Chapter 3 - Company Organization Flashcards
Describe two things that an insurer seeking a federal license must obtain and in what order they would obtain them
OFSI has the ultimate responsibility for approving the incorporation of federally incorporated causality insurance companies
1) the insurer must obtain letters patent of incorporation, which is issued by the minister upon upon recommendation of the superintendent of financial institution.. The prospective insurer must give notice.
When the letters of patent are granted, the insurer is incorporated and comes into existence
2) the insurer must obtain an order to commence and carryon on business This order is issued by the superintendant after letters patent of incorporation have been issued.
Compare a mutual to a stock company
stock company has a number of individuals who subscribe and contribute capital to form a legal entity known as a corporation. Shareholders of stock company look for a reasonable return. Profit will be paid in dividends to shareholders. Policy holders are not necessarily shareholdes
In a mutual company, this is one of the purest forms of a cooperative. This means its operating on premium note or premium assessment. This form of insurance is not owned by its shareholders. but its policy holders, who formed an association for the purpose of insuring one another against the possibility of a loss. The policy holder is required to sign a premium note, the face value of which is reduce by the cash premium payment The remainder constitutes a residue upon which the board may make further assessments. At the end of the fiscal year the mutual insurer will declare a profit or a loss. If loss, the policy holders will be assessed a levy.
Discuses the pros and cons of buying an insurance company vs building one
Issues such as the cost and timing of building a new company need to be considered against the cost and timing of finding a suitable established company or shell company with the appropriate licenses that fits the strategy of the corporation.
The company to be acquired might be shell company (that is an insured that has no business but has the licenses to do so) or an existing insurer with a book of viable, attractive business.
Other considerations: how well would a purchased company fit in with the plans? are there any outstanding liabilities? what is the reputation? what is the employee talent? would they be willing to change?
how will integration efforts work?
what will be necessary for smooth transition… to keep book of business and employment and distribution network. are the computer systems adequate?
list 4 questions that need to be considered when buying an existing company
how well would a purchased company fit in with plans
are the computers adequent
how will the integration effort works (keep BOB and employment)
does the existing company have any liabilities?
What is the role of the board of directors?
No Canadian boards for foreign insurers.
The board ensures the company is running to abide the by-laws and in compliance with laws and regulations of the jurisdiction. When a foreign companies heads office is located outside of Canada, the law require appointmen tof a chief agent
What is the role of the senior officer?
may be called the general manager., CEO or the president
When organizing a company, what are the options for heirchery
tall or flat/ Centralized or decentralized. Tall mean lines of reporting going up and command going down. For flat structure, employees are given more authority for decision making.
What sorts of conflicts can arise between a company head office and underwriters at a branch offices
they can fight over sharing of resources where U/W management does not have authority over staff or right to evaluate performance. One way to resolve this is to have branch or regional management have direct authority over staff.
what is the box approach
comprises of eligibility critera that allow a risk to be accepted if it meets all the criteria. It the risk does not meet the box approach, it will be declined. . Keeps cost of u/w down. so that u/w can spend their time on more complicated risk.s
Why do speciality lines require higher degree of centralization?
May require that underwriting be done at headoffice level for expertise to assess risk. More people and procceses to review risk for proper assessment
What role does the marketing department have in the relationship underwriters and producers
need to make sure they have advised these department of new product change, and there is process in place for proper communication. Marketing department identifies, qualifies, and manages relationships with producers on behalf of the insurer. The marketer works as the mediatior especially when issues arrive. ex producter accepts business with loss ratio that is not acceptable by the underwriter. Marketer and underwriter will work together to resolve issues.
What issues must management consider when determining staffing requirements
The insurer must determine how many people are required its objectives? What experience do these people have? Must look at growth projections of company, expected average turn over rate. Requires a lot of analysis. if the premium or amount of risk it too much for an underwriter to handle, the quality will go down.
Why is it important that underwriters have the property amount of authority
Enough authority must be given to the underwriters to handle the majority of the business themselves. If authority is so limited that its hampere decision making ability, then nothing will get done. More complex situations should be referred to a more senior or technical underwriter.
list 5 ways a company can create a team environment
- share information
- share sensitive information as appropripirat ex: withdraw from a market
- circulate reports so staff are up to date with important issues
- let staff contribute: the company communication department or staff comiitee to look out for their own best interests
5 training opportunities. Meeting and training sessiona are important for staying up to date with company changes, legilslative or regulatory changes etc.
