What is generally true regarding the relationship between exposure units and insurance premiums?

The correct assertion regarding the relationship between exposure units and insurance premiums is that the more exposure units assigned, the higher the premium. This is grounded in the fundamental principles of insurance underwriting.

Insurance premiums are determined by assessing the risks associated with the insured entity. Exposure units are metrics that represent the level of risk; they can be measured in different terms depending on the type of insurance, such as the number of vehicles insured in an auto policy or the square footage covered in a property policy.

As the number of exposure units increases, the insurer stands to assume a larger aggregate risk, which typically translates into a higher overall premium. This is because a greater number of units may lead to a higher probability of claims or losses occurring, making it essential for the insurer to adjust the pricing accordingly to maintain profitability and cover potential losses.

In summary, as exposure units increase, the potential for loss increases, which justifies a higher premium to adequately cover that risk. This relationship reinforces the importance of understanding how various factors of exposure influence insurance costs.