Chapter 12 ORGANISATION STRUCTUREPresented by Smt.Pushpa N. Rajput AAO(Investment) Central Office 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 . e. designation. 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. departments and sections.• Customer related activities are more important than internal administration related activities. • Responsibilities & Authorities are defined and delegated to people and their position.g. • Grouping of activities leads to formation of offices. places in offices are fixed. e. nomination. Monitoring the performance of insurance contract by either party. alteration of terms. like payment of premiums Attending to various requirements that may arise during the duration of the contract like assignments. surrender & claim payments. scrutinising the proposals and taking decision on the proposals Issuing policy document incorporating the terms and conditions of the risk cover.IMPORTANT ACTIVITIES • • The important activities in a life insurance company are: Procuring applications or proposal of insurance from prospective buyers Underwriting i. • • • . employing new people. • Accounting. • 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. training them and making payment of salaries and wages.• 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.recording all the transaction taken place. . • Personnel Management – managing the staff requirement. • All the above activities are organised depending on the size of operation i. • Business transacted in different countries will have different organisation structure depending upon the laws of that country and market for business. . • Either these activities are concentrated in one place • Or distributed between different offices.e. • 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.INDIAN CONTEXT • Earlier many insurers hired specialised agencies to do the administrative work. Since then LIC and PLI were doing life insurance business until the year 2000 . • Since 2000 only Indian companies are allowed to transact insurance business & foreign insurers can only be shareholders in Indian Companies. • LIC transacts business throughout India and also in foreign countries like UK. Mauritius. Nepal & Bahrain.e. different offices.UK.Kenya. . Fiji.• Because in the year 2000 several new insurance companies have started life insurance business. Kenya. Fiji. • Each Company has a different organisational structure i. authority. • Own Offices . Mauritius. responsibility vested on different positions. • Joint Ventures . Nepal & Bahrain. STRUCTURE OF LIC. • These members are highest decision making body of LIC. • Out of these 16 members 3 are full time employees of LIC. 1 Chairman and 2 Managing Directors. • Central Govt. . appoints not more than 16 members of LIC. similar to the board of directors of companies. .4 TIER STRUCTURE OF LIC Central Office 7 Zonal Offices 100 Divisional Offices 2000 Branch Offices. • District Postal Head Office looks after all PLI operations in a particular district including sales and payment of claims.Postal Life Insurance • Part of Central Govt.PLI. • Supervision and control of Postal Services Board. . • Directorate headed by Chief General Manager. . • Personnel attending to postal system jobs also looks after the administrative work of Postal Life Insurance.• Premiums are collected by all post offices but final accounting is done at office of Director of Accounts in Calcutta. . the Branch Offices only procured new business and registered the proposal and collected premium. • Divisional Offices did underwriting.Organisation Structure of LIC • Until 1981. policy services proved to be costly and time consuming. policy servicing • As divisional offices were few compared to Branch offices. issue of policy. • People are reluctant to buy life insurance as they have to pay for a benefit which is vague and far away. Branch Offices did all the jobs from acceptance of proposal to payment of claims. .BRANCH OFFICE • After 1981. • Branch Office is the Basic unit of growth and profit. They are to be persuaded & this job of persuasion is done by agents. • Agents and Development Officers are part of a Branch Office. • In other countries.• LIC has more than 6 lakhs agents. 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 . company secretary or architects. Agents of other new insurance companies are called advisors or consultants. there are colleges of Insurance which offer long duration courses to leading agents to get degrees like accountant. BROKERS • Brokers canvass business and lace the same with insurer on certain negotiated terms. • Broker does business for more than one insurance company. which state that Brokers have to obtain licenses from the Govt. • In India. the system of brokers was not permitted earlier. but now the IRDA has issued regulations regarding operation of Brokers. in order to procure business & receive commission . • He collects commission from the insurer & does not charge the customer. Insurers are keen to take advantage of the new technology but are approaching it cautiously. • Through internet. thereby bringing down costs by eliminating the intermediary. insurers are exploring various methods of direct selling. . buyers can access information about various plans of insurance and also the premium rates offered. • As part of the strategies to reduce costs.Direct Selling • Life insurance has been sold mainly through agents. Head office looks after underwriting and administering the policies.New Insurance Companies • New insurance companies are managed by a Board of Directors. • Head office • Branch offices • Most companies have their own Branch Offices. which has a large network • Branch offices concentrate on procuring business and building clientele. however some have tied up with their associate organisation mainly Banks. of which one is the representative of customers. . • They have two tier structure. departments are formed based on the following activities • Business development or Agency or marketing – procuring business • New Business – receiving.Internal Organisation • In an insurance office. . scrutinising & underwriting new proposal and issue of First Premium Receipts & Policy. • Servicing Policy Holders • • • • Monitoring premium payments. loan & claim settlement • Accounting financial flows . assignments Surrender. nominations. Lapses & revivals Alterations. declaring bonuses on the with profit plan policy. monitoring adequacy of premiums. . studying mortality rate • Investments of funds – studying opportunities for maximising returns • Advertising. doing valuations. publicity & public relation.• Following departments are likely to be centralised as they require specialised skills • Actuarial – studying the experiences. setting underwriting standards. sometimes looking after the needs of that office alone or sometimes looking after the entire office: • Personnel – Recruitment of staff. payment of salary. • Human Resources Development • Training • Purchases(of stationery.etc) • Administration for office upkeep . office equipments. etc.• Some of the following departments will be found in all offices. • A good actuary is a good economist.The Actuarial Profession An Actuary • is a person who has passed specialised exams conducted by the Actuarial Society of India or the Institute of Actuaries . . • evaluates the financial condition of the insurer • Determines the policies to be offered and at what premium rates. a good statistician and a good security analyst. • Decides the bonus that could be declared on participating policies. • Makes rules to follow for underwriting and investments of funds. London • is the technical expert on life insurance matters studying the mortality of the insuring public. investment and reinsurance. who will perform the following jobs : • Continuously study the company’s operation and advise them on the product design and pricing. • Certify the premium proposed to be charged by the insurer before submitting for approval of the IRDA.• Insurance Regulatory and Development Authority (IRDA) Regulations requires that every life insurance company must have an Appointed Actuary. • Do periodical valuation of the company as per the provision of the Insurance Act and ensure the solvency of the insurer at all times. . insurance contract wordings. values of assets and liabilities.e proportion of the surplus to be reserved and the proportion to be distributed as bonus. .• Comply with the Act in regard to premiums. • Certify the determination of the mathematical reserves i. • Certify the actuarial reports and other returns.