LOMA 290: Insurance Company Operations

Module 1: Company Organization and Governance

Chapter 1: Organization and Operations.1.1
Stakeholders in an Insurance Company1.3
Owners..1.5
Customers ............................................................................................................................... 1.5
Producers ............................................................................................................................... 1.6
Employees............................................................................................................................... 1.6
Regulators .............................................................................................................................. 1.6
Rating Agencies ....................................................................................................................... 1.7
Other Stakeholders.................................................................................................................. 1.8
Balancing Stakeholder Interests ............................................................................................... 1.8
Levels of Management1.9
Board of Directors ................................................................................................................... 1.9
Senior-Level Managers .......................................................................................................... 1.10
Lower-Level Managers ........................................................................................................... 1.10
Management Functions ............................................................................................................. 1.10
Planning................................................................................................................................ 1.11
Organizing ............................................................................................................................. 1.12
Organizing Insurance Operations. 1.14
Introduction to the Value Chain ............................................................................................ 1.14
Traditional Ways Insurers Organize Work Activities ................................................................ 1.16
Profit Centers/Strategic Business Units (SBUs) ....................................................................... 1.19

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Committees 1.20
Holding Company Systems.
1.22
Downstream and Upstream Holding Companies
1.23

Chapter 2: Corporate Governance, Ethics and Control .2.1

Corporate Governance ................................................................................................................ 2.2
Directing ..................................................................................................................................... 2.3
Ethics and Ethical Conduct ........................................................................................................... 2.4
A Code of Conduct................................................................................................................... 2.5
An Ethics Office ....................................................................................................................... 2.5
Education ................................................................................................................................ 2.6
Training .................................................................................................................................. 2.7
Membership in Associations .................................................................................................... 2.8
Controlling ................................................................................................................................. 2.9
Types of Controls.................................................................................................................. 2.10
Establishing Performance Standards ...................................................................................... 2.13
Measuring Performance........................................................................................................ 2.13

Module 2: Support Functions

Chapter 3: Legal and Compliance ................. 3.1
Organization of Legal and Compliance Functions .......................................................................... 3.2
Responsibilities of the Legal Department ..................................................................................... 3.3
Responsibilities to the Board ................................................................................................... 3.5
Responsibilities to Internal Functions ...................................................................................... 3.6
Responsibilities to External Parties .......................................................................................... 3.8
Responsibilities of the Compliance Department ........................................................................... 3.9
Prevention ............................................................................................................................ 3.10
Education and Training .......................................................................................................... 3.10
Monitoring............................................................................................................................ 3.10

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Market Conduct Examinations in the United States .................................................................... 3.11

Chapter 4: Human Resource Management.4.1

Organization of the Human Resources Department ...................................................................... 4.2
Human Resources Planning ......................................................................................................... 4.3
Projecting Staffing Needs ......................................................................................................... 4.4
Estimating the Labor Supply..................................................................................................... 4.7
Recruitment ............................................................................................................................... 4.8
Internal Recruitment ............................................................................................................... 4.8
External Recruitment ............................................................................................................. 4.10
Employee Selection .................................................................................................................. 4.10
Employee Applications and Screening Interviews ................................................................... 4.10
Pre-Employment Testing........................................................................................................ 4.12
Employment Interviews ......................................................................................................... 4.12
Background Checks and Drug Testing ..................................................................................... 4.13
Training and Development ....................................................................................................... 4.13
Performance Evaluation ........................................................................................................... 4.14
Establishing Performance Goals ............................................................................................. 4.14
Monitoring and Reviewing Employee Performance ................................................................ 4.16
Performance Evaluation Programs ......................................................................................... 4.16
Compensation and Employee Benefits....................................................................................... 4.18
Compliance............................................................................................................................... 4.19

Chapter 5: Information and Technology5.1

Responsibilities of the IT Department .......................................................................................... 5.2
Organization of the IT Department .............................................................................................. 5.3
Information Management ........................................................................................................... 5.5
Databases ............................................................................................................................... 5.6
Database Management Systems .............................................................................................. 5.6

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Document Management Systems ............................................................................................ 5.9

Workflow Management Systems ........................................................................................... 5.10
Business Process Technology ..................................................................................................... 5.10
Transaction Processing Systems ............................................................................................. 5.11
Business Intelligence ............................................................................................................. 5.11
Outsourcing IT Operations ..................................................................................................... 5.13
Telecommunications ................................................................................................................. 5.14
Networks .............................................................................................................................. 5.14
Computer Telephony Integration ........................................................................................... 5.17
Other Telecommunications Technologies ............................................................................... 5.18
IT Security and Disaster Recovery ............................................................................................. 5.18

Module 3: Financial Functions

Chapter 6: Financial Management6.1
Organization of Financial Management ........................................................................................ 6.2
Accounting and Financial Reporting ......................................................................................... 6.4
Treasury Operations ................................................................................................................ 6.5
Investment Operations ............................................................................................................ 6.6
Audit and Internal Control ....................................................................................................... 6.8
Interdepartmental Responsibilities .......................................................................................... 6.9
Responsibilities of Financial Management ................................................................................ 6.10
Setting Financial Strategy....................................................................................................... 6.10
Managing Risk....................................................................................................................... 6.11
Managing Solvency and Profitability ...................................................................................... 6.14
Managing Capital .................................................................................................................. 6.15
Managing Cash Flows ............................................................................................................ 6.16
Providing Information to Stakeholders .................................................................................. 6.17
Financial Compliance............................................................................................................... 6.20
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Tools to Monitor Solvency ................................................................................................... 6.22

Chapter 7: Accounting, Treasury Operations, and Auditing..7.1

Organization of Accounting, Treasury Operations and Auditing .................................................... 7.2
Accounting .................................................................................................................................. 7.3
Users of Accounting Information.............................................................................................. 7.4
Accounting Systems ..................................................................................................................... 7.5
Financial Accounting ................................................................................................................ 7.6
Management Accounting ...................................................................................................... 7.10
Treasury Operations .................................................................................................................. 7.12
Cash Management................................................................................................................. 7.13
Liquidity Management .......................................................................................................... 7.14
Auditing .................................................................................................................................... 7.15
Internal Controls ................................................................................................................... 7.16

Chapter 8: Investment Management8.1

Investment Policy ........................................................................................................................ 8.2
Investment Risk........................................................................................................................... 8.3
Risk and Return ....................................................................................................................... 8.3
Diversification ......................................................................................................................... 8.4
Investment Operations ............................................................................................................... 8.5
Evaluating an Investment ........................................................................................................ 8.5
Buying and Selling Securities .................................................................................................... 8.6
Investment Portfolios................................................................................................................. 8.7
The General Account ............................................................................................................... 8.8
Separate Accounts .................................................................................................................. 8.8
Types of Investments .................................................................................................................. 8.9
Bonds ..................................................................................................................................... 8.9
Mortgages ............................................................................................................................. 8.13

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Stocks ................................................................................................................................... 8.14

Real Estate ............................................................................................................................ 8.15
Policy Loans .......................................................................................................................... 8.16

Module 4: Marketing, Product Development, and Distribution

Chapter 9: Marketing.9.1
Organization of Marketing ........................................................................................................... 9.2
The Marketing Plan ..................................................................................................................... 9.4
Communicating the Marketing Plan ......................................................................................... 9.5
The Marketing Mix ..................................................................................................................... 9.6
Product ................................................................................................................................... 9.6
Price........................................................................................................................................ 9.6
Promotion .............................................................................................................................. 9.7
Distribution............................................................................................................................. 9.8
Positioning................................................................................................................................. 9.8
Basic Insurance Marketing Activities .......................................................................................... 9.9
Identifying Markets. 9.9
Segmenting Markets 9.9
Target Marketing.9.11
Target Marketing Strategies9.11
Marketing Information............................................................................................................. 9.13
Internal Databases ................................................................................................................ 9.14
Website Traffic Analysis ......................................................................................................... 9.14
Competitive and Market Intelligence ..................................................................................... 9.14
Marketing Research .............................................................................................................. 9.15
Marketing Environment ........................................................................................................ 9.16
Marketing Controls .................................................................................................................. 9.16
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means, electronic or mechanical, including photocopying, recording, storage in an information retrieval system, or otherwise, without the prior
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Chapter 10: Product Development10.1

The Product Development Process ............................................................................................. 10.3
Product Planning ................................................................................................................... 10.4
Comprehensive Business Analysis .......................................................................................... 10.4
Technical Design ................................................................................................................... 10.7
Product Implementation ....................................................................................................... 10.8
Performance Monitoring and Review ................................................................................... 10.10

Chapter 11: Product Distribution11.1

Personal Selling Distribution Systems......................................................................................... 11.2
Agents................................................................................................................................... 11.4
Agent Channel Support .......................................................................................................... 11.8
Methods of Personal Selling................................................................................................. 11.13
Salaried Sales Representatives............................................................................................. 11.15
Financial Advisors ............................................................................................................... 11.16
Third-Party-Institution Distribution Systems ............................................................................ 11.16
Broker-Dealers .................................................................................................................... 11.16
Banks and Other Depository Institutions .............................................................................. 11.17
Insurance Companies........................................................................................................... 11.18
Direct Response Distribution Systems ..................................................................................... 11.19
Distribution Decisions ............................................................................................................. 11.19
Costs ................................................................................................................................... 11.19
Control ................................................................................................................................ 11.21
Expertise ............................................................................................................................. 11.21
Customers Characteristics ................................................................................................... 11.22
Product Characteristics ........................................................................................................ 11.22
External Marketing Environment ......................................................................................... 11.22

Module 5: Product Administration Functions

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Chapter 12: Underwriting12.1

New Business Processing ........................................................................................................... 12.3
Processing Life Insurance Applications ................................................................................... 12.4
Processing Annuity New Business .......................................................................................... 12.4
Organization of New Business and Underwriting Operations ...................................................... 12.5
Purpose of Underwriting ........................................................................................................... 12.6
Underwriting Philosophy and Guidelines ................................................................................ 12.8
The Underwriting Process ......................................................................................................... 12.9
Field Underwriting and Teleunderwriting ............................................................................. 12.11
Medical, Financial, and Personal Underwriting ..................................................................... 12.12
The Underwriting Decision................................................................................................... 12.13
Applying the Premium Rate ................................................................................................. 12.15
Control Mechanisms for Underwriting Operations ................................................................... 12.17
Authority Levels .................................................................................................................. 12.17
Other Underwriting Controls ............................................................................................... 12.17
Company Interrelationships and Underwriting ......................................................................... 12.18
Group Underwriting................................................................................................................. 12.19
The Group Underwriting Process.......................................................................................... 12.19
Risk Factors for Group Life Insurance ................................................................................... 12.21
Regulatory Requirements........................................................................................................ 12.21

Chapter 13: Claim and Annuity Benefit Administration.13.1

Organization of the Claim Department ....................................................................................... 13.3
Claim Philosophy and Claim Practices ........................................................................................ 13.4
Life Insurance Claim Process...................................................................................................... 13.5
Determining if Benefits are Payable ....................................................................................... 13.6
Calculating the Amount Payable .......................................................................................... 13.11
Paying the Proceeds ............................................................................................................ 13.13
Identifying the Proper Payee ............................................................................................... 13.14
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means, electronic or mechanical, including photocopying, recording, storage in an information retrieval system, or otherwise, without the prior
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Claim Investigation .................................................................................................................. 13.15

Claim Fraud ......................................................................................................................... 13.15
Quality Control in Claim Processing .......................................................................................... 13.16
Regulatory Requirements ........................................................................................................ 13.17
Model Unfair Claims Settlement Practices Act ...................................................................... 13.18
International Laws ............................................................................................................... 13.18
Annuity Administration........................................................................................................... 13.18
Annuity Death Benefit Administration ................................................................................. 13.18
Annuity Payout Administration ............................................................................................ 13.19

Chapter 14: Customer Service..14.1

Organization of the Customer Service Department ..................................................................... 14.3
Typical Customer Service Job Positions .................................................................................. 14.4
Customer Service Department Relationships .......................................................................... 14.4
Effective Customer Service ....................................................................................................... 14.4
Education and Training .......................................................................................................... 14.6
Technology ........................................................................................................................... 14.7
Customer Relationship Management ..................................................................................... 14.8
Customer Service Processes ....................................................................................................... 14.9
Fulfilling Customer Requests ................................................................................................. 14.9
Handling Customer Complaints ............................................................................................ 14.14
Conserving, Up-Selling, and Cross-Selling ............................................................................. 14.15
Customer Service for Group Products ................................................................................... 14.17
Control Mechanisms for Customer Service ............................................................................... 14.18
Qualitative Performance Measurements.............................................................................. 14.20
Quantitative Performance Measurements............................................................................ 14.20
Glossary ................................................................................................................................GLOS.1
Index .................................................................................................................................. INDEX.1

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Copyright 2012 LL Global, Inc. All rights reserved. This text, or any part thereof, may not be reproduced or transmitted in any form or by any
means, electronic or mechanical, including photocopying, recording, storage in an information retrieval system, or otherwise, without the prior
written permission of the publisher.