Loss exposure

A loss exposure is the possibility of an accidental loss with measurable financial consequences. Each loss exposure has a value that can be diminished or destroyed by a specific cause with financial consequences for that specific entity, a person or an organization. The first step in the Risk Management process is to identify and analyze your loss exposures.

There are four types of loss exposures:

  • Property
  • Liability
  • Personnel
  • Net Income

Methods to identify exposures:

  • Using standardized surveys/questionnaires
  • Loss History
  • Financial History
  • Records and files
  • Flowcharts
  • Personal Inspections
  • Experts

Analysis of loss exposure objectives:

  • Profit
  • Continuous Operation
  • Stable Earnings
  • Growth
  • Humanitarian Concerns
  • Legal Requirements

Significance of a loss exposure:

  • Loss Frequency
  • Loss Severity

Step two is looking at alternative techniques. Step three is selecting the most appropriate combination of techniques. Step four is implement the selected techniques with step five being the monitoring of results and improving the risk management program. As you can see, it is an ongoing program that is constantly evolving to suit your needs.

We have provided in-depth explanations of each step under separate Glossary items.