Cost Drivers The process of setting prices for the insurance products and

Cost drivers the process of setting prices for the

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Cost Drivers The process of setting prices for the insurance products and services is based on cost drivers. The consideration and inclusion of cost drivers in the setting of prices for goods and services is a typical approach for not only the insurance industry but for all industries in modern business. Insurance companies consider technologies, labor and other costs associated with providing service to its customers when setting prices. The main cost drivers in the industry vary and are specific for each type of insurance. As an example, according to the information provided by the Insurance Information Institute (2015), the price of auto insurance is determined by the following factors: (a) person’s driving record, (b) frequency of car’s usage, (c) parking place, (d) type of car, (e) type and amount of coverage, (f) gender and (g) age are considered. All of the factors that are considered derives the amount of risk that the insurance company has to take on as it insures a customer. The amount of risk is ultimately the cost driver that dictates the cost of products and services in the insurance industry. The risk involved in an activity being the primary cost driver is not unusual. Risk is a significant determining factor of cost in modern business. So the fact that a common belief that women tend to drive more carefully than men or mature people are calmer and make more measured decisions than young people influence risk as a cost driver.
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ALLSTATE INSURANCE CORPORATION CASE ANALYSIS 16 Opportunities in the Industry Information management is crucial in the insurance industry; much like it is in most if not all industries. All aspects of information management in the insurance industry is affected by the technology used to manage the information. The information has to be timely, accurate and secure. A firm that is successful in exploiting technology and advancements in technology increases its opportunities in the industry. Technological progress has already allowed insurance companies to exploit some of the advantages of technology and advancements in technology. A successful embodiment of new technologies facilitates effectiveness and efficiencies amongst the industry leading to increased profits. There are several scenarios in which adopting technologies may contribute to the increase in total revenue. The most evident scenario entails the development and use of the internet as a means to reach customers. The use of the internet is not currently developed in comparison with most other industries. The lag in adoption of internet based routes to market is likely because of the complex nature of offering insurance. It is difficult to insure a commodity without verifying the value of the commodity first. Doing so would increase risk and ultimately increase costs.
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  • Fall '18
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