Property and Casualty Insurance Practice Exam

Underwriting expenses are considered what type of costs?

1. Fixed costs only.

2. Variable costs related to claims management.

3. Costs required to acquire and maintain a book of business.

4. Exclusively benefits paid to policyholders.

The correct answer is: Costs required to acquire and maintain a book of business.

Underwriting expenses are classified as costs required to acquire and maintain a book of business. This includes various operational expenses associated with evaluating and processing insurance applications, underwriting risks, and maintaining policyholder relationships. These costs can encompass salaries for underwriters, administrative costs, and technology expenses needed for risk assessment and policy management. Understanding underwriting expenses as costs tied to acquiring and managing the business helps illustrate their crucial role in the insurance lifecycle. It emphasizes that insurers must invest in these activities to sustain their operations and ensure that they are effectively pricing and managing the risks they underwrite. This holistic view highlights that underwriting expenses are integral to the insurer's overall financial health and capability to serve policyholders, rather than merely a fixed or variable nature tied exclusively to claims management or benefits.