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CAIB 4 > Practice Questions > Flashcards

Practice Questions Flashcards

1
Q

What is planning to a brokerage

A

Key to success

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2
Q

Briefly explain the 2 types of planning approaches & their pros & cons

A

a. Top-down: management has control but getting employee buy-in is hard
b. Bottom-up: employees make the plan but management lacks control

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3
Q

What is the best method of planning?

A

To use both top-down and bottom-up with good communication throughout the organization

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4
Q

Identify the characteristics of a good plan

A

a. Simple
b. Practical (realistic)
c. Severable (can be broken into parts & assigned to different people to take care of)
d. Flexible (allows for changes)

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5
Q

What is an action plan?

A

Detailed plans that apply to a particular business unit & usually is for 1 yr

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6
Q

What is a strategic plan?

A

It’s a brokerage-wide plan usually looking forward 3-5 years

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7
Q

Identify the 7 steps of Strategic Planning

A

a. Scan external environment
b. Analyze environment & current position
c. Match SW to OT
d. Set Corporate focus
e. Develop strategies
f. Develop objectives
g. Set goals

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8
Q

What are the 3 factors upon which successful plan implementation depends? Explain.

A

a. Implementation: mobilizing resources
b. Budget: link your budget to strategies, objectives & goals (i.e. if X is a priority, make a budget for X)
c. Motivation : get people on board

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9
Q

Identify & explain the 3 types of organizational structures:

A

a. Line: manage has authority & responsibility for goals
b. Functional: grouped by departments
c. Line & staff: a combination of line & functional organizations

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10
Q

What are the advantages & disadvantages of line & functional organizations?

A

a. Line:
i. Pros: simple, clear authority, quick decision-making
ii. Cons: managers need lots of knowledge, power concentrated at the top, stifles innovation/employee growth
b. Functional:
i. Pros: expert advice & decision-making
ii. Cons: many bosses, slow decision-making if multiple departments involved, distracts employees

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11
Q

What are the pros & cons of working as a sole proprietor?

A

a. Pros: rights to all profits, easy to start, simple decision-making
b. Cons: unlimited liability, owner has limited expertise, no continuity (owner dies, SP dissolves)

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12
Q

Identify & briefly explain the different types of operating affiliations:

A

a. Loose knit: owners meet to chat
b. General purpose: provides brokers w/ education, info, preferential treatment, etc.
c. Cluster: shares back-end services
d. Common identity groups: gives members national image & resources (operate under the same banner)

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13
Q

Identify & briefly explain the 5 factors important to evaluating operating affiliations:

A

a. Services: does it address your needs?
b. Exclusivity: how many brokerages in my territory? How tight is my contract? What is the reputation of my peers?
c. Fees: up-front & transparent? Worth the investment?
d. Contracts: responsibilities & benefits
e. Financial strength: can they deliver on their promise?

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14
Q

Identify & briefly explain the 3 types of authority given by your agency agreement:

A

a. Express: verbal or in writing
b. Implied: by law or customary to the business
c. Apparent: a reasonable layman would believe you have

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15
Q

Explain Ratification:

A

The insurance company retroactively approves the unauthorized act of the brokerage (i.e. binding beyond authority)

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16
Q

What is the goal of HR management?

A

To ID & select the best people for your strategic plan

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17
Q

Identify & briefly explain the 7 HR management activities:

A

a. Planning: do we have the people to meet targets?
b. Selecting: recruit > screen > hire
c. Orienting: know the role & brokerage
d. Training: to fix weaknesses (i.e. we need better sales people or more commercial-lines people)
e. Developing Employees: promote/reward them, create a career path for them
f. Managing performance: measure & track their progress
g. Termination: if they’re not suitable for the job

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18
Q

ID & explain the 6 components of leadership

A

a. Delegate: authority & responsibility
b. Motivate: satisfy employee needs/wants
c. Communicate: clear, open & concise so they know what’s expected and how to execute
d. Managing conflict: mediate, be impartial & guide employees to a resolution
e. Managing change: calm people down and convince them that it’s for the better
f. Coaching: train employees for new roles or increased performance

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19
Q

What are the 4 strategies for managing conflict?

A

a. Communication to resolve misunderstandings
b. Mutual respect to allow people to communicate without judgement or interruption
c. Interactive problem solving by welcoming all solutions
d. Find win-win situations

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20
Q

Explain what is outlined in the authority section of the brokerage agreement:

A

Rules, rates, guidelines on what business can be bound or sold. Basically, outlines your binding authority

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21
Q

What are the insurance company’s restrictions on termination?

A

They can’t terminate your agreement for poor loss ratio, lack of volume or a bad mix of business without giving you a chance to fix it first.

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22
Q

What are some key factors to consider when picking which insurance companies you want to represent?

A

a. Marketing: does this insurer have the products my customers want?
b. Claims services: bad claims service = unhappy customers
c. Policyholder services: bad service = unhappy customers
d. Financial stability: pick strong insurers
e. UW procedures: complicated procedures = more work, does their UW practices back up their marketing? & rates
f. # of insurers already representing: too many = not enough volume for each OR their niches overlap

23
Q

When an insurer evaluates your brokerage for a potential relationship, one of the factors they look at is your premises. Why?

A

They want to know if your premises look professional or if it’s in a high growth area. If you do a lot of walk-in business, it doesn’t make sense to be located on the 7th floor of a downtown office high-rise.

24
Q

When an insurer evaluates your brokerage for a potential relationship, one of the factors they look at is your HR. Why?

A

They want to know the professional designations, education or work experience of your key personnel (managers, owners, etc.)

25
Q

What are 2 channels of communication between insurer and brokerage? Briefly explain each?

A

a. Informal: phone calls, lunch, golf, parties, etc.
b. Formal:
i. Newsletters: to cover personnel changes, new products, product updates, etc.
ii. Advisory council: gather brokerages together to discuss policy and how insurer’s decisions affect them

26
Q

Explain the concept of marketing as a strategy.

A

We identify the markets we want to be in, the clients we want and then develop strategies to get & retain them

27
Q

Explain marketing as a culture

A

Create an atmosphere where everyone is focused on client satisfaction. That will lead to retention & referrals

28
Q

What are the 3 fundamental marketing strategies.

A

Segmentation, differentiation, market positioning

29
Q

Explain “place” in the marketing mix.

A

Location & hours. Basically: how easy is it for customers to deal with you? Do you have online services? A call centre?

30
Q

When it comes to market segmentation, there are 5 categories. Explain segmentation by demographics & behaviour

A

a. Demographics = most common. Separate people by age, gender, life cycle, education, occupation, ethnicity, etc.

b. Behaviour: how do they engage with you? Look at purchase & usage patterns, how they shop, how they pay, how much they spend, what they buy, claims they have, etc.

31
Q

How does age influence your marketing?

A

At different stages of their life cycle, they have different insurance needs. Most people buy houses around 30, have children, etc. If you know those timings, you can market to them at the right time.

32
Q

Explain Niche Marketing:

A

You select 1 target group and market to them. Good for large urban areas because even narrow niches will contain a lot of people (i.e. selling to boat owners)

33
Q

ID & explain the 4 types of relationships a customer can have with their broker:

A

a. Hands-on: like doctors or hairdressers. Casual conversation, high emotion, high trust.
b. Face-to-face: meet occasionally (i.e. insurance broker)
c. Distance: through technology
d. Brand: relationship w/ the brand. Might have brand loyalty (i.e. you only use Colgate)

34
Q

What are some advantages of having long term clients?

A

a. They are more valuable as they’ll give you most (if not all) of their business
b. Less price sensitive because they trust you and it takes effort to rebuild that relationship with a new broker
c. Gives referrals
d. Easier to serve: renewals are quicker than new applications

35
Q

Explain the purpose of client relationship management:

A

Ensure they’re long term customers who buy from you repeatedly (i.e. insure their new acquisitions with you)

36
Q

There are 7 factors to success in client relationship management. Pick 3 & discuss them.

A

a. Client activity: monitor them to know when to introduce new products (i.e. upsell)
b. Measure employee activity: to focus them on relationship management
c. Process effectiveness: streamline to allow employees to focus on selling & serving clients
d. Loyalty programs: reward customers, referrals, long-term clients & big accounts
e. Consultative selling: make them aware of their risks & what’s available
f. Financial management: relationship management requires an upfront investment
g. Commitment: to delivering quality service & value

37
Q

How can technology benefit your brokerage (hint: 3 ways):

A

a. Profitability: increases revenues & reduces labour costs
b. Relationships: better relationships via faster response times
c. Improves Effectiveness: standardizes & coordinates activities to reduce E&O (less mistakes)

38
Q

What are the 7 elements of a good Broker Management System (BMS)?

A

a. Client Database
b. Product management system
c. Accounting system
d. Admin system
e. Communications: seamless experience for clients
f. Training: to teach employees the new tech
g. Service & support: from the vendor (i.e. fixing bugs)

39
Q

There are 4 criteria for evaluating new technologies your brokerage may wish to adopt. Explain the importance of Capacity in this context.

A

The tech must have the ability to serve multiple locations & have integrations with existing systems (i.e. existing rating softwares, backup systems)

40
Q

What are the 2 types of Electronic Data Interfaces? Explain each.

A

a. Single-entry Interface: sends all data at the end of the day (i.e. batch interface)
b. Interactive Interface: data goes immediately to the insurer. Direct link back and forth.

41
Q

What are the 2 ways to value a brokerage for sale

A

a. Multiple of commissions
b. Multiple of earnings

42
Q

Looking at the income statement, what are the 3 potential sources of a brokerage’s revenue

A

Commissions, investments & other income (i.e. service fees or rental income)

43
Q

What are the 4 operational factors you would look at when evaluating a brokerage for sale?

A

a. Insurers represented: you’d pay more if they have a relationship with an insurer you want (i.e. maybe they have a great Lloyd’s contract)
b. Billing: if they have the billing you want, you’d pay more
c. Client relationships: strong relationships = higher retention = more valuable
d. Business mix: pay more for the mix you want

44
Q

ID & explain the 3 steps of the financial management cycle:

A

a. Budgeting: consider income & expenses
b. Classifying: income & expenses by type & source. Segment and create ratios as needed
c. Comparisons: between budget vs actual. Investigate & fix any deviations but double down on positive ones (i.e. if some marketing initiative was extra successful)

45
Q

How should trust funds be used at brokerages?

A

Any premiums landed should land in a trust account before being remitted to the insurer while commissions are moved into an operating account

46
Q

Explain the importance of a commission reserve account.

A

It’s a highly liquid account that exists to pay any refunds on commissions. This account should be = the likely refunds you’ll encounter based on the max exposure of unearned commissions you’re holding, the average return ratio and whether you have any large premiums or not.

47
Q

Many brokerages provide premium financing. What are 6 sources of financing?

A

a. Brokerage: finances themselves
b. Institutional: the bank will finance
c. Insurer: some insurers provide financing on big accounts
d. Premium financing company: link a bank but exclusively for premiums
e. Captive finance company: like D but works only w/ the brokerage. Can be a source of profit for brokerage.
f. Cash-only: cash up-front, no financing

48
Q

Explain the importance of classifying costs when it comes to expense management:

A

It helps you figure out which products or departments are responsible for each expense item so you know where costs can be controlled or which are consuming more resources than they’re worth.

49
Q

What are the 2 steps to Analyzing Expenses?

A

Develop standards & compare the market with your standards. If it deviates, figure out why and fix it.

50
Q

What are 5 common employee incentive plans? Explain.

A

a. Bonus plans (discretionary)
b. Stock options (usually for senior management of public brokerages)
c. Performance plans: profit sharing or stock purchases
d. Deferred compensation: hold their compensation until later (i.e. when they retire)
e. Pension plans: provides retirement income

51
Q

What are the benefits of leasing equipment vs buying outright?

A

Preserves working capital, allows frequent upgrades, payments are tax deductible, can accelerate payments to drop taxes on a good year, more flexible than debt, increases borrowing capacity (doesn’t add to debt load)

52
Q

What are the 4 characteristics of a good Management Information System?

A

a. Simple: easy reporting & analysis, easy to use
b. Accessible: info is easy to access
c. Merge capability: can merge info for comparison
d. Adaptability: can change based on your strategy & market

53
Q

What are some examples of sales data a brokerage would collect?

A

a. Sales volume
b. Product mix
c. Commission income
d. Net profit
e. Individual performance: qualitative & quantitative

54
Q
A

CAIB 4 (12 decks)

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