LOMA 308 Module 2

Shared Services

A functional area that performs specified business processes for multiple strategic business units (SBUs) and that shares accountability for the costs, timing, and quality of those processes with the SBUs.. Information Technology (IT) Accounting Finance Legal/Compliance Human Resources (HR)

Creating performance standards

- Internal standards: based on the company's planned or historical performance. Most companies use corporate objectives as the starting point for establishing performance standards. - external standards: based on outside information, such as published industry-wide averages, best practices, or benchmarks that represent the best outcomes that have been achieved by other companies in the insurance industry or even in other industries.

Organization by market segment

Organization by market segment divides operations according to the specific groups of customers a company targets. In this structure, managers are responsible for all activities for a specific customer group. Organization by market segment has become increasingly popular among insurers because it allows the company to focus on improving its customers' overall experience.

Forthright Financial has an individual life insurance division and an individual annuity division. Each division has its own product development, marketing, administration, and claims departments. Organization by product Organization by geographic region Organization by market segment Organization by function

Organization by product

organizing by region

Other companies organize operations by geographic regions, or territories. Each territory is a separate division that performs all functions necessary to support business in that territory. Companies that operate in more than one state or more than one country often divide operations geographically to accommodate distinctive regulatory or language differences.

organizing by product

As an alternative to functional organization, some companies organize operations by products or product lines. Insurance companies often divide operations into individual insurance and group insurance business, or into life insurance, health insurance, and annuity product lines. Each division performs most of its own product development, underwriting, marketing, and administration activities. Organizing operations around product lines ensures that the employees who are most involved with particular types of products are the people who make decisions related to them. But organizing by product line also requires that each line be large enough, distinct enough, and profitable enough to support its own separate management and staff.

Operational Planning

At the end of the corporate planning process, the company's mission statement, corporate objectives, and corporate strategies are combined to create a corporate business plan. This plan is then communicated downward to managers in various operational areas. Managers in operational areas then create their own objectives, strategies, and plans, following the same steps used to create the corporate business plan. The difference is that operational planning is narrower in scope than corporate planning and covers a shorter time period. Operational plans are communicated back up to senior management for approval. Senior management works with operational area managers to make necessary changes and then incorporates the individual plans into the company's overall business plan.

Which of the following are characteristics of a partnership? (Choose all that apply.) A. Owned and operated by one person B. All profits on sales belong to company owner(s) C. Privately held organization D. Operations cease if only one owner remains E. Owned and operated by two or more people F. Created by government authority G. Owner(s) responsible for company debts H. Publicly held organization I. Owner(s) not responsible for company debts

B, C, D, E & G

Which of the following investments represents a higher risk with a higher return? (Choose all that apply.) Owning a short-term asset Lending to a borrower with a poor credit rating Owning a loan that requires the borrower to pay the lender on a specified due date Owning an investment that's difficult to sell at a fair value Owning a loan that a borrower can repay at any time Owning an investment with good liquidity or marketability Issuing a mortgage loan with no prepayment penalty Owning an investment that pays returns in the investor's domestic currency

B, D, E, & G

Which of these organizational forms do you think is protected against takeover or control by another type of company? A. Stock company B. Mutual company

B. - In most jurisdictions, mutual insurance companies can merge with or acquire other mutual companies (with regulatory approval), but they can't be taken over or controlled by another type of company. Stock companies can be acquired by other stock insurance companies or publicly held companies if the acquiring company holds most or all of the acquired company's stock.

Suppose that you just bought a life insurance policy from ABC Life Insurance. How do you know that ABC will still be in business when it's time to pay benefits? A. ABC's promise to pay benefits when due B. The presence of specific provisions in the contract C. Government regulation of insurance company operations

C. -Policyowners depend on insurers' promises to pay benefits and to carry out contract provisions. But insurers can't keep those promises if they don't stay in business. That's why most jurisdictions actively regulate insurance companies to ensure that they remain solvent and fulfill their obligations to policyowners. It's also important that insurers remain profitable so that they can pay employees, maintain offices, and provide products and services to customers.

financial audit

a company's financial condition and performance, audits can also be used to evaluate nonfinancial issues such as operating procedures, management efficiency, market conduct, and regulatory compliance.

exception reports

A report produced automatically by an insurance company's management information system (MIS) when certain predetermined conditions or exceptions in operating performance occur.

Which of these organizational forms do you think is the most common? A. Stock company B. Mutual company C. Fraternal benefit society

A. - Most of the insurers in the U.S. are organized as stock companies.

In the United States, an insurance company must be incorporated at A. The state level only B. The federal level only C. Either the state level or the federal level D. Both the state level and the federal level

A.- In the U.S., insurance companies are incorporated at the state level. In Canada, insurers can be incorporated at the provincial or federal level. In India and many other countries, insurers are incorporated at the federal level.

Which committee deals with questions of overall company policy, including what lines of business the company sells, the areas in which it operates, and how company employees are compensated? Investment Audit Executive Risk Tax

Executive

Fraternal Benefit Societies

Fraternal benefit societies provide a variety of social, educational, religious, charitable, and insurance benefits to their members. These benefits are not available to non-members.Although some fraternal benefit societies are open to the general public, most limit membership to individuals who share a common ethnic, religious, or vocational background.Fraternal benefit societies are generally more informal than corporations, but they do require members to elect society officers.

Budgets

Budgets describe actions planned for a specified period in monetary terms. Unlike policies and procedures, which serve only as steering controls, budgets are used in all phases of the control cycle. During planning, budgets establish revenue or expense expectations for the company, departments, lines of business, or individual products. During day-to-day operations, budgets serve as concurrent controls for managers by reporting on company performance. During performance evaluation, budgets serve as feedback controls.

Which of these organizational forms do you think provides social as well as insurance benefits to members? A. Stock company B. Mutual company C. Fraternal benefit society

C. - All of these forms offer insurance coverage. However, only fraternal benefit societies also offer social and other non-insurance benefits to members.

Corporate planning

SWOT analysis Corporate planning usually starts with an analysis of the company's: Internal environment to identify strengths and weaknesses in the company's operations External environment to identify trends that create opportunities and threats for the company Objectives the company is uniquely qualified to pursue

The Alta Insurance Company's procedures manual specifies that customer service representatives are expected to answer incoming customer calls within one minute and achieve a 95 percent first-contact resolution rate. These performance expectations are examples of the kind of controls known as Feedback controls Concurrent controls Steering controls Benchmarks That's

Steering controls - Controls that are established in advance and describe performance expectations are examples of steering controls. Feedback controls compare actual performance against expected performance. Concurrent controls continuously monitor activities as they are performed. Benchmarks are the best outcomes that have been achieved for a specific activity.

Which committee analyzes and evaluates the tax implications of company policies, programs, and regulatory actions? Investment Audit Executive Risk Tax

Tax

At Baywater Insurance, operational functions are performed by separate units that provide underwriting, actuarial, marketing, and customer services for all of the company's products. Organization by region Organization by product Organization by function

organization by function

Corporate Strategies

define how a company intends to achieve its objectives. Because most objectives can be achieved in more than one way, different companies often use different strategies even when they want to achieve the same results. Corporate strategies for most companies focus on growing and expanding business by - increasing sales among existing customers - Generating sales among new customers or in new markets - capturing business from competitors

board of directors

elected by company stockholders or policyowners that serves as the company's primary governing body and oversees company governance and compliance

partnership

is created, owned, and operated by two or more partners. Partners earn all company profits and are responsible for all company debts. A two-owner partnership dissolves if a partner dies or withdraws; a partnership with many owners will continue as long as there are two or more owners. The company is considered a privately held company because ownership is limited to specified individuals.

Planning

is the process companies use to evaluate business opportunities, determine goals, and develop strategies. Most insurance companies conduct two types of planning: corporate planning and operational planning. Senior managers guide corporate planning for the entire organization. Managers in operational areas create plans for their own units.

Management

is the process companies use to plan, organize, and control operations. Although management sounds like a set of separate, well-defined steps, it's actually a continuous process in which managers use information developed during one stage to provide feedback on the previous stage and direct the next stage.

Licensing

license granting the insurer the legal authority to conduct insurance business in a specific jurisdiction. An insurer that intends to do business in more than one jurisdiction must obtain a license from each jurisdiction. In the U.S., that means a license from each state in which the insurer will operate. The purpose of licensing is to ensure that an insurance company is Financially sound and able to meet its obligation to policyowners Directed by knowledgeable and capable managers

concurrent controls

monitor a company's current activities and systems.

audits

offer a systematic review of a company's records, procedures, and controls. If conducted at regular intervals, audits serve as concurrent controls. If conducted at the end of a specified performance period, they serve as feedback controls.

steering controls

or feedforward controls, are established in advance and used to describe the company's expected performance.

Donnely Insurance maintains accounting, IT, human resources, compliance, underwriting, and customer support divisions at its home office, and these divisions support all of the company's products and services. Organization by product Organization by geographic region Organization by market segment Organization by function

organization by function

The Bancroft Insurance Company divides its operations into two different territories, and each territory performs all product support, administration, and marketing functions. Organization by product Organization by geographic region Organization by market segment Organization by function

organization by geographic region

Crandall Financial Services maintains separate operations for its retail market and institutional markets. Managers in each market are responsible for all activities performed in their markets. Organization by product Organization by geographic region Organization by market segment Organization by function

organization by market segment

control cycle

that consists of policies, procedures, and administrative processes designed to ensure that all employees adhere to the company's performance standards.

mutualization

The conversion of a stock insurance company to a mutual insurance company.

The Crandall Insurance Company had a block of 5,000 term life insurance policies in force on January 1 of last year. By December 31 of that year, 100 of those policies had lapsed because of nonpayment of premium, and 50 policies had been surrendered. Crandall's product manager determined that the persistency rate for this particular product was equal to 2.0 3.0 97% 98%

97- The lapse rate for a block of policies is equal to the number of policies lapsed or surrendered during a given year ÷ number of policies in force at the beginning of the year. The persistency rate for a block of policies is equal to 100% ‒ the lapse rate. In this situation, the lapse rate for the year was 3% (150 ÷ 5,000), so the persistency rate was 97% (100% - 3%). 98% is 100% ‒2% (the rate of lapses only) and does not include surrenders.

solvency

An insurance company's ability to meet its financial obligations on time.

Company Owners (profitability)

Company owners expect the company to remain profitable. Owners view the company as an investment that produces a return, or reward. To generate returns, however, companies need to take risks. And because of the relationship between risks and returns— known as the risk-return trade-off—generating substantial returns requires accepting substantial risks.

Comparing actual performance to standards

Comparing actual performance to expected performance is an effective way for companies to identify what they are—and aren't—doing well. But differences don't necessarily mean that the company wasn't successful in reaching its goals.Sometimes, performance can be affected by uncontrollable conditions, such as changes in market interest rates, customer behaviors, or economic conditions such as inflation and deflation. Uncontrollable conditions affect all companies and usually can't be corrected through company efforts.As a result, companies usually account for uncontrollable conditions by establishing a range of acceptable performance on either side of a standard. As long as performance falls within that range, it's generally tolerated.

Deviations between actual performance and expected performance can be caused by controllable conditions such as inaccurate projections and unreasonable performance standards, or by uncontrollable conditions such as changes in market interest rates or customer behavior. In general, an insurer can take specific actions to correct deviations caused by Both controllable and uncontrollable conditions Controllable conditions only Uncontrollable conditions only Neither controllable nor uncontrollable conditions

Controllable conditions

Which committee determines the company's broad investment goals and strategies? Investment Audit Executive Risk Tax

Investment

publicly held company

A company that sells ownership shares to the public. Contrast with privately held company.

Profitability

A company's overall success in generating returns for its owners and increasing the value of the company.

Management Information system (MIS)

A computerized system that provides information about a company's daily operations.

privately held company

A company in which ownership is restricted to specified individuals. Contrast with publicly held company.

The purpose of a SWOT analysis is to a. Identify corporate objectives a company is uniquely qualified to pursue b. Distinguish between internal and external conditions that affect company operations c. Provide feedback about company performance d. Describe how a company can meet objectives using the fewest resources possible

A SWOT analysis weighs company strengths and weaknesses against environmental opportunities and threats to help companies develop and achieve corporate objectives.

unity of command

A management principle stating that employees should have only one manager to avoid confusion.

Corporate Objectives

A statement of a long-term result a company plans to achieve. corp objectives should be - clearly stated - specific and measurable - realistic - actionable

organizational chart

A visual display of the various jobs and the formal lines of authority and reporting within a company.

Mission Statement

A written statement that describes a company's fundamental purpose or reason for being. Mission statements should be - Broad enough to cover all aspects of the company's business - Specific enough to focus on what the company actually does

Because it is a stock insurance company, Peachtree can expand its operations by (choose all that apply) Selling more stock Purchasing other stock insurance companies Purchasing mutual insurance companies Purchasing other publicly held corporations

A, B, & d -Stock insurance companies can raise additional operating funds by selling more stock. Stock companies can also acquire or establish affiliations with other stock insurance or other publicly held companies. A mutual insurance company can be purchased or controlled only by another mutual company.

Which of the following are characteristics of a sole proprietorship? (Choose all that apply.) A. Owned and operated by one person B. All profits on sales belong to company owner(s) C. Privately held organization D. Operations cease if only one owner remains E. Owned and operated by two or more people F. Created by government authority G. Owner(s) responsible for company debts H. Publicly held organization I. Owner(s) not responsible for company debts

A, B, C, & G

Peachtree must be licensed by Both State A and State B State A only State B only Neither State A nor State B

A. - Insurance companies must be licensed by each state in which they operate. Peachtree, therefore, must by licensed by State A and State B.

Mutual Insurance Companies extra notes

Although mutual insurance companies are among the oldest and largest insurers in existence, beginning operations as a mutual company isn't fast or easy. That's because a new mutual insurer needs to sell a certain number of policies in advance to generate the funds it needs to begin operations. The process can take years because people often hesitate to buy products from companies that don't actually exist. As a result, most mutual insurance companies start out as stock companies and later convert to mutual companies through a process called mutualization. advantages: The primary benefit of mutualization is that in most jurisdictions a mutual company can't be taken over or controlled by another company.Mutual insurance companies are also subject to fewer filing and reporting requirements than stock insurance companies. Disadvantages: The major disadvantage of mutualization is that attracting the capital needed to expand is difficult because the only way a company can raise operating funds is by selling insurance policies. And selling insurance is a lot harder than selling stock. It's also harder for mutual companies to buy and operate other companies. To avoid these problems, many mutual insurance companies have converted to stock companies through the process of demutualization.

Strategic business unit (SBU)

An area of business distinct from other areas within a company in that it generates its own profits, has its own separate set of customers and competitors, has its own management, and is capable of having its own goals and strategies. Generates its own profits Has its own separate set of customers and competitors Has its own management Is capable of having its own goals and strategies

In an insurance company, control is the process the company uses to Identify which person each company employee is accountable to B. Monitor, evaluate, and regulate company and employee performance Describe an employee's right to make decisions, take action, and direct others Determine how many employees report to a particular manager

B. - Control is the process a company uses to monitor, evaluate, and regulate how effectively and efficiently the company and its employees perform. A company's organizational chart identifies who each employee is accountable to; the chain of command, or authority, that moves downward from higher levels to lower levels; and the span of control each manager has.

Suppose you are the CEO of a newly incorporated and licensed insurance company. What do you think is the next thing your company must do before it can begin selling policies?

Before an insurance company can develop goals and objectives, create operational plans, or establish controls, it needs to create a mission statement that sets out, in writing, the company's "reason for being" and defines the scope of its business activities.

The Ashford Insurance Company uses procedures, budgets, audits, and exception reports to monitor its performance. Of these control mechanisms, the ones that are used during all phases of the control cycle are Procedures Budgets Audits Exception reports

Budgets- Budgets are used during all phases of the control cycle. Procedures, which are established in advance, serve as steering controls. Audits and exception reports, which provide feedback on actual performance, can be used as either concurrent or feedback controls.

Which of the following are characteristics of a corporation? (Choose all that apply.) A. Owned and operated by one person B. All profits on sales belong to company owner(s) C. Privately held organization D. Operations cease if only one owner remains E. Owned and operated by two or more people F. Created by government authority G. Owner(s) responsible for company debts H. Publicly held organization I. Owner(s) not responsible for company debts

C, E, F, H & I

Corporate strategies determine the a. Specific, action-oriented activities that a company's operational units will perform b. Long-term results a company plans to achieve c. Long-term methods a company intends to use to achieve its goals d. Process a company uses to evaluate business opportunities, determine resource needs, and identify methods of controlling operations

C. - Corporate strategies define the long-term methods a company intends to use to achieve its goals. The specific, action-oriented activities a company's operational units perform are part of a company's operational plans. A company's strategic objectives are the long-term results the company plans to achieve. Evaluating business opportunities, assessing resources, and controlling operations are part of planning.

In the United States, an insurance company must be licensed in A. The state in which it is incorporated B. The state in which its home office is located C. Each state in which it does business D. All states

C. - In addition to fulfilling incorporation requirements, insurers operating in the U.S. must obtain a license from each jurisdiction in which they intend to conduct business.

The Peachtree Insurance Company raised the money it needed to begin operations by selling shares of stock to the general public on a stock exchange. It began operations in State A. Three years later, the company expanded into State B. Peachtree can be described in terms of its structure as a A. Privately held corporation B. Privately held partnership C. Publicly held corporation D. Publicly held partnership

C. - Insurance companies are required by law to be corporations, which can be privately held or publicly held companies. However, Peachtree is considered a publicly held corporation because its shares are available to any investor and not just specified individuals. A partnership is a privately held company owned by two or more partners.

The Perimeter Insurance Company's management developed the corporate objectives listed below. The most effective of these objectives is a. To increase sales of its fixed-rate insurance products b. To increase customer retention by 10 percent c. To reduce company operating expenses by 6 percent within five years d. To see a measurable improvement in customer satisfaction within six months

C. - To be effective, an objective must be clearly stated, specific and measurable, realistic, and actionable. Only Objective C has all of these characteristics. Objective A has none of these characteristics. Objective B is specific in terms of amount, but not time. Objective D is specific in terms of time, but not amount.

requirements for incorporation

In the U.S., insurance companies are incorporated at the state level. A description of the company, including its name, location, plan for organizing operations, and the type of business it intends to conduct The names of the company's original directors The amount of initial investment being made by company owners

One true statement about planning in most insurance companies is that it Is conducted only at the operational level Begins at the operational level and results are communicated upward to management Is conducted only at the corporate level Begins at the corporate level and results are communicated downward to operations

D. - One true statement about planning in most insurance companies is that it Is conducted only at the operational level Begins at the operational level and results are communicated upward to management Is conducted only at the corporate level Begins at the corporate level and results are communicated downward to operations

advantages and disadvantages of SBUs

Dividing operations into SBUs tends to get employees involved in decision making. In addition, division leaders rather than the company's board or senior managers have authority over operations. With SBUs, senior management can easily see how profitable each line of business is and which areas are performing above or below expectations. The downside of SBUs is that they need their own management systems and financial support. That can lead to duplication of effort and increased costs.

Authority

In a company, the right of an employee to make decisions, take action, and direct others to fulfill responsibilities. Also known as power.

Measuring performance

In most cases, that means finding a way to describe performance in quantifiable terms such as numbers, amounts, or time. For example, insurers often measure Customer service performance by tracking how many minutes it takes for representatives to answer questions or complete transactions, or how many contacts it takes to resolve a problem Product performance in terms of numbers of sales or persistency rates, which show the percentage of business sold that remains in force Financial performance by comparing factors such as revenues, expenses, asset, liabilities, and capital and surplus from one period to the next

The control process

In most insurance companies, the control process consists of three basic steps: Creating performance standards Measuring performance Comparing actual performance to standards

Narrow span

It's usually most effective when employees Work in different locations Perform different and complex tasks Need focused supervision However, an extremely narrow span can result in too much supervision, slow decision making, and little employee initiative.

Wide span of control

It's usually most effective when employees Work in the same work area Perform simple or repetitive tasks Need little or no direction However, an extremely wide span can increase costs. And lack of training, supervision, and coordination can create behavioral problems.

Customer (solvency)

Jake: You know, I'm glad my folks are finally getting to use that new software. Lena: I'm glad to help. There is something I was wondering about, though. Jake: What's that? Lena: Seems like life insurance is really a pretty risky business. I mean, the company is taking a risk that if more people die than you thought, you'll have to pay out more for claims. Jake: That's true. And there's a lot more risk than just the life insurance business. Lena: Like what? Jake: Well, we need to take enough risk that we're profitable, but not so much that we lose money and can't meet obligations to customers. Lena: Sounds like a tug of war! Suppose that you just bought a life insurance policy from ABC Life Insurance. How do you know that ABC will still be in business when it's time to pay benefits? ABC's promise to pay benefits when due The presence of specific provisions in the contract Government regulation of insurance company operations That's correct! Policyowners depend on insurers' promises to pay benefits and to carry out contract provisions. But insurers can't keep those promises if they don't stay in business. That's why most jurisdictions actively regulate insurance companies to ensure that they remain solvent and fulfill their obligations to policyowners. It's also important that insurers remain profitable so that they can pay employees, maintain offices, and provide products and services to customers. Solvency and Profitability All insurance companies have two primary goals: to cover their financial obligations to customers and to generate profits for company owners. Balancing those goals, however, isn't easy because an insurer's efforts to maintain solvency and profitability sometimes seem to pull the company in opposite directions. Customer (solvency) Customers expect the company to remain solvent. For example, policyowners expect the company to pay promised benefits when due.Creditors expect the company to cover its debts. Employees expect the company to stay in business so they can keep their jobs.The best way to ensure company solvency is to reduce exposure to risks. Regulators enforce these expectations by requiring insurers to provide proof of their continuing solvency.

Example - Operational Planning

Normally covers less than two years Establishes goals and strategies for specific areas of company operations, such as claims, underwriting, or marketing Focuses on tactical issues such as how, when, and where activities are to be performed; who is responsible for each activity; what resources will be required to execute the plans; how much each activity will cost; and how results will be measured and monitored

Example - Corporate Planning

Normally covers one to five years Establishes goals and strategies for the entire company Focuses on strategic issues such as profit, growth, technology use, service quality, sales, and market share

Which committee provides overall guidance and control of an insurer's risk management efforts? Investment Audit Executive Risk Tax

Risk

span of control

The number of people who report directly to a manager. narrower: A narrow span of control gives each manager control over a small number of employees and tends to create a tall organization. wide: A wide span of control gives each manager control over a large number of employees and tends to create a wide organization.

Chain of command

The organizational structure that identifies who reports to whom in the company, and supports the delegation of authority.

persistency rate

The percentage of an insurer's business in force at the beginning of a specified period that remains in force at the end of the period.

Risk management

The practice of systematically identifying, assessing, and minimizing the negative impact of risk.

organizing operations

To ensure that business runs smoothly, insurers need to organize company operations so that they support company goals. Traditionally, insurance companies organized operations according to the work—or function—each separate unit or division performed. Functional units, however, don't operate in isolation.

processing an application

When an insurer receives an application for insurance coverage, new business personnel examine the application to make sure it's complete and that it's signed by the applicant and the sales agent. Underwriters then evaluate the risks associated with the application and determine the premium rate to charge the customer.

managing outcomes

When company performance falls outside of acceptable ranges because of causes related to the company—such as unrealistic performance standards, inaccurate cost and revenue projections during product development, or even exceptionally good or exceptionally bad performance—the company may need to take corrective action. - xchanging the methods used to carry out company strategies - developing new strategies that focus on strengths and eliminate productivity blockers - Modifying the way performance data are collected and analyzed - re-evaluating performance standards

A company can structure its management to have a wide or narrow span of control. In general, a narrow span of control is appropriate for employees who Perform simple or repetitive tasks Work in different locations Need little or no supervision Make independent decisions

Work in different locations- A narrow span of control is best when employees work in different locations, when tasks are distinctively different or highly complex, and when employees need focused supervision.

Fraternal Benefit Societies

are created to provide benefits, including insurance benefits, to members who share a common social, intellectual, educational, charitable, or religious background. These benefits are not available to nonmembers

Mutual Insurance Companies

are owned by the people and organizations that own policies issued by the company. If financial conditions are favorable, owners of participating policies may receive periodic returns in the form of policy dividends.

Which committee maintains the integrity of financial reporting, internal and external audits, internal controls, and compliance with legal and regulatory requirements. Reviews all company policies and internal audit plans, and oversees internal and external financial, operational, and market conduct evaluations? Investment Audit Executive Risk Tax

audit

Suppose that you want to start your own insurance company. The first thing you need to decide is what kind of structure your company will have. Which organizational structures do you think you can choose from? a. sole proprietorship b. partnership c. corporation

c. - Laws in most jurisdictions require insurance companies to be organized as corporations. In this lesson, you'll learn why that structure is required. You'll also learn how organizational form and management affect the way an insurance company does business.

In most companies, authority travels downward through an organization from higher levels to lower levels. This method of structuring authority in an organization is known as Lines of accountability Unity of command Chain of command Operational planning

chain of command- The structural element that describes the movement of authority downward through an organization from higher levels to lower levels is known as the chain of command. Unity of command is a principle which states that each employee should be accountable to only one person. Lines of accountability show which person each employee reports to. Operational planning is designed to help a company meet its objectives using the fewest resources possible.

Stock Insurance

companies are owned by the people and organizations that buy shares of the company's stock. If financial conditions are favorable, stockholders may receive periodic dividends, which represent a return on their investment.

feedback controls

compare actual performance against established standards and provide information insurers can use to fine-tune plans and processes.

Stock insurance companies are

easy to establish: The founders of a stock insurance company can raise the money needed to create the company by selling shares of stock in the proposed company. The company can raise additional operating funds by selling additional shares. able to expand quickly: A stock insurance company can expand operations by acquiring or merging with another stock insurance company or a publicly held company. In an acquisition, the insurer gains ownership control by buying most or all of the other company's stock. In a merger, the insurer gains control over the other company's assets and liabilities, and the other company ceases to exist. In both cases, the purchasing company obtains the acquired company's products, customers, and distributors and gains access to new markets.

Corporation

is a legal entity created by government authority. It's separate from its owners, so owners can't be held responsible for company debts. Operations continue even if one or more owners die or withdraw. It can sue or be sued, enter into contracts, and own property. It can be a privately held company or a publicly held company that sells ownership shares to the public.

Sole Proprietorship

is created, owned, and operated by one person. he owner earns all company profits and is responsible for all company debts. Company operations cease if the owner dies. The company is considered a privately held company because ownership is restricted to a specified individual.

Fortson Financial divides its business into individual fixed life insurance, individual variable life insurance, group life insurance, and individual indexed annuities. Organization by region Organization by product Organization by function

organization by product

Cadwaller Insurance is divided into an Eastern division, a Central division, and a Western division, and each division is responsible for all activities for that territory. Organization by region Organization by product Organization by function

organization by region

At the Alta Insurance Company, each line of business has its own goals and strategies and generates its own profits. Each line of business also has its own customers and management. These separate lines of business are known as Functional units Operational business plans Shared services Strategic business units

strategic business units - A strategic business unit (SBU) has its own goals, profits, customers, and management. A functional unit is a separate division in a company that performs its function for all of the company's products. A company's operational plans describe specific, action-oriented activities that separate units will perform. Shared services are functional areas that perform specified business processes for multiple SBUs.

Employees

who keep the company operating by performing day-to-day activities

managers

who plan company activities; organize human, financial, and technical resources; supervise and direct employee activities; and control work processes so that work is performed successfully