Chapter 2 - Organizing

Front 1

What are the three elements to organizing effectively?

Back 1

1. Creating an Organizational Structure

2. Defining Employee Relationships

3. Establishing Position Descriptions

Front 2

What are the different types of organizational structure?

Back 2

1. Line Organization - best suited to smaller brokerages

2. Functional Organization

3. Line and Staff Organization - best suited to larger brokerages

Front 3

What are the pros/cons of Line Organization?

Back 3

+ Simple

+ Clear delegation of authority

+ Quick decision making

-- Managers must be fully knowledgeable in wide range of areas

-- Power concentrated at the top since senior management must be involved in all decisions

-- limits growth & development of employees by stifling innovation

Front 4

What are the pros/cons of Functional Organization?

Back 4

+ Provides employees with expert advice

+ Decisions made by management specialist

-- employees have more than one boss so may be given inconsistent/conflicting instructions

-- Decision-making can be slow

-- Too many managers may cause employees to be frequently distracted from their primary roles of serving their clients

Front 5

What are the pros/cons of Line and Staff Organization?

Back 5

+ Areas of authority & responsibility are clearly defined

+ Decisions can be made quickly

+ Encourages better communication & co-operation

-- conflicts can arise if a staff manager attempts to exert line authority

-- Line managers may resent having to seek advice they feel obliged to accept

-- Brokerage must be large enough to generate sufficient revenue to cover the direct costs of production

Front 6

Why should employee relationships be clearly defined?

Back 6

To avoid confusion. The flow of authority and responsibility must be clearly defined.

Employees held responsible for activities over which they have no control are frequently frustrated and have morale problems.

Front 7

What should a position description have?

Back 7

1. Title

2. Purpose

3. Primary Responsibilities

4. Scope of Position

Front 8

What is a sole proprietership? What are its pros/cons?

Back 8

A business owned by a single individual

+ Right to all profits

+ Easy to start

+ Decision making process simplified

-- all liability rests with owner

-- expertise limited to owner

-- business lives and dies with owner

Front 9

What is a partnership? What are its pros/cons?

Back 9

A voluntary association of two or more persons who are co-owners

+ Broader expertise

+ Liability shared

+ Business doesn't live/die with owner

+ Earning 'all the profits'

-- more potential for conflict

-- difficult to dissolve

-- partnership agreements should be in place

Front 10

What are the differences between a general and limited partnership?

Back 10

General - all of the owners are general partners with all the rights and obligations of a partner who operates the enterprise

Limited - includes at least one general partner and at least one limited partner

Front 11

What are the advantages to a limited partnership?

Back 11

The maximum personal liability of each limited partner is the value of the capital invested by that partner unless the partner becomes active in the management of the business

Front 12

What is a corporation? What are the pros/cons?

Back 12

A legal entity created by the government charter, ownership of which is evidence by shares of stock.

+ liability limited to corporate assets only

+ tax advantages (corporate tax rates)

-- start-up fees

-- legal fees

-- greater scrutiny by CCRA

Front 13

What is an operating affiliation?

Back 13

They are not legal forms. They are ways the brokerage can draw upon support form within the insurance industry to achieve its marketing and sales goals

Front 14

What are the four types of operating affiliations?

Back 14

1. Loosely Knit Affiliations

2. General Purpose Groups

3. Clusters

4. Common Identity Groups

Front 15

What is a loosely knit affiliation?

Back 15

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

Front 16

What is a general purpose group?

Back 16

Purpose is to provide brokers with a diverse package of resources (i.e. education, preferred attention from insurance companies, management assistance)

Front 17

What is a cluster?

Back 17

Brokerages which band together to share 'back room' services such as processing and technology.

Insurance companies also frequently accord preferential treatment to larger entities.

Front 18

What is a common identity group?

Back 18

Organizations are established to give participating brokerages an image and resources of national or international strength like Assurex.

Front 19

What should be considered when evaluating an operating affiliation?

Back 19

1. Services & Support

2. Exclusivity

3. Fees

4. Contractual Agreement

5. Financial Strength

Front 20

What does the term 'agency' mean?

Back 20

Used to describe the relationships that exists when one entity acts on behalf of another. It is a fiduciary relationship where one entity (the principal/client) authorizes another (the agent) to act on its behalf in business dealings with other parties.

Front 21

What is authority?

Back 21

The legal power of the insurance agency or brokerage arising from the relationship with the insurance company

Front 22

What are the three types of authority?

Back 22

1. Express Authority

2. Implied Authority

3. Apparent Authority

Front 23

What is express authority?

Back 23

Anything legal that the parties agree to either verbally or in writing

i.e. binding authority

Front 24

What is implied authority?

Back 24

other acts that are deemed necessary in conjunction with the express authority but which are not addressed in the contract

i.e. advertising

Front 25

What is apparent authority?

Back 25

authority that an innocent third party might perceive that a brokerage has but which, in fact, has not been given to the brokerage by the insurance company

Front 26

What is ratification?

Back 26

Retroactive approval.

When, after a transaction has been completed, the insurance company (with full knowledge of the unauthorized act) accepts what the brokerage has done, it is as if the insurance company had grated authority in the first place.

Front 27

What are the two possible meanings for the term 'sub-brokers'

Back 27

1. The brokerage appoints an individual to represent it. The brokerage is then responsible for the actions of this individual as if s/he were an employee

2. When a brokerage has difficulty placing business with its own markets and becomes a sub-broker by placing this business through another brokerage. In this case the sub-broker has no binding authority but still has a responsibility to its clients.