CAIB 4 Ch 2 - PPT PDF

CAIB 4: Chapter 2 Organizing CAIB 2  CAIB 2 Section 1 Organizational Structure  Strategic Plan Implementation and Organizational Structure Proper implementation of strategic plans requires alignment between the plan, brokerage structur...

CAIB 4: Chapter 2 Organizing CAIB 2  CAIB 2 Section 1 Organizational Structure  Strategic Plan Implementation and Organizational Structure Proper implementation of strategic plans requires alignment between the plan, brokerage structure, and employee capabilities. Effective organizing involves: Creating an organizational structure. Defining employee relationships. Establishing position descriptions. The structure of the brokerage is crucial for achieving the organization's goals. CAIB 2 Creating an Organizational Structure An organization is formalized when management practices direct its activities toward objectives. The degree of formalization is influenced by the scope and complexity of the brokerage's goals. Three types of organizational structures: Line Organization Functional Organization Line and Staff Organization Organizational structure defines authority, responsibility, and how tasks are delegated. CAIB 2 Line Organization – Advantages and Disadvantages Line Organization: Authority flows vertically from senior executives to subordinates. Each subordinate reports to one superior. Advantages: Simplicity. Clear delegation of authority. Quick decision-making. Disadvantages: Requires line managers to have broad knowledge. Concentrates power at the top, slowing innovation. Limits employee growth. CAIB 2 Line Organization CAIB 2 Structure, Benefits, Activities are grouped by function (departmentalized). Department heads are specialists with authority over their area. and Challenges Organization – Also known as the "matrix system of management." Advantages: Functional Expert advice provided to employees. Decisions made by management specialists. Disadvantages: Employees may have more than one "boss." Conflicting instructions may occur. Slow decision-making in unclear areas of responsibility. Employees distracted from core roles due to multiple directives. Difficult for brokerages to implement effectively. CAIB 2 Functional Organization CAIB 2 Line and Staff Organization – Structure, Benefits, and Challenges Combines strengths of line and functional organization forms. Line functions: sales, service, financial management. Staff functions: advisory roles supporting line managers. Staff authority: limited to advising, not commanding. Line managers: responsible only for line functions. Advantages: Clear authority and responsibility. Quick decision-making due to direct line management. Expert advice available to line managers. Enhanced communication and cooperation. Disadvantages: Conflicts between staff and line managers over authority. Possible resentment from line managers towards staff advice. Additional costs for staff functions not directly tied to revenue. Requires large-scale operations to justify costs. CAIB 2 Line and Staff Organization CAIB 2 Defining Employee Relationships Common organizational Clear definition of authority issue: unclear authority and responsibility flow is and responsibility essential. relationships. Lack of delegated authority Authority must align with leads to employee responsibility to ensure frustration and morale effective job performance. issues. CAIB 2  Job descriptions are key to clarifying responsibilities and authority. Job descriptions outline: Primary Scope of the Title. Purpose. Establishing responsibilities. position. Position Clear job descriptions prevent role ambiguity and enhance Descriptions performance. Written summaries provide a framework for evaluation and accountability. CAIB 2  CAIB 2 Section 2 Legal and Operational Forms of Insurance Brokerages Three Common Legal Forms of Business Ownership Overview of Business Legal Importance of Choosing the Forms: Right Form: Sole Proprietorships Impacts liability, taxes, and decision-making Partnerships Compliance with provincial insurance Corporations regulations CAIB 2 Sole Proprietorships: Characteristics, Advantages, and Disadvantages CAIB 2  Definition: Co-ownership by two or more individuals Types: Partnerships: General Partnership: All partners equally liable Limited Partnership: Limited partners have restricted liability General and Advantages: Limited Shared expertise and workload Liability is shared among partners Business continuity is possible with multiple owners Structures Disadvantages: Potential for disputes among partners Dissolving the partnership can be challenging Requires formal agreements CAIB 2  Definition: Legal entity separate from its owners Advantages: Corporations: Limited personal liability for shareholders Potential tax advantages (lower corporate tax rates) Advantages Continuity beyond the owners’ involvement and Disadvantages: Disadvantages Higher startup and legal costs Greater regulatory scrutiny and complex tax filing requirements Legal compliance can be time-consuming CAIB 2  Understanding Operating Affiliations in Insurance Brokerages Definition of Types of Operating Key Benefits: Operating Affiliations: Affiliations: Not legal forms, but Provide support Loosely Knit ways to collaborate through industry Affiliations within the industry. partnerships. General Purpose Help brokerages Range from informal Groups achieve marketing to highly structured Clusters and sales objectives. affiliations. Common Identity Groups CAIB 2  Loosely Knit Affiliations: Informal Collaboration Definition: Informal meetings between brokerage owners/managers. Purpose: Discuss industry challenges, opportunities, or threats. Key Benefits: Exchange of information and best practices. Allows for collaboration without formal agreements. Limitations: Limited benefit if participants are direct competitors. Success depends on openness and willingness to share insights. CAIB 2  Definition: Formal groups offering a package of resources to brokers. Key Features: Provides education, management advice, and industry insights. General Purpose Often involves a participation fee. Groups: Key Benefits: Creates a structured platform for learning and sharing best practices. Formalized Enhances relationships with insurance companies and offers preferred attention. Support Limitations: Participation costs may be prohibitive for smaller brokerages. Focus may be broad, lacking specific solutions for niche markets. CAIB 2 Clusters: Shared Resources and Economies of Scale Definition: Brokerages band together to share resources such as administrative services and technology. Key Benefits: Economies of scale: collective bargaining power with insurance companies. Shared resources: administrative support, technology, office space. Common initiatives: joint advertising, pooling of volumes, and profit agreements. Flexible Structure: Varies based on member needs; can address specific market segments or threats. Ownership: Each brokerage retains ownership of its book of business. Common Identity Groups: National and International Strength Definition: Organizations that give brokerages national or international branding and resources. Key Features: Affiliates share a common brand identity or reputation. Provide local service on national or international accounts. Key Benefits: Access to facilities and support in major insurance centers. National or international reach enhances credibility with large clients. Selective Membership: Groups are highly selective in accepting new affiliates to maintain quality control. Annual membership fees help sustain the network. Limitations: Typically targeted at larger brokerages that handle complex, high- value accounts. CAIB 2  Overview: Insurance brokerages have many opportunities to affiliate with other organizations. Affiliations offer various benefits but require careful evaluation before committing. Key Considerations for Evaluating Key Evaluation Factors: Insurance Operating Affiliations Services & Support Exclusivity Fees Contractual Agreement Financial Strength CAIB 2 Evaluating Services and Support Offered by Affiliations Different affiliations offer different services (e.g., national Service Offerings contracts, product variety, management assistance). Evaluate if the services align with the brokerage's needs. Thorough Verify the quality and reliability of services being offered. Investigate the people delivering the services—reliable, Investigation experienced professionals are essential. Focus on Current, Prioritize services currently being provided over those Not Promised promised for the future. Services CAIB 2  Understanding Exclusivity in Operating Affiliations Exclusivity Considerations: Determine how exclusive the affiliation is. Key questions: How many brokerages in the local area can join? What legal protections are in place for territorial exclusivity? Assessing Reputation: Investigate the reputation of existing affiliates. Prestige and image are tied to the quality of current participants. CAIB 2 Evaluating Costs and Fees of Operating Affiliations Cost Considerations: Carefully evaluate all costs associated with the affiliation. Ensure the fees align with the value of services provided. Transparency in Pricing: All costs should be disclosed upfront to avoid surprises later. CAIB 2 Contractual Obligations and Financial Strength of Affiliations Contractual Agreement: Review the contract thoroughly, ensuring all obligations and benefits are clear. Have legal counsel review the agreement to avoid misunderstandings or unforeseen issues. Financial Strength: Evaluate the financial stability of the sponsoring organization. Ensure the organization has the necessary resources committed to delivering services long-term. CAIB 2  CAIB 2 Section 3 The Broker & the Brokerage  Adapting to the Changing Insurance Landscape Insurance Market Transformation: Industry shift towards specialization and competition. Traditional "order-taking" approach is no longer viable. Brokers need to focus on sales and relationship building. Brokerage Support: Broker success is tied to a supportive environment. High-quality service delivery builds client confidence. Growing Brokerage Networks: Small brokerages being acquired by larger, well-supported networks. Use of advanced technology, sales, and marketing techniques by large brokerages. CAIB 2 Understanding the Legal Basis of Brokerages Definition of Agency: Agency: a fiduciary relationship where one entity (agent) acts on behalf of another (principal). Both parties must consent to the agency relationship. Importance of Trust: The agent has a legal duty to act in the principal's best interests. Agents are held to higher conduct standards due to the trust-based nature of the relationship. Relevance to Insurance: The law of agency governs relationships between brokers, insurance agents, and their respective principals. This legal distinction plays a critical role in defining the responsibilities brokers have toward clients and insurers. CAIB 2  Agency and its Variations Across Provinces Provincial Differences in Agency Laws: Provincial laws can modify the traditional agency relationship. Example: In British Columbia, brokers act as agents for both the buyer and insurer in different contexts. Broker vs. Agent Roles: Brokers primarily represent the buyer’s interests. Agents represent the insurance company’s interests. Dual Agency in Some Provinces: In some provinces, brokers act as legal agents of the insurance company in specific transactions, such as premium collection. CAIB 2  The Framework of Authority in Insurance Agreements Purpose of Authority: Types of Authority: Importance: Defines the legal power a Express Authority Brokers must understand the brokerage or agency must conduct Implied Authority authority granted by each business with an insurance insurance company. company. Apparent Authority Misunderstanding authority can Governs how the brokerage can lead to legal and financial represent the insurance company. consequences. CAIB 2  Express Authority: Clearly Defined Power Definition of Express Examples: Key Points: Authority: Explicit, legally agreed The agency contract Brokers must be aware upon authority in agency allows a brokerage to of the limitations in each contracts or brokerage sell a specific insurance agreement. agreements. company’s products. Multiple agreements Can be verbal or written Brokerage agreement may have varying limits agreements. limits authority, such as of express authority. restricting the types of risks a broker can bind. CAIB 2 Implied Authority: Unwritten Powers Based on Custom Definition of Authority not explicitly stated but necessary to perform tasks granted by express authority. Implied Authority Arises from custom or precedent. Advertising insurance products on behalf of the company, even if not explicitly stated in the contract. Examples Continuing to bind risks if it has been accepted practice, even if not mentioned in the current agreement. Risks of Implied Its vague nature can cause disputes between brokers and insurance companies. Authority Written clarification is important to avoid misunderstandings. CAIB 2  Definition of Apparent Authority: Authority that a third party believes a broker has, based on the insurer's actions or negligence. The insurance company may be liable even if the authority wasn’t formally granted. Apparent Examples: Authority: A broker binds a $2,000,000 policy, but their actual Perceived Power authority was limited to $500,000. The insurer may still be held responsible. in the Eyes of The insurance company inadvertently creates the Third Parties appearance that a broker has more authority than they do. Responsibilities: The third party has a duty to verify authority. The insurance company may seek reimbursement from the brokerage if apparent authority leads to financial liability. CAIB 2  Definition of Ratification: Occurs when an insurance company accepts an unauthorized act of a brokerage. Retroactively approves the brokerage’s action as if authority had Understanding been granted initially. Ratification: Key Points: When brokerages exceed their express or implied authority, they Retroactive enter into contracts for themselves, not the insurance company. Ratification allows the insurance company to accept the Approval of contract, making it valid from the original transaction date. If the insurance company does not ratify the act, the brokerage Unauthorized remains solely liable for the contract. Acts Example: A broker binds a high-value policy without express authority. The insurer later ratifies the action, making the policy effective from the date it was bound. CAIB 2  Understanding Sub-Brokers: Two Key Meanings in Brokerage Operations Two Types of Sub- Key Responsibilities Brokers In both scenarios, sub- The appointing brokerage brokers have obligations Appointed Broker-to-Broker remains liable for the either to the appointing Representative Placement appointed sub-broker’s brokerage or directly to actions. their clients. A brokerage acts as a The brokerage is The sub-broker does not The brokerage appoints sub-broker by placing responsible for the sub- have binding authority an individual to represent difficult-to-place broker’s actions as if but retains responsibility it. business through they were an employee. to their clients. another brokerage. CAIB 2