What does 'exposure' typically measure in the context of insurance?

In the context of insurance, 'exposure' typically measures the risk posed by demographic factors. Exposure refers to the potential for loss or liability that an insurer may face, which is influenced by various risk factors including age, health, lifestyle, and other demographic details of the insured population. For example, a life insurance policy might assess exposure based on the insured individual's age and health status, as these factors can significantly affect mortality risk and the likelihood of a claim being made.

The concept of exposure is fundamental to the underwriting process, as insurers need to evaluate the collective risks within their portfolio to set premiums appropriately and ensure they have sufficient reserves to cover potential losses. Understanding exposure allows insurers to balance their risk and create pricing strategies that reflect the likelihood of claims arising from specific demographic characteristics.