Loss Exposure

The potential for financial loss to which a person or organization is subject — A loss exposure is the possibility of financial loss that a person or organization may experience — it identifies who or what could suffer a loss and how large that loss could be. For example, a homeowner's exposure includes the value of the home and its contents against perils such as fire and theft. Insurance is priced by grouping similar loss exposures, because predictability improves as the number of similar exposures grows. Analyzing loss exposures tells an underwriter what is at risk, what perils could strike it, and what the financial impact would be, which in turn drives the premium and the policy limits offered.

National insurance concept

The possibility that a person or property may suffer a loss when subjected to a peril — Loss exposure is the condition of being subject to a potential loss because a person or property could be damaged or destroyed by a peril. An exposure exists whenever the elements of a loss are present: a person or property that can be harmed, a peril that could cause the harm, and a financial consequence if it occurs. Loss exposures are the units that underwriters measure and price, and identifying all of an applicant's exposures is one of the first steps in recommending appropriate coverage and in determining the premium.

National insurance concept