More exposure units lead to which effect on premiums?

More exposure units lead to which effect on premiums?

• A. Higher premiums
• B. Lower premiums
• C. No change in premiums
• D. Only affects deductibles

Answer: (A)

Exposure units quantify how much risk the insurer is covering. Premiums are determined by multiplying a rate per unit by the number of exposure units. So when there are more exposure units, there are more units of risk to insure, which increases the expected losses and, with the rate held constant, raises the premium. For example, if the rate is the same and you go from 4 exposure units to 5, the premium goes up accordingly (proportional to the increase). Other factors like deductibles, limits, or rating factors can alter the amount, but all else equal, more exposure units lead to higher premiums.

Exposure units quantify how much risk the insurer is covering. Premiums are determined by multiplying a rate per unit by the number of exposure units. So when there are more exposure units, there are more units of risk to insure, which increases the expected losses and, with the rate held constant, raises the premium. For example, if the rate is the same and you go from 4 exposure units to 5, the premium goes up accordingly (proportional to the increase). Other factors like deductibles, limits, or rating factors can alter the amount, but all else equal, more exposure units lead to higher premiums.