Caib 4 Chapter 2

Front 1

3 elements in organizing staff effectively:

Back 1

1) Creating an organizational structure (line, functional, line & staff)

2) Defining Employee Relationships

3) Establishing Position Descriptions

Front 2

What is line organization? Provide an advantage and disadvantage:

(3 elements, this is part of #1: creating organizational structure)

Back 2

Authority, delegated, primarily to the manager, directly responsible for achieving brokerage goals

Advantage: simple, clear delegation of authority, quick decision making.

Disadvantage: managers must be fully knowledgable to make decisions, power is concentrated at the top, limits the growth and development of employees by stifling innovation.

Front 3

What is functional organization? Provide an advantage and disadvantage:

(3 elements, this is part of #1: creating organizational structure)

Back 3

Activities are grouped together by function, employees report to media department known as “matrix system”of management, one department borrows other department employees.

Advantage: employees have access to expert advice, decisions made by a management specialist

Disadvantage: more than one boss – potential overlapping authority can result in conflicting or inconsistent instruction. Decision-making can be slow. Employees distracted by too many managers giving instructions.

Front 4

What is line and staff organization? Provide an advantage and disadvantage:

(3 elements, this is part of #1: creating organizational structure)

Back 4

Best suited to large brokerages, combines both strength of Line and functional organizational structures.

Advantages: areas of authority and responsibility clearly defined, each employee has a line manager (decisions made quickly, expert advice readily available) encourages better communication and co-operation.

Disadvantage: potential conflicts over authority, line managers may resent seeking advise which they may feel obligated to accept, additional costs.

Front 5

Why is it important to define employee relationships?

(3 elements, this is #2: Defining Employee Relationships )

Back 5

Flow of authority and responsibility must be clearly defined. Enough authority must be delegated to allow people to carry out their responsibilities. Holding employees responsible for activities they have no control over, leads to frustration and low morale.

Front 6

What is the role of position descriptions in organizing staff?

(3 elements, this is #3: Establishing Position Descriptions)

Back 6

All position should have clear, written job descriptions which outline: responsibility and authority. Description should include title, purpose, primary responsibilities, scope of the Position.

Front 7

What are the 3 legal forms of organization?

Back 7

1) Sole proprietorship

2) Partnership

3) Corporation

Front 8

What is a sole proprietorship? What are the advantages and disadvantages?

Back 8

Business owned by an individual. Requirements to establish business: licensing by provincial regulatory authority, filing in compliance with trade name regulations.

Advantages: easy to start, rights to all profits, decision-making process simplified.

Disadvantages: all liability rests on owner, expertise limited to owner, business lives and dies with owner.

Front 9

What is a partnership? What are the advantages and disadvantages?

Back 9

Voluntary association of two or more persons who co-own a business. The requirements to establish are the same as a sole proprietorship.

2 types:

General - All owners share all rights and obligations

Limited - includes one general partner, and one or more more limited partner. (Limited partner maximum liability = value of capital invested)

Advantages: broader expertise, liability shared, business doesn’t live and die with owner, earning “all the profits”

Disadvantages: more potential for conflict, difficult to dissolve, partnership agreements should be in place.

Front 10

What is a corporation? What are the advantages and disadvantages?

Back 10

Legal entity, created by government charter, ownership evidenced by shares of stock.

Advantages: personal assets protected (liability limited to corporate assets only). Tax advantages- corporate tax rates.

Disadvantages: start-up fees, legal fees. Tax disadvantages- under greater scrutiny by CCRA

Front 11

4 examples of operating affiliations:

Back 11

1) loosely knit affiliations

2) general purpose groups

3) clusters

4) common identity groups

Front 12

What is a loosely knit affiliation?

Back 12

Owners and managers meet on an informal basis to discuss common opportunities or threats.

Front 13

What is a general purpose group?

Back 13

Formalized extension of the loosely knit groups

Provides broker with diverse package of resources i.e: education , awareness with insurance companies, management assistance, general information.

Front 14

What is a cluster?

Back 14

Brokerages band together to share “back room” services like technology, processing, insurance companies.

Share administrative services and physical space

Each brokerage retains ownership of their book of business

Front 15

What are Common Identity groups:

Back 15

Marketing organizations established to give participating brokerages images and resources. Typically on a national and international stage. Usually larger brokerages. Fee to participate.

Front 16

5 factors for evaluating Operations Affiliations:

Back 16

1) Services and support: are services provided addressing the needs of the brokerage? (Look for reliable and experienced professionals, evaluate who will be responsible for delivering the service, investigate each service thoroughly)

2) Exclusivity: how many other brokerages in the marketing area are permitted to join? What is the legal nature of the exclusivity? What is the reputation of the brokerages already participating in the program? (Check if their existing clients match the image and vision of your brokerage)

3) Fees: are they worth the investment? Are services provided worth the price being charged?

4) Contractual Agreement: is this a formal contractual agreement? (Review and understand thoroughly before signing and have an attorney review)

5) Financial Strength: do they have the resources to support my brokerage? Are the resources dedicated to my brokerage? Will the resources be transferred to other areas of business?

Front 17

What is the law of agency?

Back 17

A relationship between the principal (insurance company) and agent (broker or agent) is a fiduciary one (based on trust).

The rights and responsibilities arising out of this relationship are known as the law of agency.

Due to the trust-based nature of the relationship, the law imposes a higher standard of conduct on agents than is required in the normal course of business.

Front 18

What is an insurance agent?

Back 18

When the person selling insurance is the agent of the insurance company providing coverage.

Front 19

What is an insurance broker?

Back 19

If person selling insurance is the agent of the person buying insurance.

Front 20

The purpose of the agreement is to define the legal authority. What are 3 types of authority?

Back 20

1) Express Authority: legal agreement, can be either orally or written. Includes: limitations on underwriting a risk, classes of risk, collection and remittance of premiums, withholding commissions.

2) Implied Authority: no agreement can address every possible occurrence, therefore allowances are made. If a brokerage is allowed to bind coverage in a certain type of risk, even if it is not part of the express authority agreement, it can be assumed that they can bind coverage on the same types of risk, unless specifically forbidden to do so.

3) Apparent Authority: when an innocent third party is led to believe that the brokerage has the authority even though it doesn’t.

Front 21

What is Ratification?

Back 21

Ratification occurs when there is a retroactive approval. If, after a broker exceeds the authority, the insurance company ratifies (accepts) what the broker has done, it is as if they had always had the authority to do so.

Front 22

What are the 2 types of sub brokers?

Back 22

1) brokerage appoints an individual to represent it.

2) Brokerage has difficulty placing business within its own markets and becomes a sub-broker by placing this business through another brokerage.