Administrative expenses are expenses not involved with producing or selling that a business incurs. Instead, they are costs of tasks a business needs to undertake to continue operations. In the context of insurance, insurance companies commonly have a number of administrative expenses, such as rent, utilities, certain salaries, and anything else not directly involved with underwriting or marketing.
It is important for insurance companies to closely watch their administrative expenses because although they do not factor into sales or production, they can still add up and must be accounted for. Expenses like employee benefits, security, and cleaning services may also be classified as administrative expenses. Like other types of business expenses, such as selling and production expenses, they are typically covered by the income the insurance company generates from premiums. Therefore, to remain financially solvent, insurance companies must have enough premiums coming in to cover all of their expenses.
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