Which term best describes the risk associated with an insurance policy?

The term that best describes the risk associated with an insurance policy is "Exposure." In the context of insurance, exposure refers to the potential for loss or damage that an insurer faces when covering a particular risk. It encompasses various factors including the nature of the risk, the likelihood of an event occurring, and the potential severity of losses that could arise from that event.

Understanding exposure is critical for insurers as it helps them to assess the level of risk they are assuming and to establish appropriate premiums for coverage. It is a fundamental concept in the underwriting process, where insurers evaluate and determine the acceptability of offering coverage based on the risks involved.

The other terms, while relevant to insurance, refer to different concepts. Indemnity involves the compensation for losses, subrogation refers to the insurer's right to pursue recovery from a third party after reimbursing the insured, and underwriting is the process of evaluating risks to determine terms and conditions of an insurance policy. Each of these terms plays a role in the broader framework of insurance but does not solely define the risk associated with a policy like Exposure does.