Question

Which one of the following statements is correct with respect to an agency's or brokerage's cost of writing new business?

A. Acquisition costs in the insurance industry are low compared to other industries.
B. There are no expenses involved in writing new business aside from the cost of employees' time.
C. It is less cost-effective to write a new piece of business than to renew an existing policy.
D. The cost of writing new business has no direct impact on an organization's bottom line.

Answer 1

The cost of writing new business is less cost-effective compared to renewing an existing policy due to additional expenses involved in attracting new customers and conducting assessments and evaluations.

Step-by-step explanation:

The correct statement with respect to an agency's or brokerage's cost of writing new business is C. It is less cost-effective to write a new piece of business than to renew an existing policy.

Writing new business involves expenses such as marketing, advertising, and underwriting costs. These costs are necessary to attract new customers and conduct the necessary assessments and evaluations to determine the risk and pricing of the policy.

On the other hand, renewing an existing policy typically requires less effort and resources as the agency already has a relationship with the client and has gathered relevant information during the initial underwriting process.