Chapter 22: Expenses Flashcards
Examples of expenses of financial services providers
- Consumables (Office)
- C ommission payments
- E quipment
- R ent and related expenses
- S taff salaries, pension contributions, national insurance contributions
- I nvestment cost
Classes of expenses
- Fixd and variable
- Direct and indirect
In the long-term what do staff expenses need to meet
- Changing levels of new and existing businesses
- Changes in the services provided
- Automation
Examples of indirect expenses
What are their general categories
- Central functions
- IT
- Treasury
- Marketing
- Distribution costs
Computing, HR, general management
Why is expense allocation important ?
Book level
* So that expenses can be loaded correctly into premiums
* Calculating provisions
* Understanding profitability
* Analysing sources of surplus
Business level
* Analysing areas of inefficeincy within the business
* Financial planning
* Cashflow management
Significance of expense loading
Ensure that sufficient premiums are charged or adequate provisions are established to cover not only the expected claims cost , but also the costs of expenses related to administration and claims handling for the business written, including a contibution to the general fixed cost of the provider
Ways that expense loading can be xpressed
Think finmaths or conties s
Give examples
- % of premium or sum assured - commission and sales staff
- % of funds under management - investment expenses
- fixed amount per cntract - office admin (fixed expense)
- fixed amount per claim or % of claim amount - differentiating between death and life claims (per business)
- Combination of the above
Some reasons tht adjustments might be needed to intial expense lodings
Be sure to include examples
- To reflect cross subsidies - between existing business and renewals, larger policies subsidies subsiding smaller policies.
- For past and future expense inflation
- Due to competition considerations
Match fixed and variable expenses to direct and indirect expenses
There may be more than one match for each
Variable - direct
Fixed - direct or indirect
What does seperating expenses by function mean
It relates to the timing of the expenses.
How are expenses seperated by function
- Securing new bsuiness
- Maintaining existing business
- Terminating business
