A loss exposure is any situation in which a loss is possible. A surgeon's income is exposed to a hand injury; a family is exposed to hospital bills. The exposure exists even if no loss ever happens, and buying insurance does not end it: insurance shifts the financial consequences, but the possibility of loss remains. Individuals and businesses both have loss exposures.
Each A&H product answers a different risk situation:
Medical bills after an accident or illness: medical expense insurance.
Lost earned income when sickness or injury stops you from working: disability income insurance.
Needing ongoing help with daily activities such as bathing and dressing: long-term care insurance.
Once you know the exposure, there are five ways to handle it. Mnemonic: STARR.
Sharing: several parties split the loss, as in a reciprocal exchange where members insure one another.
Transfer: keep doing the activity but shift the financial risk to someone else. Buying insurance is the classic transfer.
Avoidance: give up the activity so the risk no longer exists, such as quitting a dangerous hobby for good.
Retention: carry the risk yourself. Deductibles, copayments and an employer that pays its workers' medical claims from its own funds (self-funding) are all retention.
Reduction: lower the chance or size of a loss, such as seat belts, shower grab bars or a smoking cessation program.