# Service Costing for Insurance Companies
## Why Insurance is Service Costing?
Insurance companies sell protection (an intangible promise to pay on a future event). To price the premium correctly and to assess profitability per policy/product, the cost of running the company must be analysed.
## Types of Insurance Provided
| Type | Description |
|---|---|
| Life Insurance | Cover on the life of the insured |
| General Insurance | Motor, fire, marine, health etc. |
| Pension Insurance | Retirement / annuity products |
## Cost Classification of an Insurance Company
The entire costs of an insurance company are classified into four functional groups:
### 1. Development of Policies
Costs incurred to design and bring a policy to market.
- Salary of actuaries, product designers
- Marketing & advertising expenses
- Agent commission for sales (sometimes shown separately)
### 2. Operations
Costs of running the policy through its life cycle.
- Issuing the policy (printing, dispatch)
- Receiving premium and accounting
- Claim assessment and settlement
- Surveyor fees
### 3. Support Functions
Common administrative back-office costs.
- Postage, courier, communication
- HR, admin, legal
- Office rent, electricity
### 4. IT Department Costs
Heavy reliance on tech in modern insurance — separately tracked.
- Servers, software, cybersecurity
- Maintenance of policy management systems
## How Cost Per Policy is Computed
- Direct costs of each product line → charged to that line
- Common costs (support + IT) → apportioned on a basis such as:
- Number of policies issued
- Premium income
- Time spent by support staff (where measurable)