Earned Exposure

What Does Earned Exposure Mean?

Earned exposure refers to the actual amount of time an insured item has been exposed to risk during a specific period.

Exposure is the susceptibility of an asset to loss, which is the primary reason policyholders purchase insurance. Earned exposure serves as a tool for insurance companies to track their liabilities after issuing policies.

Insuranceopedia Explains Earned Exposure

Earned exposure refers to the actual amount of potential loss that an insurance company has covered on a given policy during a specified period.

For example, if an insurer issues a commercial liability policy to a restaurant with a coverage limit of $1,000,000, the insurer is exposed to $1,000,000 of potential liability. However, until the restaurant owner files a claim, the insurance company’s earned exposure remains at $0.

To measure the earned exposure for the policy between January 1st and March 31st, the insurer would review any claims paid to the insured. For instance, if a patron slipped on a slippery sidewalk outside the restaurant in late January and sued for $140,000, and another patron sued for $210,000 after experiencing food poisoning from a meal, the insurer’s total earned exposure from January to March would be $350,000 (the sum of all the claims).

In summary, while exposure represents the potential losses (in the form of claims payments) that could result from issuing a policy, earned exposure reflects the actual losses that have occurred due to the policy.