What do acquisition costs refer to in the context of insurance?

Acquisition costs in the context of insurance specifically refer to the expenses associated with putting business on the books and acquiring the premium. This encompasses a range of expenditures incurred to gain new policyholders, including commissions paid to agents, costs of marketing efforts, and expenses related to underwriting and processing new policies.

When an insurer spends money to attract new business, these costs play a crucial role in the overall profitability and sustainability of the insurance operation. Effective management of acquisition costs is vital, as it directly affects the company's ability to maintain competitive premiums while ensuring that they can cover claims and other operational expenses.

While other options touch on aspects related to the insurance process, they do not comprehensively define acquisition costs. For instance, underwriting new policies is just one part of the process that falls under acquisition costs, and administrative fees for claims relate more to servicing existing policyholders rather than acquiring new business. Similarly, marketing and advertising, while they contribute to acquisition costs, do not encompass the full scope of expenses involved in acquiring a premium or new business.