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Ch 01 structure of the insurance industry
1. The Sri Lanka Insurance Institute
•P92/SL92
•Insurance Business & Finance
• Chapter 01
• Structure of the Insurance Industry
1
M Tharaka Perera
ACII, FIII, MBA- Finance
2. Structure of the Insurance Industry
Different Types of insurance organizations;
Global Perspectives;
Different sellers and distributors of insurance;
Importance of the customer.
Importance of other stakeholders;
Company growth and mergers and acquisitions;
Outsourcing
3. A Different types of insurance organizations
Three Types of Insurance Companies:
Composite,
Life Insurance
General Insurance.
Insurance Market
Sellers: Insurance Companies and Lloyd’s
Buyers: General Public, organizations and public Authorities.
Middlemen: Insurance brokers and intermediaries.
Types of insurance organization:
Proprietary companies (Limited liability):
Authorized and issued share capital that shareholders have subscribed.
Shareholders liability is limited to value of their shares.
Company is liable for their debt.
Mutual companies (Cooperatives):
Company is owned by policyholders.
Lloyd’s:
Underwriting members can be both individuals and corporates
Members are in administrative groups call Syndicates
Underwriting business is carried out by managing agents.
Provide Bespoke insurance solutions.
4. A Different types of insurance organization.
Types of insurance organization:
Captive insurance Companies
A Large Company forms a subsidiary to underwrite its own risks.
Pay premiums based on its own loss experience and purchase
reinsurance accordingly.
Operate from offshore locations.
Takaful insurance companies (Guaranteeing Each Other)
Based on the rulings of Sharia law on financial transactions.
Risks and returns should be shared between participants.
Reinsurers:
Insurers protect themselves via reinsurance.
The State
Self Insurance:
Setting a side its own funds to meet the losses
5. B The global perspective
With the advancement of the technology, the world has become more
international, expansion and globalization issues have become more
important.
Multinational: Operates in different countries but have a home
base. Eg: Prudential PLC.
Global:- Company sees the whole world as one potential Market. Eg: Lloyd’s
The London Market:
Comprises of reinsurers, Lloyd’s and brokers
Leading global market for Aviation and Marine.
1/3rd of the total insurance written in GB.
6. C Different sellers and distributors of
insurance
C1 Who are Direct Insurers?
They accept proposals from the prospective clients
directly , without intermediary entity (agents, brokers,
banks, etc.), and able to provide insurance solutions
(Underwrite and claims processing) then and their.
All information are exchange with the aid of latest ICT.
C2 The Internet?
Banks, Online Insurance Brokers, Well known
companies
7. C Different sellers and distributors of
insurance
C3 Independent Intermediaries?
Full time experts in insurance and able to offer
various personal and commercial products with a
range of companies, usually paid commission on
the premium by the insurer.
C4 InsuranceAgents?
Usually be appointed representatives and will be
limited to offering policies from one particular
insurance company.
8. C Different sellers and distributors of
insurance
C5 Building Societies?
Building Societies provide mortgages therefore
require mortgage protection insurance against
the mortgagee’s life.
C6 Banks?
Due to large customer base and extensive branch
network to develop new customers they have the
ability and the advantage of involving in providing
insurance services.
9. C Different sellers and distributors of
insurance
C7 Retailers and affinity groups?
As an additional service to their normal business,
Retailers have opportunity of marketing
insurance products to very large customer base.
Insurers together with retailers uses the concept
of ‘white Labeling’where retailers offer
insurance products branded with their own
name but underwritten by an insurance company.
C8 Travel agents and tour operators?
They have the opportunity of offering travel
insurance facilities to their customers.
10. C Different sellers and distributors of
insurance
C9 Aggregators? (compare with Direct
Insurer)
Internet based distribution channel, which relies
upon the corporation of insurers and
intermediaries to access their pricing for
different risks.
Aggregators provide quotations from many
insurers for the same risk .
Proposer then approach the most appropriate
insurer through a link from the aggregator’s web
site to complete purchase.
11. 11
D Importance of the customer.
Owing to the advancement of technology:
Information about customers has become
plentiful.
Customers have more information about what
they buying.
Many products and services delivered without
the customer and supplier ever meeting.
So, what are the practices that financial services
organizations use to interact with their customers?
12. D Importance of the customer.
D1 Customer expectation.
Company should identify its customer
expectations through research and experience
and measure itself against those expectations.
D1 Customer focus?
How you should approach the customer with
correct attitude. The organization should have
the appropriate culture to understand the
customer behavior continuously.
The shortcomings should be address
immediately.
13. D Importance of the customer.
D3 Customer relationship management (CRM).
Interact with customers and moving in to proactive
environment. Companies use all kinds of means to
approach, satisfy and maintain the relationship for life.
D4 ‘Treating Customer fairly’(TCF)
This is the principal theme of FSA regulations and
consider it to be the central part of insurance business
philosophy. The FSA Expect that:
1. Faire treatment of customers are central to the
corporate culture of a business.
2. Products are designed for the needs of identified
customer groups.
3. Consumers are provided with clear and accurate
information/ advice.
4. Standardized products.
5. Consumers do not face unreasonable post-sale barriers.
14. E Importance of other stakeholders.
In the context of business all stakeholders should be satisfied.
E1 Stakeholders?
They are the people or group of people who have an interest in the way
a company act. They are mainly:
Customers,
Shareholders,
The government
Regulators,
The public,
Employees.
D2 Stakeholder Management.
Stakeholder demands are conflicting but the company hasthe
responsibility for satisfying all. Company need toidentify:
Composition and significance of each group;
Power that each group exert;
Their legitimate claims on the company;
Extent to which the organization is satisfying claims;
Overall mission of the organization.
15. E Importance of other stakeholders.
In the context of business all stakeholders should be
satisfied.
E3 Ethics and organizational beliefs?
Business Ethics are the standards and moral conduct that
a company sets itself in all its dealings.
Why ethics are important?
Large organizations in small countries.
Responsibility vs. Power of senior management.
Consumer groups vs. Environmental issues.
Business strategy vs. cultural factors.
E4 Ethical standards in insurance.
CII has developed a ‘principle based’ Code of
Ethics for all its members (insurance and
financial services professionals) effected from
June 2009.
16. F Company growth and mergers and acquisitions
F1 Organic Growth?
Is where a company/ business develops and expands by increasing
its revenue through its own activities and efforts and can only be
achieve with appropriate application of its financial resources.
F1 External Features that are essential for business growth?
Increasing consumer income.
Ready availability of finance.
Low interest rate.
Buoyant markets.
Opportunities for product development.
Export opportunities.
Economies of scale,
Opportunity of increased revenue/ profits.
F1B Current growth trends.
Mergers and Acquisitions (M&A) vs. Organic Growth
F1C Organic growth drivers , examples?
Sound means to measure success.
more profitable route with a better investment.
Demonstrate long term commitment by executive management.
Clear focus on achieving organizational goals
17. F Company growth and mergers and acquisitions
F1D Benefits of Organic Growth ?
Long term benefits and profitable
relationships with the customers.
Morale of the employees
More economical
Clear check as to growth is real and
sustainable.
Less risky and accurate predictions.
F1E Disadvantages of Organic Growth.
Incur more time to grow.
Instant expectations of investors.
18. F Company growth and mergers and acquisitions
F2 Mergers and Acquisitions (M&A)
This is Non- organic growth.
Merger? If two companies agree to join forces on strategic basis
Acquisition? Company gains control of another company by purchasing a
majority share holding.
M&A can be divided into what is known as horizontal and vertical
integration.
Horizontal: Two companies are in the same market.
Vertical: Attempting to control stage either closer tothe
manufacturer of supplier.
F2A Reasons for Insurance M&As.
Gaining access to new business channels for rapid growth.
To acquire advanced IT system/ employee know how, local licensing in an
overseas country.
Operate through global market as a large insurer to take large risks.
Improved performance through synergy.
Overcoming cost of It, etc.by economies of scale/ sharing resources.
Investment opportunities from spare capital.
Risk spreading.
19. F Company growth and mergers and acquisitions
F2B Disadvantages of M&A
Reduced customer choice/ no
competition.
Impact on staff moral.
Clash of corporate culture.
M&A consumes management time
therefore ‘eye off the ball’
Reduced customer service due to
changers
Expected savings are not realized.
20. G Outsourcing
Outsourcing?
Is the use of skilled resources outside the company to handle work that was
previously performed by in-house staff. E.g. LossAdjusting.
Advantages of outsourcing:
Use of external specialist, which never being there before, at correct
cost
Service level agreement
Easy to budget
Bringing in more qualities/ new business processes.
High level of service with new products
More time to focus on core areas of the business
Disadvantages of outsourcing:
Certain controls and directions will be lost.
Confidential information/ data.
Uniqueness will be lost.
Internal problems of the outsourced company.
Communication problems.