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Insurance Organizational
Structure and Operations
Insurance Company has Articles of Incorporation
‘which describes the essential features of the
company. The features are:
1. Company's name and location
2, Names of the company’s officers.
3. Type of business in which the company will
engage
4. Amount of initial investment
5. Number of shares of company stock initaly
Issued (Stock companies only)
+The regulator shall investigate the moral
character of each ofthe company’s organizers
the company's business plan and financial
projections and the plans for organization and
operations
+ If po objections an all legal requirements have
bbeen complied, the regulator issues a certificate
of incorporation which @ document that grants 3
corporation its legal existence and its right to
(Operate as @ corporation under the terms
specified in the articles of incorporation.
Functional areas in an insurance company:
1. Marketing
+a. Conducts research to identify customers
», Develop/ innovate new products and
revise current ones to meet customers!
needs.
+c, Establishing and maintaining distribution
systems for the products (for life)
+. Preparing advertising compalgns and
promational materials,
+ 2. Actuarial (particularly important for life
insurance) ~ Establishes the premium and policy
dividend rates, determines what the company's
reserve lsblities should be and calculates non-
forfeiture and loan values.
+ 1.Conduct research needed to predict
mortality and morbidity rates, 2. help to
establish the company’s underwriting
guidelines,3. measure the profitablty of the
company’s products and 4. help negotiate
reinsurance agreements through which an
insurance company transfers some or all of an
insurance risk to another insurance company.+ 3. Underwriting ~Selects, evaluates and accepts
risks and determines the terms and conditions
inluding those relating to retentions. For life
insurance, it evaluates and classifies proposed
insureds according to the degree of mortality risk
that each represents.
+ 4. Customer service ~Provides assistance to
customers. Representatives attend to requests
for information, interpretation of policies,
‘remium payments ete.
5. Claims administration ~ Evaluation and hancling
of claims, verification of the validity of claims,
calevlate right compensation, etc
6, Investments ~ Examines the economic and
financial marketplace and manages the
company’s investments secarding to company
‘guidelines. For life, it matches investments in
terms of time and amount in order to meet
‘obligations. Invests in stocks, bonds
mortgages , real estate te
7, Accounting ~ Maintains records of financial
results. Manages accounting records, prepares
financial statements, control cash receipts
ensure compliance with governygent
regulations, etc.
8, Legal - Handles all legal matters for the
company such as claims, liabilities poliey
forms.
+ 10. Human resources Handles employee
affairs
+ 11. Information system —in charge of
managing information throughout the
company
42, Rate Making
Closely allied to the function of underwriting.
Itinvohes the selection of classes of exposure
units on which to collect statistics regarding the
probability and severity of loss. Once the
‘appropriate clases have been se, "one develops
reliable loss data for each class vera sufficiently
long period of time. Then convert the data into'®
useful form for the purpose of developing
+ afinal premium. This requires incorporating
estimates of the cost of doing business into
the premium structure on an equitable basis.
+ Make up of the premiums
+ The insurance rate is the amount charged
per unit of exposure.
+ Thepremium isthe product of the
insurance rate and the number of units of
exposure,
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+ Premium covers 2 major costs:
+ 1. Expected loss known as premium
+ 2. Loading — cast of doing business
+ Pure premium is determined by dividing the
total expected loss by the no. of exposures.
+ taxes and fees and allowance for profit.
+ The sum of the pure premium and loading =
705s premium
+ Usually, loading is expressed as a percentage
of the expected premium.
‘The pure premium isthe estimate of loss cost
and the ratio of the loss cost to the gross
premium is the loss rato.
‘+The functions and activities of an insurance
company is shown by way of an organizational
chart that aisplays the formal relationships of
the different functional areas. Likewise it
shows
+ lines of authority and responsibilty among
employees. It also shows the chain of
‘command ané the unity of command where
‘each employee should receive authority from
cnnly one person and be accountable to only
that person,
Inlfe insurance, the organizational structure
is pyramidal where autharity starts from the
top.
+The policy holders or stockholders are the
ukimate source of authority. Hence, they take
tate of electing the Board of Dicectors to whom
they delegate authority.
+ The 80D isthe primary governing body ofthe
Corporation. They appoint the CEO and others,
Tike the Vice Presents, Some of the company’s
senior executives are also members of the Board
and are called inside directors. Those who do not
Fd positions in the company are calied outside
director,
+ Employees whose primary responsibility sto
{Bude the work of other employees are members
‘of management and performs the main functions
‘of planning, organizing, directing oF motivating
‘ang contrlling employees.
Some companies may have a Chief Operating
Officer who manages the dally activities or day to
day activities and reports to the president or CEO