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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.
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What are the 3 types of insurance companies?
- 1. Stock Companies
- 2. Mutual Companies
- 3. Fraternal Benefit Societies
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Describe stock companies.
- Owned by stockholders.
- If making a profit, stockholders get dividends.
- Easy to establish.
- Can raise funds by selling more stock.
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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.
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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.
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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.
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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.
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Explain how corporate plans are translated into operational plans.
A preliminary corporate business plan is sent downward to managers in various operational areas.
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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.
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What are the 4 primary ways ins co's organize their operations?
- 1.) Product
- 2.)Geographic Region
- 3.) Customer Type
- 4.) Function
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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.
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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.
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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.
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Identify the advantages & disadvantages of Customer Type organizational designs.
- Advantages: increases co's ability to satisfy distinct customer needs.
- Disadvantages: SBU's, duplicated effort
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Identify the components included in a co's organizational chart.
- Board of directors
- Management
- Employees
- Committees
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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.
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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.
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Privately held company
A co. whose ownership is restricted to specified individuals.
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publicly held company
A co. that sells ownership shares to the public.
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mutualization
Conversion of a stock ins co to a mutual ins co.
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demutualization
conversion of mutual ins co to stock ins co.
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mission statement
a written statement that describes a co's fundamental purpose or reason for being.
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management
The process co's use to plan, organize & control operations effectively & efficiently.
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planning
The process of evaluating business opportunities, assessing resources, determining goals, and developing strategies for implementation and control.
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SWOT analysis
In planning, an analysis where a co weighs co strengths & weaknesses against environmental opportunities & threats.
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corporate objective
A statement of a long term result a co plans to achieve.
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corporate strategy
A long term method that a co. intends to use to achieve its objectives.
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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.
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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.
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Organizational Chart
Visual display of various jobs and the formal lines of authority and reporting w/in a co.
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Board of Directors
Elected by a co's owners, this group of ppl serves as the co's primary governing body.
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Committee
Group of ppl chosen to consider, investigate or act on specified issues.
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Span of Control
The number of ppl who report directly to a manager.
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Authority
The right an employee has to make decisions, take action and direct others.
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Unity of Command
A principle which states that each employee should be under the authority of and be accountable to only one person.
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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.
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Performance Standard
A previously established level of performance against which actual performance can be measured.
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Control Cycle
A repetitive process designed to ensure that all areas of a co. adhere to the co's performance standards.
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Steering Control
- A control that is established in advance that describes the co's expectations.
- AKA feedforward control.
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Concurrent Control
A control that addresses a co's current activities and systems by continuously monitoring activities as they are performed.
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Feedback Control
A control used to compare actual performance with established standards.
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Budget
A financial plan of action expressed in monetary terms that covers a specified time period.
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Audit
A systematic exam & evaluation of a co's records, procedures & controls.
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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.
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Management Information System (MIS)
A computerized system that provides info about a co's daily operations.
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Exception Report
A report produced automatically by an ins co's management information system when certain predetermined conditions or exceptions in operating pferformance occur.
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