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Expenses :money_with_wings: (Principle of expense allocation (Reasons for…
Expenses :money_with_wings:
Types of expenses
Fixed/Variable
Direct/Indirect
Fixed but varies from time to time
e.g. change in structure of business
Principle of expense allocation
Categories
Class of business
Direct expenses
Easy, but one department for multiple issues
Indirect expenses
Split according to department; then allocate on proportion of salary
Function (timing of expenses)
Securing new business
Renewal of business and investment
Terminating (incl. claims) business
Reasons for allocation
Internal Management
Internal management
Each policy contributes to total level of expense
Ways to load expense
Fixed per contract
% of premium/Sum
Combinations
Adjustments
Cross-subsidies
Future/Past expense inflation