Chapter 12

ORGANISATION STRUCTURE

INTRODUCTION

• Organisation structure refers to arrangements made for smooth running of Business activities.

• The arrangements depend on the nature and extent of business e.g. a shop, a partnership firm, a co-operative society, a factory, etc.

• It involves identifying the important activities and grouping them according to similarity, relatedness and importance. e.g. revenue generating activities are more important that non-revenue generating activities and

• Customer related activities are more important than internal administration related activities.

• Grouping of activities leads to formation of offices, departments and sections.

• Responsibilities & Authorities are defined and delegated to people and their position, designation, places in offices are fixed. e.g. an officer or a supervisor will be given the responsibility of doing a particular job and will be given the authority to get the job done from his subordinates or clerk

• An organisation is then said to be in place.

IMPORTANT ACTIVITIES

The important activities in a life insurance company are:

• Procuring applications or proposal of insurance from prospective buyers

• Underwriting i.e. scrutinising the proposals and taking decision on the proposals

• Issuing policy document incorporating the terms and conditions of the risk cover.

• Monitoring the performance of insurance contract by either party, like payment of premiums

• Attending to various requirements that may arise during the duration of the contract like assignments, nomination, alteration of terms, surrender & claim payments.

• Other Activities :• Advertising – publicity of their product• Investment -- funds obtain from premium collection

are to be invested in the most profitable manner so as to maximise returns.

• Accounting- recording all the transaction taken place.

• Personnel Management – managing the staff requirement, employing new people, training them and making payment of salaries and wages.

• Data processing – keeping and maintaining all the records on the computer of the policies issued

• Compliance of laws regulations – abiding to the rules and regulations.

• All the above activities are organised depending on the size of operation i.e.• Either these activities are concentrated in one

place• Or distributed between different offices.

• Business transacted in different countries will have different organisation structure depending upon the laws of that country and market for business.

INDIAN CONTEXT

• Earlier many insurers hired specialised agencies to do the administrative work.

• These agencies managed various kinds of business and were not aware of the special discipline required for insurance business.

• Life insurance business was nationalised in India in 1956. Since then LIC and PLI were doing life insurance business until the year 2000

• Because in the year 2000 several new insurance companies have started life insurance business.

• Each Company has a different organisational structure i.e. different offices, authority, responsibility vested on different positions.

• LIC transacts business throughout India and also in foreign countries like UK, Mauritius, Fiji, Kenya, Nepal & Bahrain.

• Own Offices - UK, Mauritius, Fiji, • Joint Ventures - Kenya, Nepal & Bahrain.• Since 2000 only Indian companies are allowed to

transact insurance business & foreign insurers can only be shareholders in Indian Companies.

STRUCTURE OF LIC.

• Central Govt. appoints not more than 16 members of LIC.

• Out of these 16 members 3 are full time employees of LIC. 1 Chairman and 2 Managing Directors.

• These members are highest decision making body of LIC, similar to the board of directors of companies.

4 TIER STRUCTURE OF LIC

Zonal Offices

Divisional Offices

Branch Offices.

Organisation Structure of LIC

• Until 1981, the Branch Offices only procured new business and registered the proposal and collected premium.

• Divisional Offices did underwriting, issue of policy, policy servicing

• As divisional offices were few compared to Branch offices, policy services proved to be costly and time consuming.

BRANCH OFFICE• After 1981, Branch Offices did all the jobs

from acceptance of proposal to payment of claims.

• Branch Office is the Basic unit of growth and profit.

• Agents and Development Officers are part of a Branch Office.

• People are reluctant to buy life insurance as they have to pay for a benefit which is vague and far away. They are to be persuaded & this job of persuasion is done by agents.

• LIC has more than 6 lakhs agents. Agents of other new insurance companies are called advisors or consultants.

• In other countries, there are colleges of Insurance which offer long duration courses to leading agents to get degrees like accountant, company secretary or architects. These courses are given because professional agents advice are valued more.

• In India, there are organisation which offer courses for agents in insurance related matters

BROKERS

• Brokers canvass business and lace the same with insurer on certain negotiated terms.

• Broker does business for more than one insurance company.

• He collects commission from the insurer & does not charge the customer.

• In India, the system of brokers was not permitted earlier, but now the IRDA has issued regulations regarding operation of Brokers, which state that Brokers have to obtain licenses from the Govt. in order to procure business & receive commission

Direct Selling• Life insurance has been sold mainly through

agents.• As part of the strategies to reduce costs,

insurers are exploring various methods of direct selling, thereby bringing down costs by eliminating the intermediary.

• Through internet, buyers can access information about various plans of insurance and also the premium rates offered. Insurers are keen to take advantage of the new technology but are approaching it cautiously.

New Insurance Companies• New insurance companies are managed by a

Board of Directors, of which one is the representative of customers.

• They have two tier structure.• Head office• Branch offices

• Most companies have their own Branch Offices, however some have tied up with their associate organisation mainly Banks, which has a large network

• Branch offices concentrate on procuring business and building clientele. Head office looks after underwriting and administering the policies.

Internal Organisation

• In an insurance office, departments are formed based on the following activities

• Business development or Agency or marketing – procuring business

• New Business – receiving, scrutinising & underwriting new proposal and issue of First Premium Receipts & Policy.

• Servicing Policy Holders • Monitoring premium payments.• Lapses & revivals• Alterations, nominations, assignments• Surrender, loan & claim settlement

• Accounting financial flows

• Following departments are likely to be centralised as they require specialised skills

• Actuarial – studying the experiences, doing valuations, declaring bonuses on the with profit plan policy, monitoring adequacy of premiums, setting underwriting standards, studying mortality rate

• Investments of funds – studying opportunities for maximising returns

• Advertising, publicity & public relation.

• Some of the following departments will be found in all offices, sometimes looking after the needs of that office alone or sometimes looking after the entire office:

• Personnel – Recruitment of staff, payment of salary, etc.

• Human Resources Development • Training• Purchases of stationery, office

equipments, etc• Administration for office upkeep

The Actuarial ProfessionAn Actuary • is a person who has passed specialised exams

conducted by the Actuarial Society of India or the Institute of Actuaries , London

• is the technical expert on life insurance matters studying the mortality of the insuring public.

• evaluates the financial condition of the insurer• Determines the policies to be offered and at what

premium rates.• Makes rules to follow for underwriting and

investments of funds.• Decides the bonus that could be declared on

participating policies.• A good actuary is a good economist, a good

statistician and a good security analyst.

• Insurance Regulatory and Development Authority (IRDA) Regulations requires that every life insurance company must have an Appointed Actuary, who will perform the following jobs :

• Continuously study the company’s operation and advise them on the product design and pricing, insurance contract wordings, investment and reinsurance.

• Do periodical valuation of the company as per the provision of the Insurance Act and ensure the solvency of the insurer at all times.

• Certify the premium proposed to be charged by the insurer before submitting for approval of the IRDA.

• Comply with the Act in regard to premiums, values of assets and liabilities.

• Certify the actuarial reports and other returns.

• Certify the determination of the mathematical reserves i.e proportion of the surplus to be reserved and the proportion to be distributed as bonus.

THANK YOU

M. J. MALIKS.B.A.

836 B.O.AHMEDABAD D.O.

09879094925lic.malik@gmail.com