Chapter 2 Flashcards
Organization
Define “organizing”.
Organizing is the process of determining the way the brokerage’s resources will be utilized to achieve the strategic plan.
What are the three types of organizational structures?
Line Organization, Functional Organization, Line & Staff Organization
Describe a Line Organization, and it’s advantages and disadvantages.
Authority is concentrated in managers who are directly responsible for achieving the brokerages goals. Authority flows down while responsibility flows up.
Advantage: Simplicity, clear authority, quick decision making
Disadvantage: Managers must be fully knowledgeable in a wide array of topics, limits employee growth, power is concentrated at the top
Decribe a Functional Organization, and it’s advantages and disadvantages.
The organizations activities are grouped together by function. Departments are headed by specialists who have authority over their specific area of operation.
Advantages: Expert advice, decisions made by specialist
Disadvantages: Several bosses, slow decision making, too many managers distract employees from work
Describe a Line & Staff Organization, and it’s advantages and disadvantages.
Sales, service & financial management functions are treated as line management functions. Those who support the line functions are considered staff.
Advantages: Authority clearly defined, expert advice, encourages communication
Disadvantages: Difficult to implement, cost associated with experts who are not directly generating revenue
What are the three legal forms of a brokerage?
Sole Proprietorship
Partnership
Corporation
Describe a sole proprietorship, and it’s advantages and disadvantages.
Business owned by a single individual.
Advantage: Earn all the profits, quick decision making
Disadvantage: All liability rests with owner, limited expertise, business dies with owner
Describe a partnership, and it’s advantages and disadvantages.
Two or more co-owners - may be general or limited partners.
Advantage: Additional expertise, shared liability, business does not die with death of one partner
Disadvantage: More potential for conflicts, partnership agreements required, difficult to dissolve
Describe a corporation, and it’s advantages and disadvantages.
Legal entity created by government charter, ownership of which is evidenced by stock.
Advantage: Personal assets protected, corporate tax breaks,
Disadvantage: Costly start up, legal fees, income tax are under greater scrutiny
What are the four types of operating affiliations
Loosely-Knit
General Purpose Groups
Clusters
Common Identity Groups
Describe a Loosely-Knit Affiliation
Owners and managers meet on an informal basis to discuss common opportunities and threats.
Describe General Purpose Groups
Formalized extension of loosely-knit affiliation. Provides brokers with resources such as education, preferred attention from insurance companies, management assistance and advice, and a general source of information. Typically a fee to participate.
Describe Clusters
Brokerages band together to share ‘back room’ services such as: Administrative services, physical space, group advertising, education.
Describe a Common Identity Group
Established to give brokerages an image and resources of national or international strength. Primary emphasis is account servicing and participants are likely to be larger brokerages that require reliable affiliates to provide local service on national or international accounts. Very selective & subject to a fee to sustain the network.
What are five ways to evaluate an affiliation?
Services & support Exclusivity Fees Contract Financial Stability
Why must services and support be evaluated?
Services must address the needs of the brokerage. for example, a brokerage looking for a way to service national accounts will be attracted to an affiliation which will provide contracts across Canada. Those wanting additional products to sell may be attracted by brokerages having a variety of commercial group insurance programs.
Why must exclusivity be evaluated?
Consider the reputation of participating brokerages, and how many in the immediate marketing area will be permitted to join. If the brokerage is seeking prestige and image, this can be derived only if others participating are up to the standards described by the sponsoring organization.
Why must fees be evaluated?
Determine whether the services offered are worth the price being charged.
Why must an affiliation contract be evaluated?
Contract should outline responsibilities of the brokerage and what benefits are guaranteed by the contract. An attorney should review.
Why must financial stability be evaluated?
The sponsoring organization should have the resources necessary to assure delivery of the services to which it has committed.
Define the law of agency.
Under the law of agency, the agent owes a duty to act primarily for the benefit of the principal and to deal fairly with the principal in every way.
Define an Agent
If the individual selling the insurance is the agent of the insurance company providing the coverage, they are an insurance agent.
Define a Broker
If the individual selling the insurance is the agent of the party buying the insurance, they are a broker.
What are three types of authority?
Express Authority
Implied Authority
Apparent Authority
Explain express authority.
Anything legal that the parties agree to either verbally or in writing. Ie. Anything contained in the broke contract.
Explain implied authority.
Anything deemed necessary in conjunction with express authority which has not expressly been addressed, or that which is based on precedent.
Explain apparent authority.
Authority which an innocent third party might perceive that the brokerage has. Ie. A broker binds $2M coverage but binding authority is limited to $500k. The client suffers a loss. The insurance company will be obligated to pay, however they may take legal action against the broker.
By use of an example, explain ratification.
When the broker exceeds their authority, but the insurance company accepts knowing full well of the unauthorized act, it is as if the authority has been granted in the first place.
Describe two types of sub-brokers
1) When the brokerage appoints an individual to represent it. The brokerage would be responsible for the individual in the same way as they would be responsible for an employee.
2) When brokerage has difficulty placing business and becomes a sub-broker by placing through another brokerage. In this case, they have no authority, but still have a responsibility to the client.
