Exposure in short term insurance such as car insurance refers to the insurance company being exposed to the possibility of loss. The immediate environment of the risk object, including events, circumstances, scenery, conditions, people, and objects can increase or decrease the exposure of the insurance company.

As an example an insurance company will look at their exposure in a certain area when taking on more new business in the same area. Let’s say a specific area is high-risk because of regular theft and carjacking incidents – before taking on more car insurance in that area the insurance company will look at their exposure and calculate if they can operate more business profitably within the area.

The insurance company will ask their actuaries to measure the extent of their exposure when taking on a new or unknown risk. The actuaries have different criteria they will use in order to calculate exposure as accurately as possible. When the insurance company refer to exposure the policy period is expressed in years. When an insurance company find that they are over-exposed in a certain area or specific risk product they will seek to find re-insurance for part of the risk. This will spread out the exposure amongst two or more insurers. (See re-insurance in this Glossary for further details.)