Management Control in Insurance Industry

This chapter has the purpose of explaining the importance of management control within a modern insurance undertaking. Starting from the generic definition of cost, costs by type are illustrated. Three possible classifications are considered: fixed versus variable costs, direct versus indirect costs and standard versus effective costs. In addition, the difference between configurations of direct cost and full cost is explained. The passage from costs by type to cost per intended use takes place thanks to the concept of a centre of responsibility. This centre can be further classified into centre of cost, centre of revenue and centre of profit. Continuing along this line of thinking, cost centres in their turn are classified on the basis of their characteristic activity: centre of organisational costs, centre of project costs and centre of pooled costs. Finally, the three procedures to determine a full cost (attribution, allocation and imputation of costs) are explained. At the end of the chapter, the methods of Activity-Based Costing (ABC) and Activity-Based Management (ABM) are illustrated. They represent a different way than the traditional one for attributing, allocating and charging costs.