Risk exposure is a technical term that insurance professionals use to describe the possibility of loss associated with a specific business or activity. They calculate it by multiplying the probability of risk by the total amount of loss that could occur. There are two types of manufacturers risk exposures: pure and speculative.
Pure risks are ones that you cannot possibly control, under even the most rigorous risk management plan. They include the following:
- Employee injury and illness
- Accidents by the general public
- Natural disasters
- Claims of negligence
You can mitigate for these potential losses through various types of insurance, such as general liability and workers’ compensation. Insurance protects you by covering costs such as attorney fees and medical claims.
Unlike pure risks, speculative risks do not happen completely by chance. Instead, they are considered voluntary because they arise out of decision-making. For example, the choice to invest in new technology may inadvertently cause a negative outcome if the result is a decrease in product quality or an increase in repair costs.
Risk exposure is a part of the manufacturing industry with which it pays to become acquainted. By involving your insurance agent in your overall risk management plan, you can customize coverage to meet your needs.