Ch 01 structure of the insurance industry

For the people who do Diploma in Insurance

1. The Sri Lanka Insurance Institute
•P92/SL92
•Insurance Business &Finance
•Chapter01
•Structure of the InsuranceIndustry
1
M TharakaPerera
ACII, FIII, MBA-Finance

2. Structure of the InsuranceIndustry
Different Types of insuranceorganizations;
GlobalPerspectives;
Different sellers and distributors ofinsurance;
Importance of thecustomer.
Importance ofotherstakeholders;
Company growth and mergers andacquisitions;
Outsourcing

3. ADifferent types of insuranceorganizations
Three Types of Insurance Companies:
Composite,
LifeInsurance
GeneralInsurance.
InsuranceMarket
Sellers: Insurance Companies andLloyd’s
Buyers: General Public, organizations and publicAuthorities.
Middlemen: Insurance brokers andintermediaries.
Types of insuranceorganization:
Proprietary companies (Limitedliability):
Authorized and issued share capital that shareholders havesubscribed.
Shareholders liability is limited to value of theirshares.
Company is liable for theirdebt.
Mutual companies(Cooperatives):
Company is owned bypolicyholders.
Lloyd’s:
Underwriting members can be both individuals andcorporates
Members are in administrative groups callSyndicates
Underwriting business is carried out by managingagents.
Provide Bespoke insurancesolutions.

4. ADifferent types of insuranceorganization.
Types of insuranceorganization:
Captive insuranceCompanies
A Large Company forms a subsidiary to underwrite its ownrisks.
Pay premiums based on its own loss experience and purchase
reinsuranceaccordingly.
Operate from offshorelocations.
Takaful insurance companies (Guaranteeing EachOther)
Based on the rulings of Sharia law on financialtransactions.
Risks and returns should be shared betweenparticipants.
Reinsurers:
Insurers protect themselves viareinsurance.
TheState
SelfInsurance:
Setting a side its own funds to meet thelosses

5. BThe globalperspective
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: PrudentialPLC.
Global:-Company sees the whole world as one potential Market. Eg:Lloyd’s
The LondonMarket:
Comprises of reinsurers, Lloyd’s andbrokers
Leading global market for Aviation andMarine.
1/3
rd
of the total insurance written inGB.

6. C Different sellers and distributors of
insurance
C1 Who are DirectInsurers?
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 andtheir.
All information are exchange with the aid of latestICT.
C2 TheInternet?
Banks, Online Insurance Brokers, Wellknown
companies

7. C Different sellers and distributors of
insurance
C3 IndependentIntermediaries?
Full time experts ininsurance andable to offer
various personal and commercial products with a
range of companies, usually paid commission on
the premium by theinsurer.
C4 InsuranceAgents?
Usually be appointed representatives and will be
limited to offering policies from one particular
insurancecompany.

8. C Different sellers and distributors of
insurance
C5 BuildingSocieties?
Building Societies provide mortgagestherefore
require mortgage protection insurance against
the mortgagee’slife.
C6Banks?
Due to large customer base and extensive branch
network to develop new customers they have the
ability and the advantage of involving in providing
insuranceservices.

9. C Different sellers and distributors of
insurance
C7 Retailers and affinitygroups?
As an additional service to their normalbusiness,
Retailers have opportunity of marketing
insurance products to very large customerbase.
Insurers together with retailers uses the concept
of‘whiteLabeling’whereretailers offer
insuranceproductsbrandedwith their own
name but underwritten by an insurancecompany.
C8 Travel agents and touroperators?
They have theopportunityofofferingtravel
insurance facilities to theircustomers.

10. C Different sellers and distributors of
insurance
C9 Aggregators? (compare with Direct
Insurer)
Internet based distribution channel, whichrelies
upon the corporation of insurers and
intermediaries to access their pricing for
differentrisks.
Aggregators provide quotations frommany
insurers for the same risk .
Proposer then approach the mostappropriate
insurer through a link from the aggregator’sweb
site to completepurchase.

11. 11
DImportance of thecustomer.
Owing to the advancement oftechnology:
Information about customers has become
plentiful.
Customers have more information about what
they buying.
Many products and services delivered without
the customerandsupplierevermeeting.
So, what are the practices that financial services
organizations use to interact with theircustomers?

12. DImportance of thecustomer.
D1 Customerexpectation.
Company should identify its customer
expectations through research andexperience
and measure itself against thoseexpectations.
D1 Customerfocus?
How you should approach the customer with
correct attitude. The organization shouldhave
the appropriate culture to understand the
customerbehaviorcontinuously.
The shortcomings should beaddress
immediately.

13. DImportance of thecustomer.
D3 Customer relationship management(CRM).
Interact with customers and moving in toproactive
environment. Companies use all kinds of means to
approach, satisfy and maintain the relationship forlife.
D4 ‘Treating Customerfairly’(TCF)
This is the principal theme of FSA regulationsand
consider it to be the central part of insurance business
philosophy. The FSA Expectthat:
1.Faire treatment of customers are central tothe
corporatecultureofa business.
2.Products are designed for the needs ofidentified
customergroups.
3.Consumers are providedwithclearandaccurate
information/advice.
4.Standardizedproducts.
5.Consumers do not face unreasonable post-salebarriers.

14. EImportance of otherstakeholders.
In the context of business all stakeholders should besatisfied.
E1Stakeholders?
They are the people or group of people who have an interest in theway
a company act. They aremainly:
Customers,
Shareholders,
The government
Regulators,
Thepublic,
Employees.
D2 StakeholderManagement.
Stakeholder demands are conflicting but the company hasthe
responsibility for satisfying all. Company need toidentify:
Composition and significance of eachgroup;
Power that each groupexert;
Their legitimate claims on thecompany;
Extent to which the organization is satisfyingclaims;
Overall mission of theorganization.

15. EImportance of otherstakeholders.
In the context of business all stakeholders shouldbe
satisfied.
E3 Ethics and organizationalbeliefs?
Business Ethics are the standards and moral conduct that
a company sets itself in all itsdealings.
Why ethics are important?
Large organizations in smallcountries.
Responsibility vs. Power of seniormanagement.
Consumer groups vs. Environmentalissues.
Business strategy vs. culturalfactors.
E4 Ethical standards ininsurance.
CII has developed a ‘principle based’ Codeof
Ethics for all its members (insuranceand
financial services professionals) effected from
June2009.

16. FCompany growth and mergers andacquisitions
F1 OrganicGrowth?
Is where a company/ business develops and expands byincreasing
its revenue through its own activities and efforts and can only be
achieve with appropriate application of its financialresources.
F1 External Features that are essential for businessgrowth?
Increasing consumerincome.
Ready availability offinance.
Low interestrate.
Buoyantmarkets.
Opportunities for productdevelopment.
Exportopportunities.
Economies ofscale,
Opportunity of increased revenue/profits.
F1B Current growthtrends.
Mergers and Acquisitions (M&A) vs. OrganicGrowth
F1C Organic growth drivers ,examples?
Sound means to measuresuccess.
more profitable route with a better investment.
Demonstrate long term commitment by executivemanagement.
Clear focus on achieving organizationalgoals

17. FCompany growth and mergers andacquisitions
F1D Benefits of Organic Growth?
Long term benefits andprofitable
relationships with thecustomers.
Morale of theemployees
Moreeconomical
Clear check as to growth is realand
sustainable.
Less risky and accuratepredictions.
F1E Disadvantages of OrganicGrowth.
Incur more time togrow.
Instant expectations ofinvestors.

18. FCompany growth and mergers andacquisitions
F2 Mergers and Acquisitions(M&A)
This is Non- organicgrowth.
Merger? If two companies agree to join forces on strategicbasis
Acquisition? Company gains control of another company by purchasing a
majority shareholding.
M&A can be divided into what is known as horizontal andvertical
integration.
Horizontal: Two companies are in the samemarket.
Vertical: Attempting to control stage either closer tothe
manufacturer ofsupplier.
F2A Reasons for InsuranceM&As.
Gaining access to new business channels for rapidgrowth.
To acquire advanced IT system/ employee know how, local licensing in an
overseascountry.
Operate through global market as a large insurer to take largerisks.
Improved performance throughsynergy.
Overcoming cost of It, etc.by economies of scale/ sharing resources.
Investment opportunities from sparecapital.
Riskspreading.

19. FCompany growth and mergers andacquisitions
F2B Disadvantages ofM&A
Reduced customer choice/no
competition.
Impact on staffmoral.
Clash of corporateculture.
M&A consumes managementtime
therefore ‘eye off theball’
Reduced customer service dueto
changers
Expected savings are notrealized.

20. GOutsourcing
Outsourcing?
Is the use of skilled resources outside the company to handle work that was
previously performed by in-house staff. E.g. Loss Adjusting.
Advantages ofoutsourcing:
Use of external specialist, which never being there before, atcorrect
cost
Service levelagreement
Easy to budget
Bringing in more qualities/ new businessprocesses.
High level of service with newproducts
More time to focus on core areas of thebusiness
Disadvantages ofoutsourcing:
Certain controls and directions will belost.
Confidential information/data.
Uniqueness will belost.
Internal problems of the outsourcedcompany.
Communication problems.