IPT05300 | Calculating the value of the premium: ‘costs of administration’

Once the claims fund is established, the insurer will also need to cover the day to day running costs of the business (such as salaries, accommodation, telephones, data processing and advertising). These costs are passed on to the customer in the premium. ‘Costs of administration’ are therefore a fundamental part of the premium in that they represent part of the consideration for the insurer’s supply of insurance.