Chapter 2 – Insurance Company Structure

Organizational Structure

How various departments and functions are arranged within an insurance company.

Threefold Purpose of Insurance

1. Peace of mind 2. Financial security 3. Prevention of losses (risk management).

Chief Risk Officer (CRO)

An executive responsible for identifying, assessing, and mitigating risks within the insurance firm.

Human Resources Department

Handles recruitment, training, payroll, compliance with labor laws, and employee relations.

Flat Structure

An organizational design that has fewer hierarchical levels, allowing for faster decision-making and greater employee autonomy.

Pyramid Structure

A traditional organizational model characterized by a hierarchy with a clear chain of command, typically top-down.

Underwriting

The process of assessing risks and determining the appropriate premium rates for insurance policies.

Claims Department

Responsible for managing claims, investigating losses, and ensuring proper payment is made to policyholders.

Actuarial Department

Handles pricing and reserving for insurance policies, analyzing data for risk assessment.

Regulatory Compliance

The process of ensuring that the company adheres to laws and regulations governing its operations.

Business Plan

A strategic document outlining the future direction and goals of an insurance company over a specified time frame.

Risk Management

Identifying, assessing, and prioritizing risks followed by coordinated efforts to minimize, control, and monitor the impact.

Strategic Business Plan

A three to five-year tactical plan guiding the company toward its objectives.

Sales and Marketing Department

Responsible for identifying market opportunities and developing strategies to attract and retain customers.

Finance and Accounting Department

Handles financial records, statements, budgets, and compliance with tax regulations.

Corporate Governance

The system by which companies are directed and controlled, focusing on the roles of board, management, and shareholders.

Board of Directors

A group of individuals elected by shareholders to govern and make major decisions for the company.

Regulatory Framework

The set of laws and guidelines that govern the operations of insurance companies.

Conflict of Interest

A situation where a board member's personal interests could interfere with their duties to the company.

Audit Committee

A committee within the board responsible for overseeing financial reporting and compliance.

Conduct Review Committee

Focuses on corporate governance and conflict of interest issues, ensuring policies are followed.

Mergers and Acquisitions (M&A)

Processes through which companies consolidate or acquire other firms to enhance their market presence.

Decentralization

The distribution of decision-making governance closer to the point of service or action.

Centralization

Consolidating decision-making authority at higher levels of the organization's hierarchy.

Risk Management Controls

Policies and processes implemented to manage and mitigate risks in insurance operations.

Technology in Insurance

Refers to the use of IT systems and tools to enhance underwriting, claims, and actuarial functions.

Premium Rate

The amount charged by an insurance company to insure against specific risks.

Accountability in Governance

The obligation of company leadership to account for their activities and decisions to stakeholders.

Diversity, Equity, and Inclusion (DEI)

Initiatives aimed at fostering a diverse and inclusive workplace that values every individual's contribution.

Employee Benefits Programs

Programs designed to provide financial support and incentives for employees.

Customer-Centric Approach

Business strategies that prioritize the satisfaction and experience of customers.

Claims Processing

The procedures involved in handling claims made by policyholders.

Market Intelligence

Data regarding the market, competitors, and consumer behavior that inform strategic decisions.

Continuous Improvement

Ongoing efforts to improve products, services, or processes over time.

Profitability Goals

Financial targets set by the company to ensure it maintains a healthy profit margin.

Employee Performance Reviews

Assessments of employee performance relative to their goals and objectives.

In-Force Business

Existing insurance policies that are currently active and generating premiums for the company.

Corporate Culture

The shared values, beliefs, and behaviors that shape how employees work and interact.

Capital Reserves

Funds set aside by insurance companies to pay for future claims and liabilities.

Product Development

The processes involved in creating new insurance products to meet market needs.

Claim Adjustment

The evaluation and settlement process undertaken by adjusters after a claim is filed.

Market Segmentation

The process of dividing a target market into distinct subsets of potential customers.

Sustainability in Insurance

Practices aimed at creating long-term benefits for the company and its stakeholders while minimizing negative impacts.

Emergency Response Teams

Special units created by insurers to manage large-scale claims in the event of catastrophic losses.

Group Policies

Insurance coverage designed for a group of individuals, often offered through organizations.

Fraud Detection

Processes and technologies used to identify and prevent fraudulent claims.

Policy Endorsement

An amendment or addition to an existing insurance policy that alters its terms or coverage.

Earnings Reports

Financial documents detailing a company's income and expenses for a specific period.

Retained Earnings

The portion of a company's profit that is held within the company rather than distributed to shareholders.

Automated Underwriting

Use of technology to evaluate insurance applications and assess risk.

Reserve Estimation

The process of calculating the amounts needed to cover future claims.

Claims Handling Procedures

The specific steps taken by insurance companies when processing claims.

Regulatory Reporting

The process of submitting necessary documentation and reports to government authorities.

Technology Integration

The incorporation of new technologies into existing business processes.

Employee Satisfaction Surveys

Tools used to measure employees' satisfaction and engagement with their work environment.

Distribution Channels

The means by which an insurance product is sold, including agents, brokers, and direct sales.

Underwriting Guidelines

Policies and procedures governing how risk is assessed and policies are issued.

Mutual Companies

Insurance companies owned by policyholders who share in profits or savings.

Stock Companies

Insurance companies owned by shareholders and aimed at generating profit.

Investment Portfolio Management

The process of managing a company's investments to maximize return while minimizing risk.

Coverage Limits

The maximum amount an insurer will pay for a covered loss.

Policyholder Communication

The methods used to inform policyholders about their coverage and any changes.

Risk-Sensitive Pricing

Setting premiums based on the level of risk associated with insuring a particular individual or entity.

Customer Retention Strategies

Techniques used to keep existing customers engaged and loyal to the insurance company.

Data Analytics in Insurance

The use of advanced data analysis techniques to inform business decisions.

Regulatory Compliance Officer

An individual responsible for ensuring a company's adherence to laws and regulations.

Joint Underwriting Associations (JUA)

Collaborative groups formed to underwrite high-risk policies that individual companies may avoid.

Insurance Products

The various types of insurance coverage offered by an insurer.

Claim Reserves

Funds set aside to cover anticipated claims payouts.

Market Trends

Patterns in consumer behavior and market dynamics that influence business strategies.

Employee Development Programs

Training and educational initiatives aimed at enhancing employee skills and knowledge.

Statistical Reporting

The provision of data and metrics to external entities, such as regulators or industry associations.

Digital Transformation in Insurance

The integration of digital technology into all areas of an insurance business.

Loss Control Strategies

Measures taken to minimize risks and reduce the likelihood of claims.

Retention Strategies

Approaches designed to keep policyholders from switching to competitors.

Insurance Underwriting Principles

Fundamental guidelines that govern the practice of assessing risk and determining coverage.

Personal Property Insurance

Coverage that protects individual homeowners against losses and damages to their personal belongings.

Professional Liability Insurance

Insurance that protects professionals against claims of negligence or malpractice.

Loss Adjustment Expense (LAE)

Costs incurred by an insurance company in investigating and settling claims.

Financial Statements

Reports that provide an overview of a company's financial performance.

Net Income

The total revenue remaining after all expenses, taxes, and costs have been subtracted.

Insurance Advisory Committees

Groups formed to provide guidance on specific areas such as compliance and risk management.

Insurance Rating Bureau

An organization that helps to determine the risk classification of various insurance products.

Business Continuity Planning

Preparing for potential disruptions to ensure operations can continue without significant interruption.

Insurance Industry Standards

Guidelines and best practices established by industry organizations to ensure consistency and quality.

Risk Assessment Models

Frameworks used to evaluate the probability and potential impact of risks.

What are the three main purposes of insurance, and how has the growing importance of risk management influenced the insurance industry?

The three main purposes of insurance are:

1. Peace of mind

2. Financial security

3. Prevention of losses (risk management)

The growing importance of risk management has led to a greater emphasis on identifying and mitigating risks such as terrorism, climate disasters, and cybercrime. This shift has resulted in the expansion of educational programs in risk management and the creation of specialized roles in the insurance industry, including risk managers, chief risk officers, and vice presidents of risk management or loss control.

What are the key responsibilities of the risk manager of the future?

• Acquiring new business

• Protecting existing business

• Predicting losses (claims)

• Providing strategic insights

• Managing enterprise risk

• Leading loss control initiatives

• Helping navigate organizational uncertainty

How is the role of the risk manager evolving according to Canadian Underwriter?

Risk managers are entering a new era focused on strategic thinking. They are increasingly expected to provide valuable risk insights to help organizations navigate uncertainty.

What skill sets are expected from future risk managers?

• Strategic thinking

• Risk buying

• Enterprise risk management

• Loss control

• Adaptability during organizational change

What organizational changes have many insurance companies undergone to adapt to the evolving market?

Many insurance companies have gone through mergers, acquisitions, and other transformations, leading to more complex and sometimes convoluted corporate structures.

Why do Canadian insurance companies display a wide variety of corporate structures?

Due to market evolution, mergers, acquisitions, and the large number of players, Canadian insurance companies exhibit a range of complex organizational structures

What are the primary responsibilities of the risk manager of the future?

• Acquiring new business

• Protecting existing business

• Predicting losses (claims)

• Providing strategic insights

• Managing enterprise risk

• Leading loss control initiatives

• Navigating organizational uncertainty

How is the role of the risk manager changing in the insurance industry?

• Distribution of power and control

• Integration of operational systems

• Communication effectiveness

• Service coordination

• Company size

What key factors influence how an insurance company structures its organization?

• Distribution of power and control

• Integration of operational systems

• Communication effectiveness

• Service coordination

• Company size

What three main areas typically make up a company's shared services structure?

• Administration

• Sales and marketing

• Finance and accounting

Which departments are unique to insurance operations and may form their own divisions?

• Underwriting

• Claims

• Actuarial

What are some typical administrative and support functions found in property and casualty (P&C) insurance companies?

• Human resources

• Information technology

• Compliance

• Legal

• Office management and services

How does the size of an insurance company affect its organizational structure?

Larger companies tend to have more departments and executives, resulting in more complex organizational structures and specialized roles.

Why have many insurance companies developed complex corporate structures in recent years?

Due to market changes, including mergers and acquisitions, and the need to adapt to a competitive and evolving insurance landscape.