7/24/2019 Gibson Insurance Company

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#festapam

arloseryeC

7/24/2019 Gibson Insurance Company

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1. Calculate the unit support cost per policy for new and in-force annuity and life

insurance policies using the new allocation bases. In addition, calculate the total

support costs to be reported by product for each legal business unit entity.

2. Why would Hampton want to track that information by product e en if that le el

of detail was not re!uired by regulators"

Better and appropriate allocation approach can help management obtain more accurate

insight on product profitability and make correct product pricing decisions. It will also help

them improve cost management by identifying the specific cost items attributable to each

product.

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#. Will the new support cost allocation information help $ibson Insurance

establish better pricing guidelines for the arious annuities and life insurance

products sold by each legal business unit entity" Why or why not"

The new support cost allocation can help Gibson Insurance Company establish better pricingguidelines for the annuities and life insurance because it allocates costs based on the

appropriate cost items incurred by each product. Determining activity cost pools and the

costs incurred by each product in these activities will identify the true cost of the product!

thus" establishing the appropriate benchmark for pricing decisions.

%. Is there room for impro ement in the means by which the corporate support

costs are allocated under Hampton&s new approach" If yes, in what way's(" If no,

why not"

#es" the new approach can be improved by taking into consideration the difference in the

features of the products sold by each legal business entity. This may entail a different basis

of allocation" hence a difference in the cost allocation. $or instance" the whole life insurance

policy" in terms of the number of customer service" would necessitate more customer calls

than the term life insurance policy! thus" the cost allocation may need to be ad%usted to

reflect these differences in the incurrence of costs due to the variations in the said product

features for each legal business entity.