CH:22 Expenses

Question 1

What are the types of expenses

Answer 1

Expenses can be split between:
- fixed and variable
- direct and indirect

Question 2

Explain direct vs indirect expenses

Answer 2

Direct expenses can be identified as belonging to a particular class or classes of business. Indirect cannot

Question 3

Expenses need to be allocated by?

Answer 3

• Class of business
• function - “activity” or “operation”

Question 4

When allocating expenses by class of business, how is direct and indirect allocated

Answer 4

• direct often allocated using staff timesheets
• indirect - by floor space, computer usage times (charge out basis), at the end in proportion to all expenses

Question 5

What the 3 ways expenses can be split when allocating by function

Answer 5

• initial expenses
• maintenance expenses :
  - renewal expenses
  - investment expenses
• termination expenses

Question 6

How can expense loading be expresses as?

Answer 6

• percentage of premium (commision) or sum assured (underwriting)
• percentage of funds under management (investment expenses)
• fixed amount per contract (administration expense)
• fixed amount per claim or percentage of claim amount (termination or claim expenses)
• combination of above

Question 7

Once expense loadings are determined, what adjustments may be made?

Answer 7

• adjustments to allow for cross-subsidies
• expense inflation
• competition