Definition - What does Exposure mean?
Exposure refers to an individual’s susceptibility to various risks encountered in daily life. It denotes the individual’s potential for accidents and other losses. Insurance companies evaluate the level of risk an individual faces and use it for computing insurance premiums. For instance, the more a person drives a car, the higher the individual’s exposure to accidents and other similar problems will be.
In some cases, insurance companies refer to their insured entities as exposures too. This is because the policyholders represent risks to the insurance company, whereby the insurer will need to pay the appropriate benefits to the policyholders if they file a claim.
Insuranceopedia explains Exposure
Just as mortgage companies evaluate a loan application, insurance companies also evaluate all the proposals they receive. The underwriters in the insurance company are responsible for evaluating the risk and rating the exposure to the insurance company. Therefore, exposure does not equate to loss, but rather to the potential for loss.
Insurance companies usually look at four different types of exposures in their policies. These include:
- Exposure: The basic unit that underlies an insurance premium
- Earned Exposure: The exposure units actually exposed to loss in a given period
- In-Force Exposure: The exposure units actually exposed to loss at a given point in time
- Written Exposure: The units of exposure on policies written during a given period