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Abstract
Decreasing margins and increasing cost of acquiring
new customers are forcing insurance companies to take
a re-look at their actual costs of business. Traditional
cost accounting methods have not helped the insurance
companies in this effort. Here, the absorption costing
techniques are put to use, whereby over heads are “allocated”
to every customer/product/cost center based on some
unrealistic parameters which does not give the true
picture of the cost.
Activity Based Costing provides the tools to go beyond
gross margin and penetrate the real economics in all
aspects of cost and profitability, including that of
servicing customers. The analyses provided by activity
based costing can provide solutions to many of the critical
business issues facing the insurance industry. This
whitepaper explains how.
Authors
Deepak Mohan & Hemantkumar Patil
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