Exposure
Exposure is the extent to which assets, people or earnings are subject to a particular risk; it is the basis of all risk assessment and premium rating.
Dimensions of exposure
Exposure can be captured in terms of values (buildings, equipment, stock), earnings streams (revenue, contribution margin), people and balance sheet positions. In property insurance, reinstatement values and interruption potential are central; in liability, revenue, products and sales markets.
Data collection and quality
Reliable exposure data is a prerequisite for risk-adequate premiums and sound coverage concepts. Incomplete or outdated values lead to underinsurance or unnecessarily expensive covers. Location data, construction classes and natural hazard zones should be updated periodically.
Relationship to PML
Scenario analyses derive the probable maximum loss (PML) from a location’s exposure, which in turn determines capacity requirements and the reinsurance structure.