22. Expenses Flashcards
1
Q
Types of expenses
A
- Fixed vs Variable vs Mixed
- Renewal vs Initial vs Termination
- Direct vs Indirect
2
Q
Examples of mixed expenses
A
- Senior management team costs may change if business structure changes
- Declining operation can sublet floor of its premises if it became small enough
- Staff-related expenses may change in the long term to meet:
+ Changing levels of new and existing business
+ Changes in the service provided
+ Degree of automation used to provide services
3
Q
Expense allocation principles
A
- By business class
2. By function
4
Q
Examples to allocate indirect expenses
A
- Premises costs can be allocated by floor space occupied by staff.
- Computing costs can be allocated using a “charge out” basis.
- Costs like statutory fees/management costs can be added at the end of the analysis as a % loading to the other attributed costs.
5
Q
Expense allocation by function [NB: relates to timing]
A
- Initial
- Maintenance
- Termination
6
Q
Examples of initial expenses
A
- Marketing
- Sales and commissions
- Processing and policy issue
- Underwriting
7
Q
Examples of maintenance
A
- Renewal
* Investment
8
Q
Expense loading must cover
A
- Claim costs
- Administration costs
- Claim handling costs
- Fixed costs of provider
- Expected claims or benefits
9
Q
Types of expense loading
A
- % of premium/sum assured
- % of funds under management
- Fixed amount per contract
- Fixed amount per claim / % of claim amount
- Combination of above
10
Q
Adjustments for pricing
A
- Cross-subsidies
- Inflation
- Competition
