Measures of Exposure

[padasala]

Hi,

I was going through chapter 3 and had a question on some of the measures of exposures that have been provided for some lines.

For instance, the material suggests that turnover is the most commonly used measure of exposure for lines like public liability, marine liability and employer's liability...

Which put a few questions in my mind:
1. Is this the case in real life? For instance, isnt number of products sold to date a better measure of exposure for product liability? It is easier to track and audit and provides a much more robust view on the exact amount of risk being underwritten
2. I do not see how vehicle-year and turnover can be used for motor tp and marine tp (seeing marine encompasses so many different types of business)

Any insights on this will help me enormously

It would also be great if people can share what the practices in their countries are... I am from India and I am pretty sure we do not use turnover for determining premiums for marine lines

 

[Ian Senator]

I wouldn't get too worried about which is actually the most common measure. The examiners are after an understanding of what makes a good exposure measure and the pros and cons of various measures, which it's clear you understand already. Don't forget that all exposure measures are approximations of risk, so some will be better than others - it's a trade off.

Number of products sold sounds good for product liability - assuming you can easily know it and the products don't vary hugely. Although turnover is probably in the accounts and may be more readily available.

For MTPL, more cars for more years means more risk of bashing into others, and it's very easy to monitor. Marine, as you say, is very varied, so it'll be interesting to see what people use in practice.