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9/30/2014 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, 9/30/2014 9/30/2014 + 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

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