Gibson Insurance Company
Number of Policies by type of business unit for this year
		Midwest	Gibson	Compton	Total
Annuities
	New Policy	10,000	8,625	1,215	19,840
	In Force policy	45,000	36,200	4,700	85,900
	subtotal	55,000	44,825	5,915	105,740
Life Insurance
	New Policy	1,250	3,450	8,100	12,800
	In Force policy	5,600	13,500	31,600	50,700
	subtotal	6,850	16,950	39,700	63,500
Total		61,850	61,775	45,615	169,240
Gibson Insurance Company
Summary of product line and business unit support cost allocation using the number of policies as teh allocation basis
($13,920,000 / 169,240 policies = $82.25 / policy )
		Midwest	Gibson	Compton	Total
Annuities
	New Policy	822,500	709,406	99,934	1,631,840
	In Force policy	3,701,250	2,977,450	386,575	7,065,275
	subtotal	4,523,750	3,686,856	486,509	8,697,115
Life Insurance
	New Policy	102,813	283,763	666,225	1,052,801
	In Force policy	460,600	1,110,375	2,599,100	4,170,075
	subtotal	563,413	1,394,138	3,265,325	5,222,876
	Rounding	3	3	3	9
Total		5,087,166	5,080,997	3,751,837	13,920,000
Gibson Insurance Company
Data Summary for New Allocation Bases
		Annuities	Life Insurance
Support Costs	New Basis	New	In-Force	New	In-Force
Policy Acquisition	Steps	2	0	5	0
Customer Service	Calls	0.5	0.2	0.6	0.4
Sales & Marketing	Contacts	10	0	20	0
Corporate Overhead	AUM	$50,000	$50,000	$1,500	$65,000

Gibson acquired Midwest and Compton. Gibson maintained Compton and Midwest as separate legal entities but all three have services provided by Gibson's corporate office. They are reviewing the cost allocation system to find a better method of allocation.

Questions:

1. Calculate the unit support cost per policy for new and in-force annuity and life insurance policies using the new allocation bases. In addition, calculate the total support costs to be reported for each legal business unit entity
2. Why would Hampton want to track that information by product even if that level of detail was not required by regulators?
3. Will the new support cost allocation information help GI establish better pricing guidelines for the various annuities and life insurance products sold by each legal business unit entity? Why or why not?
4. Is there room for improvement in the means by which the corporate support costs are allocated under Hamptons new approach? If yes, in what ways? If no, why not?