Chapter 3: Organization of insurer
Download as PPT, PDF8 likes9,295 views
The document discusses the organization of insurers within the private insurance sector, emphasizing the trends of consolidation and convergence in the financial services industry. It outlines various types of insurance organizations, including stock insurers, mutual insurers, Lloyd's of London, and reciprocal exchanges, as well as their operational structures and changing corporate dynamics. Additionally, it covers organizational strategies like centralization versus decentralization and traditional work organization methods, highlighting their functionalities and advantages.
![TYPES OF INSURERS
ORGANIZATION
Insurance organizations are classified by basis of risk
coverage [life, general,health, property, auto]. their
agency system [independent, exclusive, direct
selling]and formation from legal point of view –
stock or mutual.
● Stock insurers
● Mutual insurers
● Lloyd’s of London
● Reciprocal exchanges](https://image.slidesharecdn.com/chapter3-141022094000-conversion-gate01/85/Chapter-3-Organization-of-insurer-6-320.jpg)
![Traditional Ways Insurers Organize
Work Activities
● Organization by Profit Center or Strategic
Business Unit: A profit center is a line of business
that [1] is evaluated on its profitability, [2] is
responsible for its own revenues and expenses, and
[3] makes its own decisions regarding its operations.](https://image.slidesharecdn.com/chapter3-141022094000-conversion-gate01/85/Chapter-3-Organization-of-insurer-20-320.jpg)
Chapter 3: Organization of insurer
- 1. Chapter Three Organization of insurer By: Marya sholevar
- 2. OVERVIEW OF PRIVATE INSURANCE IN THE FINANCIAL INDUSTRY The financial services industry consists of thousands of financial institutions that provide financial products and services to the public. The financial services industry is changing rapidly. Two trends clearly stand out,consolidation and convergence of financial products and services.
- 3. OVERVIEW OF PRIVATE INSURANCE IN THE FINANCIAL INDUSTRY ● Consolidation means that the number of firms in the financial services industry has declined over time because of merger and acquisition. ● Convergence means that financial institutions can now sell a wide variety of financial products that earlier were outside their core business area.
- 4. Organizational of insurance companies An effective organizational structure benefits a company by: ● Responsibility ● Authority ● Accountability ● Delegation
- 5. Organizational of insurance companies ● The Organization Chart :An organization chart also shows the company’s chain of command, or the structure of authority that flows downward in the organization from the higher levels to the lower levels. ● Pyramidal Structure and Levels of Authority:The pyramidal structure illustrates that the authority in a company starts at the top with one person or a small group of people, Authority is then distributed through the chain of command to ever-larger numbers of people throughout out the company.
- 6. TYPES OF INSURERS ORGANIZATION Insurance organizations are classified by basis of risk coverage [life, general,health, property, auto]. their agency system [independent, exclusive, direct selling]and formation from legal point of view – stock or mutual. ● Stock insurers ● Mutual insurers ● Lloyd’s of London ● Reciprocal exchanges
- 7. TYPES OF INSURERS ORGANIZATION ● Stock Insurers Stock Companies owned & controlled by common stock holders. they appoint board of directors who in turn engage officers to run operations. profits distributed among stock holders. normally policy holders are eligible for benefit contracted but not dividends. ● Mutual Insurers Mutual Companies normally non-profit organizations. Owned by policy holders. Initial contribution arranged by them or a financial intermediary which must be repaid. Surplus generated is shared by
- 8. TYPES OF INSURERS ORGANIZATION ● Lloyd’s of London Lloyd’s of London is not an insurer, but is the world’s leading insurance market that provides ser- vices and physical facilities for its members to write specialized lines of insurance. ● Reciprocal Exchange A reciprocal exchange is another type of private insurer. A reciprocal exchange (also called an interinsurance exchange) can be defined as an unincorporated organization in which insurance is exchanged among the members (called subscribers).
- 9. Types of Mutual Insurers ● Advance premium mutual Policy holders pay a premium when policy begins. They are eligible for dividend at the end of the period. Their exposure is based on a stable product where exposure does not change during the life of the policy. Increased dividends accrue from less than expected expenses. ● Assessment mutual Policy holders may not pay a premium when policy begins. They are responsible for a premium based on their share of expenses & losses at the end of the period. An assessment mutual has the right to assess policyholders an additional amount if the insurer’s financial operations are unfavorable.
- 10. Types of Mutual Insurers ● Fraternal insurer provides life and health insurance to members of a social or religious organization. This type of insurer is also called a “fraternal benefit society.”
- 11. Changing Corporate Structure of Mutual Insurers ● Increase in company mergers.Mergers occur because of reducing operating costs and general overheadcosts or changing the scale or field of business ● Demutualization means that a mutual insurer is converted into a stock insurer for the following reasons: *The ability to raise new capital is increased. *Stock insurers have greater flexibility to expand by acquiring new companies or by diversification. *Stock options can be offered to attract and retain key executives and employees. *Conversion to a stock insurer may provide tax advantages.
- 12. Changing Corporate Structure of Mutual Insurers ● Mutual holding company .A holding company is a company that directly or indirectly controls an authorized insurer. A mutual insurer is reorganized as a hold ing company that owns or acquires control of stock insurance companies that can issue common stock. Advantages: ● Easier and less expensive way to raise new capital. ● Easily entering to new areas of insurance business. ● Stock options can be given to attract and retain key executives and employees.
- 13. Important characteristics Lloyd’s of London ● Lloyd’s technically is not an insurance company, but is a society of members who underwrite insurance in syndicates. ● The insurance is written by the various syndicates that belong to Lloyd’s. ● Lloyd’s is licensed only in a small number of jurisdictions in the United States. In the other states, Lloyd’s must operate as a nonadmitted insurer.
- 14. Important characteristics Lloyd’s of London ● New individual members or Names who belong to the various syndicates now have limited legal liability. ● Corporations with limited legal liability and limited liability partnerships are also members of Lloyd's of London. ● Members must also meet stringent financial requirements.
- 15. Reciprocal Exchange ● In its basic form, insurance is exchanged among themembers; each member of the reciprocal insures the other members and, in turn, is insured by them. ● Areciprocal is managed by an attorney-in-fact. The attorney-in-fact is usually a corporation that is authorized by the subscribers to perform administrative duties such as seek new members, pay losses, collect premiums... ● Most reciprocals are account for only a small percentage of the total property and casualty insurance premiums written and limited number of lines of insurance
- 16. Functions of Insurers The functions of insurer necessarily depend on The type of business it writes, the degree to which it has shifted certain duties to others, the financial resources available, the size and type of organization used, etc. Functions: ● Production ● Underwriting ● Rate making ● Managing claims and losses ● Investing and financing ● Accounting and other recordkeeping Providing miscellaneous other servicesn Such as legal advice,
- 17. Centralized & Decentralized Organizations In a centralized organization, top management retains most decision making authority for the entire company. In a decentralized organization, Top management shares decision making authority with employees at lower Hierarchical levels. Centralized organization • Most decisions are made by upper-level management • Lower subordinates possess little authority to make decisions Decentralized organization • General policy is make by upper-level management,
- 18. Organizational structure of insurance companies Centralized organizations Advantages • Policies and actions tend to be consistent • Decisions are made by central authority • Reduce certain administrative costs Decentralized organizations Advantages • Manager/staff can respond to situations quickly • Increase manager’s/staff’s morale • Provide with experience that is useful later in their careers
- 19. Traditional Ways Insurers Organize Work Activities ● Organization by Function: An insurance company that is organized by function differentiates its major divisions by the work that the divisions perform. ● Organization by Product A life insurance that is organized by product distributes work according to the company’s line of insurance products. ● Organization by Territory A company that is organized by territory determines its major divisions according to the geographic areas
- 20. Traditional Ways Insurers Organize Work Activities ● Organization by Profit Center or Strategic Business Unit: A profit center is a line of business that [1] is evaluated on its profitability, [2] is responsible for its own revenues and expenses, and [3] makes its own decisions regarding its operations.
- 21. Alternative Organizational Shapes ● Hourglass Organization ● Cluster Organization ● Network Organization