Page 98 - ic92 actuarial

The Insurance Times

The specific exposure units used for a given depends
on the following factors :
(i) Reasonableness - it is obvious that the exposure

unit should be a reasonable measure of the
exposure to loss. While every exposure unit
definition compromises this principle to some
extent ( e.g, 1999 Rolls Royce and 1989 Chevrolet
might each represent a car year) , the chosen
measure should directly relate to the loss potential
to the extent possible.

(ii) Ease of Determination - the most reasonable and
responsive definition is of no use until it cannot be
accurately determined.

E.g, while the most appropriate exposure for
products liability insurance might be the number
of products currently in use, this number would
generally be impossible to determine. If the
exposure base cannot be determined, an insurer
can never be assured of receiving the proper
premium for the actual exposure.

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