Operating costs
The operating costs or operating expenses of a car insurance company is basically the everyday expenses that have to be made to run the car insurance business. This will include the costs involved to obtain new car insurance business such as advertising and marketing, as well as commission paid to insurance agents and brokers for introducing new business to the insurance company.
Operating costs also include administration cost such as the salaries paid to staff that process the new insurance business, processing of claims and renewal business. The operating costs are eventually paid for by the insured clients as it is included in the monthly insurance premiums. Insurance companies need to keep their operating costs under control otherwise the price of car insurance could become unaffordable to the man in the street.
When the term “overheads” is used it refers to that part of the administrative costs which cannot be allocated to any specific car insurance activity (for example claims or new business.) However these overheads are required for the basic operation of any business – think of items such as rental for the building from where the insurance business is run, electricity and water, communication costs such as telephone and computer systems.