Caib 4 Chapter 2

Front 1

Organizational Structure: What are the three steps in this management function?

Back 1

1) Creating an organizational structure.

2) Defining employee relationships.

3) Establishing position descriptions.

Front 2

Identify 3 types of organizational structures and provide advantages and disadvantages to each.

First Type?

Back 2

1) Line Organization: Advantages include simple, clear delegation of authority and quick decision making. Disadvantages include, managers must be experts in all areas, manager is involved in all decisions as power is concentrated at the top and innovation is stifled, thereby limiting employee growth and development.

Front 3

Identify 3 types of organizational structures and provide advantages and disadvantages to each.

Second Type?

Back 3

2) Functional Organization: Advantages include, employees receive expert advice and decisions are made by manager with knowledge in a specific area. Disadvantages include, employees have more than one boss which may cause conflicting instructions, buck passing may occur among managers resulting in delays in decisions and, with too many managers, employees are often distracted from their jobs.

Front 4

Identify 3 types of organizational structures and provide advantages and disadvantages to each.

Third type?

Back 4

3) Line and Staff Organization: Advantages include, clearly defined authority and responsibility, quick decisions are possible and managers have other managers they can consult with, better communication is encouraged. Disadvantages include conflicts that may occur when managers exert control over another manager's staff, managers may feel obligated to ask for advice, and costs associated with additional layers of managers may be a burden.

Front 5

What is the purpose of defining employee relationships?

Back 5

Managers must ensure that staff are given authority and responsibility to avoid confusion. When this does not occur, staff will become frustrated and this affects moral.

Front 6

What is the purpose of position descriptions?

Back 6

Position descriptions outline responsibility and authority by stating title, purpose, primary responsibility and scope of position.

Front 7

Identify and explain 3 legal forms of business

Back 7

1) Sole proprietorship- Business is owned by single individual.

2) Partnership- Voluntary association of 2 or more persons in owning a business.

3) Corporation- Legal entity created by government charter, ownership is evidenced by shares in the company.

Front 8

Explain 4 different operating affiliations available to brokerages.

Back 8

1) Loosely-knit Affiliations- Informal meetings of managers to discuss common concerns.

2) General Purpose Group- Formal extension of loosely-knit affiliations where managers receive education, management assistance and preferred attention from insurers.

3) Clusters- Brokerages band together to share back room services and achieve economies of scale resulting in preferential treatment from insurers.

4) Common Identity Groups- Brokerages belong to these groups in order to benefit from the images and resources of a common national or international identity.

Front 9

Identify 5 factors brokerages should consider when studying affiliations.

Back 9

1) Services and support

2) Exclusivity

3) Fees

4) Contractual agreement

5) Financial strength

Front 10

Define 'law of agency'

Back 10

This describes the relationship when one entity acts for another. This is a trust based relationship where principals authorize an agent to act on their behalf in business dealings with others.

Front 11

Explain how the law views responsibilities of agents/brokers. To whom do they owe primary responsibilities?

Back 11

Agents owe their primary allegiance and fiduciary responsibility to insurers and brokers owe their primary allegiance and fiduciary responsibilities to clients.

Front 12

Explain how brokers receive their authority.

Back 12

Brokers receive their authority through agency or brokerages agreements with insurers.

Front 13

There are three different types of authority.

First Type?

Back 13

1) Express authority- This authority is anything legal that parties have agreed to either orally or in writing. Example- Binding authority contained in brokerage agreements.

Front 14

There are three different types of authority.

Second Type?

Back 14

2) Implied authority- This authority flows from express authority. As all issues cannot be contained in every agreement, implied authority exists because of law and custom. Example- Brokerage advertises to public that they represent a particular insurer.

Front 15

There are three different types of authority.

Third type?

Back 15

3) Apparent Authority- This authority is perceived by an innocent third party that a brokerage has but in fact, does not have. Example- Broker tells client that coverage is bound, but this broker does not have binding authority for this type of risk.

Front 16

Define 'ratification'.

Back 16

Ratification is when an insurer retroactively approves an unauthorized act of a broker. When this occurs, it is as if the insurer has accepted what the broker has done from the beginning. Example- a broker binds coverage on large hog barn. This exceeds their binding authority but the insurer approves coverage even though the brokers actions were unauthorized.

Front 17

Describe 2 different types of sub-brokers and the responsibilities of each.

Back 17

When a broker appoints a person to represent them with clients, the broker is responsible for the actions of this person.

When a broker cannot place an account with their insurers, they can place an account through another brokerage. In this case the originating broker does not have binding authority but retains responsibility for client services.