Chapter 1 Flashcards
define mission statement
a formal written statement of the company’s fundamental purpose or reason for being.
what is the mission of an insurance company?
provide individuals with products that protect them from financial losses associated with certain risls.
NAme the 3 kinds of insurance categories
life insurance
health insurance
property/casualty insurance
What can an annuity do?
protect against outliving one’s savings or financial resourse
what kind of insurance products do property and casualty insurance companies sell?
protection agsint property damage or theft of personal property.
financial consequences of causing injury to another person, or damage to the property of others
what is a stakeholder? (constituent)
a party that has a interest in how a company conducts its business.
name 10 kinds of stakeholders that related to an insurance company
rating agentcies owners customers employees producers trade organization suppliers creditors reinsurers regulators
define the goals for a company owner (stockholder)
- to earn a profit
- invests financial securities into a company through stock and shares.
what is stock
a type of financial security that represents an ownership interrest in a compnay
what is a security (terms of stock)
represents either 1) an owndership interest in a business or 2) a debt owed by a business, government, or agency
what is a board of directors
a company’s top level of management- may distribute companys profit back to the owners in form of stockholder dividents
how is a mutual insurance company uniqe in terms of ownership?
it is owned by its policy owners,
- no stock,
- owners periodically receive share of companies earnings if +ve thorugh policy divident.
how does a fraternal benefit society run in terms of ownership?
non-profit organization formed to provide social and insurance benefits to its members.
-may receive premium refunds like mutual insurance policy owners
What is an external customer, give 4 examples
External is a person or organization in a position to buy or use the company’s products or to advise/influence others to buuy or use the companies products.
- policy owners
- insureds,
- beneficiaries
- applicants
what are common expectations of customers to their insurance company
- financially stable
- specific products that satisfy the customers needs
- reasonable prices
- conveniency
- accessibility
- reliability
- accuracy
- courteous
define an insurance producer
any individual who is licensed to sell insurance products solicit sales or negotiate insurance contracts.
are insurance producers external or internal customers?
external because they advise customers and organizational buyers regarding insurance product purchases.
what is an internal customer?
an employee or department that receives support from any other employee or department within the organization.
what does a producer expect from the insurance company?-
- RELIABILITY
- efficiency
- commission
- compensation (incentive and insurance benefits)
define how an employee is a stakeholder of an insurer.
-employes impact the success of an insurances company’s operations and profitability.
what do employees expect from the insurance companies?
- operate in reputable and ethical manner.
- fair and adequate compensation
- safe and comfortable work environment.
how do regulators impact/influence insurance companies?
the represent the laws regulating the companies, designated to make sure the insurers remain financially sound and uphold customers trust. there are two types solvency laws and market conduct laws
what are the two broad categories of insurance regulations throughout the world?
- solvency laws, - focus on making sure insurance companies remain solvent (ability to pay its debts, obligations and expenses on time)
- market conduct laws- designed to ensure life insurance companies conduct their businesses fairly and ethically. focuses on nonfinancial operations, (sales practice, service, u/w acitivites, claims practicies, complaint handling).
What are rating agencies?
an organization, owned independently from insurers or govenments, that evaluates the financial condition of insrers and provides information to potential customers and investors in insurance companies.
-rates insurance companies.
simply define reinsurance.
insurance for insurance companyes.
the insurer that transfers all or part of an insurance risk is known as the direct writer (ceding company). the company that assumes the risk from the direct wrier is known as the reinsurer (assuming company)
Name some other possible stakeholders that are involved with insurance companies.
when they borrow money= banks and creditors become stakeholder
- suppliers
- industry trade associations
- medical
- non-governemental organizations
- public, social or environmental groups.
Name the four distinct levels of management
- board of directors
- senior-level management
- middle-level management
- first-level management/supervisory management
define authority
employees right to make decisions, take action and direct other to fulfill responsibilities
define a responsibility
is a duty or a task that has been assigned to an emploee
define accountability
mean that an employee is answerable for how well he carries out his responsibilities.
what is the board of directors
members that were elected by the owners, who meet regularly to review the company’s activities and finances and to set broad company policies.
what is a CEO? (chief executive officer
head of company
-holds executives responsible for the company’s operations
-
what do you call board members who hold positions within the company in addition to their place on the board?
inside directors
-knowledgable about the inside operations
what do you call a board member that does not hold a position within the company?
outside directors, or independent directors
- usually business people,
- professionals in accademia
- community leaders
- retired executives
what are some duties that board members preform?
- setting major company policies
- evaluating the results of operations
- authorizing major transactions
- declaring dividends to be paid to stockholders or policyowners,
- appointing the officers who actually opperate the company
- setting compensation for the CEP and some of the other top-level exectitives
what does the COO, CFO, CIO and CMO typically do?
COO= manages the day-to-day operations of a company
CFO= oversees an insurers’ financial management policies and functions.
CIO= information officer
CMO=markerting
What do vice-presidents typically do?
supervies and coordinates the work actives of a major division of a company.
- usually this group is called company’s executives or officers
what is a typical lower-level managers?
- in charge of smaller units within a company division known as a department.
- usually experts of the department they manage
what does a first-level manager or supervisor do?
managers in charge of subunits of deparments
-spend time in the direct supervision of nonmanagement employees
the managers process involves any interrelated organizational acitvites. NAme the 4 typical groups of management function
planning
organizing
directing
controlling.
what is planning (in terms of management)
the process of preparing for the future by establishing appropriate goals and formulating strategies and activities for achieving those goals.
what is a goal, strategy and tactic?
goal= desired future outcome (objective) strategy= plan for achieving goals and outlines tactics tactics= required tasks and activities
under the direction of the board of directors a company’s officer performs strategic planning. what is this?
the process of determine an organization’s major long-term corporate goals and the broad, overall courses of action or strageties that the company will follow to achieve these goals.
what 3 questions does strategic planning answer?
- should we expand our current product line by selling a new type of product?
- should we acquire another company?
- how can we use technology to expand product distribution?
middle-level management conducts operational planning. what is this?
process during which they determine how to accomplish the specific tasks that need to be performed to carry out the organization’s strageic plans.
which plan is typically generated for long term goals? strategic or operational?
strategic = 3-5 yrs
operational =
what 3 questions do operational planning answers?
- should we hire additional employees to handle the admin of a new product
- should we increase the advertising budget becuase of a new products intro?
- should we purchase a new processing system or upgrade current system?
define organizing in terms of management
the process of assembling and coordinating required resources in the most efficent and effective manner to attain organizational goals.
what does organizing enable a company to do? (3)
- assign job responsibilities to employees,
- provide employees with proper autority to meet their responsibilities
- provide a process for holding employees accountable for their jobs.
what is deparmentalization and why is it used?
its grouping similar or related work acitivies into units
it makes it easy to
-establish and maintain a system of supervision
- creates standardized measured for employee performances
- facilitate communication and coordination
- uses resources efficiently
what us the purse of a chain of command?
identifies who reports to whom in the company and supports the delegation of authority.
what is a centralized organization?
top management retains most of the decision-making authority for the entire company
what is decentralized organization?
top management shares decision-making authority with employees at lower levels.
-top management makes general company policy decisions and delegates other decisions to middle and first level management.
whats a pro to centralizes and decentralized organizations (name one each)
centralized= uniform decision making decentralized= respond more quickly to unexpected situations.
what is the name given to functions that create customer value, and name examples.
line functions: where employees in these funcitons perform work that directly affect the production or admin of the company’s products.
-marketing, NB admin, u/w, claim admin, annuity benefits admin, and customer service
what are the other functional areas called, that arn’t line functions, and give examples of these departments.
suport functions- they provide support service to line functions, but do not produce or admin insurance products.
- actuarial, investments, IT, accounting, HR, and legal and compliance.
simply define value chain-
a model that companies can use for anazlyzing which company acitivities contribute directly to a company’s competitive position.
“a company and all of its resources are dedicated to generating value for customers and profits for company owners.
draw/name a typical value chain for life insurers, that is represented by all the value-added activities
inputs > marketing sales > NB admin > U/W > customer service > claim admin > Profit
how do life insurance companies typically organize work actives?
by. ..
- function
- product
- terriotry
- distribution channel
- customer
- All of the above/combination
explain how a company would organize by function
it divides its operations according to the work that each division preforms.
- each area performs its funciton for all the company’s products.
- pro: simple, focus on development and skills in each area
- small companies with centralized operations and in large centralized companies that offer few produts.
explain how a company would organize by product
distributes work according to the comapny’s life of insurance products.
- allows comparison of different product lines easily
- tends to decentralize an organization.
explain how a company would organize by territory
- insurers that operate in several countries may have seperate divisions for each country.
- good for multi-language places
- each structure typically handles the majority of its own admin functions
explain how a company would organize by distribution system
organizes its major divisions by how the company distributes its products to customers.
- ie: company could have a personal sales division and a direct marketing division,
explain how a company would organize by customer
organizes but customer type, by creating divisions based on particular customer groups such as household markets, corporate markets, small business markets ,etc.
what types of organizational operations would be included in a profit centre business line?
operates according to: product, territory, distribution system or customer type
define a profit centre line of business.
- its evaluated on its profitability
- responsible for its own revenu and expenses
- makes own operating decisions
- in large companies they are organized as SBUs.
Deine a strategic business unit (SBU)
organizational unit that acts like an independent business.
- generates its own indentifiable profits
- has its own set of customers and competitors
- has its own independent management
- has its own budget
- has its own set of strategic goals and strategies.
give an example of an SBU
- individual or group divisions,
- life, or health insurance operations
what is a benefit of creating profit centers or SBU’s and a consequence
Benefits:
-management can identify lines of business’ performances
-allows decentralized decision making
disadvantage
-duplications of some support functions
(some companies avoid this by overlapping)
what is a committee?
a group of people chosen to consider, investigate or act on matters of a specific type.
what is the name of a permanent committed that company executives use as a source of continuing advise?
standing committee
- by participating on a standing committee, board members can stay informed on the company’s activities during the intervals between regular board mettings, and can report these activities
define an executive committe
deals with questions of overall company policies, the lines of business that the company sells, the territories in which it opperates, policies that affect the company’s employees and items not specifically assigned to other committees of the board of directors
define investment committee
determines the broad investment policy of the company
define the audit committee
sets policy for the company’s accounting department; reviews all company policies and the internal audit plan; oversees internal and external audits; reviews the company’s periodic financial statement.
name (dont define) interdepartmental standing committees.
- product development committee
- product implementation committee
- asset/liability committee
- budget committee
- corporate communications committee
- research commitee
define ad hoc committee, also called a project team, work group or task force.
a temporary committee that the company establishes for a specific purpose, such as evaluating work process’ to gain efficiencies or investigating why claims are escalating in one geographical area.
-once its purpose is accomplished, the committee is disbanded.
what is a holding company?
a compnay that has a controlling interest in one or more other companies.
when would you see a controlling interrest?
when one company owns enough shares of another company’s stock to control that company’s operations.
What is the name given to a company that is owned or controlled by another company?
a subsidiary of the holding company.
can other companies buy a controlling interest on a mutual insurance company?
no since the do not issue stock
but it can establish a subsidiaries by purchasing the stock of other companies.
Name 4 structure advantages of a holding company
- eliminates some potential corporate culture clashes, and other problems as a results of combining 2+ comapnies
- allows holding company to diversify the products and services it offers- thus protects company from risk involved in concentrating in just one type of business
- greater access to external funds- borrowing or issuing shares of stock in the holding company
- a subsidairy can transfer funds to the holding company, and eliminate the need for external borrowing.
what has been done by the government to avoid holding abuse?
enacted laws requiring that the assets and liabilities of an insurance subsidairy be kept separate from those of the holding company .
What is a downstream holding company?
its owned and controlled by the company that forms it.
- stock insurers and mutual insures can both own subsidiaries in a down stream holding company arrangements.
what is an upstream holding company?
controls the corporation that formed it and can also own other subidiaries.
-stock insurers can form or be purchased by an upstream holding companies
Can a mutual insurer form an upstream holding company?
some duristictions do not allow mutual insurers to form an upsstream holding company
-in these places the have enacted legislations that allow mutual insurers to form mutual insurance holding companies (MIHCs)- strucutre involves splitting the insurer into two or 3 distinct business entities, one being a stock company.
