Exposure analysis quantifies what a matter could cost. It combines the probability of an adverse liability finding with the plausible damages range, then accounts for defense costs, available coverage, and any excess exposure.
The output typically includes a probable outcome, a reasonable worst case, and the point at which exposure exceeds policy limits.
Alternative Names:
Risk Exposure Analysis, Exposure Modeling (Case)
Why it Matters?
Exposure analysis drives reserve adequacy, settlement authority, and the decision whether to notify excess carriers, and its timing is a bad faith issue in liability cases. The reasonable worst case matters more than the expected value for these purposes, because the duty to settle turns on whether an excess verdict is realistically possible rather than probable. Analysis that reports only a midpoint understates the risk that actually drives the obligation.
Frequently Confused with
Related terms
Frequently asked questions
Why report a worst case rather than just an expected value?
When should exposure be reassessed?
