning from a meal they bought at the restaurant and sued for $210,000, the insurer's total earned exposure from January to March on this commercial liability policy is $350,000 (or, the sum of all the amounts claimed).
In other words, while exposure represents the potential losses (in the form of claims payments) that come from issuing a given policy, the earned exposure represents the actual losses that have come about as a result of that policy.