Financial Chapter 2

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Financial Chapter 2
2011-12-01 15:10:45

Insurance Company Management
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  1. How does the corporate structure benefit an ins co's customers and owners?
    • 1.) The co. continues regardless of personal misfortunes, deaths, etc.
    • 2.) Limited liability.
  2. What are the 3 types of insurance companies?
    • 1. Stock Companies
    • 2. Mutual Companies
    • 3. Fraternal Benefit Societies
  3. Describe stock companies.
    • Owned by stockholders.
    • If making a profit, stockholders get dividends.
    • Easy to establish.
    • Can raise funds by selling more stock.
  4. Describe mutual companies.
    • Owned by policyholders.
    • PO's may get policy dividends.
    • Must sell a certain # policies in advance.
    • Protects co. from being taken over by another co.
    • Decreased filing & reporting requirements.
  5. Describe fraternal benefit societies.
    • Org. formed to provide social & ins benefits to its members. Often share common ethnic, religious or vocational background.
    • Requires officers be elected by society members.
    • Only members & families get benefits.
  6. Why is it important for a business to establish a clear mission statement?
    • If it's too narrow it limits what a co. can do to expand business.
    • If it's too broad it can be hard for the co. to do with its resources.
  7. How do insurers use info gathered from inside & outside the co. to develop corporate objectives and strategies?
    With a SWOT analysis: Strengths and Weaknesses against Environmental Opportunities and Threats.
  8. Explain how corporate plans are translated into operational plans.
    A preliminary corporate business plan is sent downward to managers in various operational areas.
  9. Describe the focus of an insurance co's operational objectives and strategies.
    Operational plans focus on specific areas of co operations, and extend only 1-2 yrs into the future. Specific, action oriented activities.
  10. What are the 4 primary ways ins co's organize their operations?
    • 1.) Product
    • 2.)Geographic Region
    • 3.) Customer Type
    • 4.) Function
  11. Identify the advantages & disadvantages of Function organizational designs.
    • Advantages: simple, focuses on development of managerial & tech skills in ea fx area.
    • Disadvantages: if # products & size of co. get too big, it becomes less effective.
  12. Identify the advantages & disadvantages of Product organizational designs.
    • Advantages: empees who are most involved with a particular type of product makes decisions related to that product.
    • Disadvantages: maintaining SBU's can lead to duplication of effort & increased costs.
  13. Identify the advantages & disadvantages of Geographic Region organizational designs.
    • Advantages: territories w/distinctive regulatory or language differences get empees trained for that.
    • Disadvantages: maintaining SBU's can lead to duplication of effort & increased costs.
  14. Identify the advantages & disadvantages of Customer Type organizational designs.
    • Advantages: increases co's ability to satisfy distinct customer needs.
    • Disadvantages: SBU's, duplicated effort
  15. Identify the components included in a co's organizational chart.
    • Board of directors
    • Management
    • Employees
    • Committees
  16. What are the steps in the control process.
    • 1.) Establish performance standard.
    • 2.) Measure actual performance.
    • 3.) Compare actual performance w/established standards.
    • 4.) Evaluate results and initiate action, if necessary.
  17. Describe the important control mechanisms ins co's use to measure, evaluate, and improve their operational performance.
    • 1.) Steering Controls - established in advance, describe perf. expectations.
    • 2.) Concurrent Controls - continuous monitoring.
    • 3.) Feedback Controls - compare actual perf. w/standards. Fine-tunes plans & processes after they've been performed.
  18. Privately held company
    A co. whose ownership is restricted to specified individuals.
  19. publicly held company
    A co. that sells ownership shares to the public.
  20. mutualization
    Conversion of a stock ins co to a mutual ins co.
  21. demutualization
    conversion of mutual ins co to stock ins co.
  22. mission statement
    a written statement that describes a co's fundamental purpose or reason for being.
  23. management
    The process co's use to plan, organize & control operations effectively & efficiently.
  24. planning
    The process of evaluating business opportunities, assessing resources, determining goals, and developing strategies for implementation and control.
  25. SWOT analysis
    In planning, an analysis where a co weighs co strengths & weaknesses against environmental opportunities & threats.
  26. corporate objective
    A statement of a long term result a co plans to achieve.
  27. corporate strategy
    A long term method that a co. intends to use to achieve its objectives.
  28. strategic business unit (SBU)
    Area of business distinct from other areas in a co. in that it generates its own profits, has separate set of customers & competitors, own management, capable of having own goals & strategies.
  29. Shared Service
    A fx'l area performs business processes for multiple SBU's & shares accountability for the cost, timing, quality of those processes w/ the SBU's.
  30. Organizational Chart
    Visual display of various jobs and the formal lines of authority and reporting w/in a co.
  31. Board of Directors
    Elected by a co's owners, this group of ppl serves as the co's primary governing body.
  32. Committee
    Group of ppl chosen to consider, investigate or act on specified issues.
  33. Span of Control
    The number of ppl who report directly to a manager.
  34. Authority
    The right an employee has to make decisions, take action and direct others.
  35. Unity of Command
    A principle which states that each employee should be under the authority of and be accountable to only one person.
  36. Control
    The process of monitoring, evaluating and regulating how effectively and efficiently a co and its empees are performing the activities necessary for achieving the co's goals.
  37. Performance Standard
    A previously established level of performance against which actual performance can be measured.
  38. Control Cycle
    A repetitive process designed to ensure that all areas of a co. adhere to the co's performance standards.
  39. Steering Control
    • A control that is established in advance that describes the co's expectations.
    • AKA feedforward control.
  40. Concurrent Control
    A control that addresses a co's current activities and systems by continuously monitoring activities as they are performed.
  41. Feedback Control
    A control used to compare actual performance with established standards.
  42. Budget
    A financial plan of action expressed in monetary terms that covers a specified time period.
  43. Audit
    A systematic exam & evaluation of a co's records, procedures & controls.
  44. Financial Audit
    An evaluation of whether a co's financial info, financial statements & source docs comply w/accounting standards, are fair and consistent depiction of the co's financial condition and performance.
  45. Management Information System (MIS)
    A computerized system that provides info about a co's daily operations.
  46. Exception Report
    A report produced automatically by an ins co's management information system when certain predetermined conditions or exceptions in operating pferformance occur.