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When an Insurance Company is looking to write a policy to cover an Insured (i.e. Owner, General Contractor, or Trade Contractor, etc.), they are looking at how much exposure they are opening their company up to. Simply put, the Insurance Company is looking to see how much risk the Insured’s line of business/trade has.
Insurance companies use exposure as the basic unit to help determine the rates for each specific class of business. These are the four different ways that insurers can utilize the exposures.
1. Written Exposure
This refers to the total exposure associated with the policies issued during a policy term. High written exposure is bad for the Insurance Company because they have to pay out the claims, and it’s bad for the Insured because their rates will be affected going forward.
2. Earned Exposure
This is the portion of the written exposures for which coverage has already occurred as of a certain point of time. This is the actual amount of exposure the Insured has been exposed to. This exposure allows insurance companies to keep track of their liabilities after issuing policies.
3. Unearned Exposure
This exposure represents the portion of Written Exposure that has not yet occurred.
4. In-Force Exposures
This exposure is the number of units that are exposed to loss at a specific time across all policies. Insurance companies want to calculate this exposure to be able to access their overall risk. This exposure helps determine if the Insurance Companies have taken on too much risk or if they have room to take on more.
Want to know more about exposure and how your insurance premiums are being calculated? Contact TSIB today at 201-267-7500!