Exposure units
| Exposure units |
|---|
| See also |
Exposure units - It is a term mostly used in insurance sector. To understand what the exposure units are, it is necessary to start with definition of exposure. As J. F., and J. F. C. Outreville wrote[1]: "exposure is a defined asset (human or physical) subject to a defined peril". To extended the background of exposure meaning it is worth to quote the definition of loss exposure [2]: "loss exposure: The potential financial loss, or the monetary amount that is involved in the exposure".
The exposure units term is deeply connected with loss exposure. Exposure units also shows potential loss for insurer not in monetary amount, but in units[3].
Usefulness
Exposure units are usful to calculate the premium that ans insured person pays for range of the protection[4]. To calculate the premium, insurer has to multiply the rate by the amount of exposure units. The number of exposure units depends on type of insurance. E.g. to calculate the premium when rate is 50, and the number of exposure units is 200, the premium is equal to 10 000 (200x50) exposure units. The premium calculated in exposure units is more clearly for insurer because insured does not know what is the monetary value of the premium[5].
Monetary units
Exposure units have they own value in monetary units. Value of monetary units depends on what insured want to secure[6]. The monetary value of two different kinds of exposure units can be totally different, as J. F., and J. F. C. Outreville wrote[7]:
- "in property and liability insurance, the exposure unit is generally 100 monetary units (dollars, ecus, pounds, francs, pesos, etc.)"
- "in life insurance, the exposure unit is 1,000 monetary units"
example shows that life insurance is much more expensive than e.g. insurance of property.
Footnotes
- ↑ Outreville J. F., Outreville J. F. C., 1998, p.7
- ↑ Outreville J. F., Outreville J. F. C., 1998, p.7
- ↑ Friedland J., 2013, p.48-49
- ↑ Friedland J., 2013, p.316
- ↑ Outreville J. F., Outreville J. F. C., 1998, p.147
- ↑ Outreville J. F., Outreville J. F. C., 1998, p.147
- ↑ Outreville J. F., Outreville J. F. C., 1998, p.147
References
- Friedland J., (2013) Fundamentals of General Insurance Actuarial Analysis Society of Actuaries, USA
- Hufeld F. et al., (2017)The Economics, Regulation, and Systemic Risk of Insurance Markets Oxford University Press, Great Britain
- Mishra K. C., (2005) Insurance Demystified - Reading Beyond The Lexicon The ICFAI University Press, India
- Olivieri A., Pitacco E., (2015)Introduction to Insurance Mathematics: Technical and Financial Features of Risk Transfers Springer International Publishing, Switzerland
- Outreville J. F., Outreville J. F. C., (1998) Theory and Practice of Insurance Kluwer Academic Publishers, USA
- Powers M. R., (2012) Acts of God and Man: Ruminations on Risk and Insurance Columbia University Press, USA
Author: Michał Skrabski
