Table Of ContentA GUIDE TO INSURANCE MANAGEMENT
Also by Stephen Diacon
SUCCESS IN INSURANCE (with R.L. Carter)
THE BRITISH INSURANCE INDUSTRY: A Statistical Review (editor with
R.L. Carter)
THE UK INSURANCE INDUSTRY: Structure, Developments and Market Prospects to
1990
A Guide to Insurance
Management
Edited by
Stephen Diacon
Lecturer in ltrsurance Studies
University of Notti11gham
* © Stephen Diacon 1990
Softcover reprint ofthe hardcover 1st edition 1990
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Contents
List of Tables xi
List of Figures xiv
Foreword XV
Preface and Acknowledgements XX
Notes on the Contributors xxi
1 Strategic Planning in Insurance
Samuel Mshe/iza 1
1.1 Introduction 1
1.2 The Concept of Strategic Planning 2
1.3 The Strategic Planning Process 5
1.4 The Use of Portfolio Mod.els in Strategic
Planning 9
1.5 A Survey of UK Financial Firms 14
1.6 Conclusion 19
References 21
2 Corporate Planning in a Large Insurance Group
John B. Gragnola 22
2.1 The Background to Planning at Allstate
Insurance Company 22
2.2 The Organisation of Corporate Planning 23
2.3 The Main Corporate Planning Activities 25
2.4 The Corporate Planning Process 27
2.5 Implementing the Corporate Plan 33
2.6 The Benefits of Corporate Planning 33
References 34
3 Planning for the Single European Market
Stephen Diacon 35
3.1 Introduction 35
3.2 Opportunities and Threats in the Single Market 39
3.3 Strategic Choices for the Single European Market 47
3.4 Implementing Strategic Choices: The Role of
Mergers 55
References 57
v
vi Contents
4 Modelling and Forecasting in Insurance Management
Margaret Brown 59
4.1 Types of Model 59
4.2 Creating a Model 62
4.3 Models Used in Forecasting 64
4.4 ASIR: A Simulation Model of Non-Life
Insurance and Reinsurance 66
4.5 Summary 74
References 74
S Modelling the Financial Strength of a Reinsurance
Company
Stewart Coutts and Russell Devitt 76
5.1 Introduction 76
5.2 Financial Strength and Solvency 77
5.3 Modelling the Cash-Flows of a Reinsurance
Company 80
5.4 Key Stages in the Modelling Process 84
5.5 A Practical Example of Solvency Assessment 86
5.6 Conclusions 89
References 89
6 Insurance Company Organisation and Management Structure
Hans van Gelder 91
6.1 Introduction 91
6.2 Organisations 92
6.3 Considerations for Organisational Design 92
6.4 A Framework for Organisational Control 94
6.5 Uncertainty in Organisational Control 95
6.6 Design Strategies 96
6.7 Determinants of Organisational Design 98
6.8 The Nature of Insurance Services 100
6.9 Organisation of Insurance Companies 101
References 104
7 Staffing Polley in an International Insurance Group
Christopher Nutt lOS
7.1 Introduction 105
7.2 Deciding on Staffing Policies 105
7.3 Tactical Versus Strategic Staffing 110
7.4 The Process of Staff Planning 112
7.5 An Analysis of Staffing Policies and
Contents vii
Requirements 114
7.6 Implementing Staffing Policy 119
7. 7 Conclusion 122
References 123
8 Underwriting and the Selection of a Liability Portfolio
Bernard Benjamin 124
8.1 The Nature and Purpose of Underwriting 124
8.2 Classes of Insurance Business 126
8.3 Conditions for Acceptance of Risks 131
8.4 Portfolio Management 132
References 137
9 Insurance Company Costs and Cost Allocation
Rodney Young 138
9.1 Insurance Company Costs and the Need for Cost
Allocation 138
9.2 Classification of Costs 139
9.3 Budgetary Control Systems 142
9.4 Cost Allocation Methods 144
9.5 Cost Allocation for Pricing 146
9.6 The Purpose of Cost Allocation 148
9.7 Two Examples of Management Decision-Taking 152
9.8 Conclusion 157
10 Insurance Company Output and Costs
Stephen Diacon 158
10.1 Introduction 158
10.2 The Services Performed by Insurers 159
10.3 The Problems with Premium Income as a
Measure of Output 162
10.4 An Alternative Measure of Output 166
10.5 Economies of Scale and Scope in Insurance 168
References 172
11 Premium Rating: Methods and Problems
John Pollard 174
11.1 Introduction 174
11.2 Statistical Methods 175
11.3 The Risk Premium 179
11.4 The Effect of a Deductible 182
viii Contents
11.5 Excess of Loss Reinsurance 183
11.6 Loading for Contingencies 184
11.7 The Effect of Inflation 185
11.8 Investment Income 186
11.9 Expenses 186
11.10 Loading for Profit 187
11.11 Market Forces 188
11.12 Practical Problems in Premium Rating 189
References 193
12 Competitive Behaviour and Pricing Polley
Walter Karten 194
12.1 Introduction to Pricing 194
12.2 The Basis of Premium Calculation 197
12.3 Competition and the Premium Calculation 200
12.4 Pricing Policy in Insurance Markets 204
References 207
13 Marketing Insurance Services
Trevor Watkins and Stephen Diacon 208
13.1 The Marketing of Services 208
13.2 An Introduction to Marketing Planning 210
13.3 Demand Analysis 212
13.4 Market Research 213
13.5 The Marketing Mix 215
13.6 Product Policy 217
13.7 Promotional Policy 221
13.8 Distribution Policy 224
13.9 Marketing Strategy 225
References 226
14 Intermediaries and the Agency System
Hugh Cockerell 228
14.1 The Legal Aspect of Insurance Intermediaries 228
14.2 Types of Intermediaries 229
14.3 Duties of Intermediaries 229
14.4 Remuneration of Intermediaries 230
14.5 Intermediaries in the United Kingdom 232
14.6 Regulation of Intermediaries in the United
Kingdom 237
14.7 The UK Financial Services Act 1986 240
14.8 Intermediaries in the United States 241
Contents ix
14.9 Insurance Intermediaries in Other Countries 244
References 244
15 Sources of Funds and Estimation of Reserves
G.W. de Wit 245
15.1 The Sources of Insurance Funds 245
15.2 Free Reserves 247
15.3 Technical Provisions 247
15.4 The Estimation of Reserves 253
15.5 Estimating the Unearned Premium Reserve 254
15.6 Estimating Loss (Outstanding Claims) Reserves 255
15.7 Determination of the Combined Provisions 263
15.8 Schwankungsruckstellung 264
15.9 Size of the Provision for Nuclear Risks 265
References 265
16 The Investment of Insurance Funds
Marcus Johnson 266
16.1 Investment Objectives 266
16.2 Investment Markets 268
16.3 Investment Practices 272
16.4 Investment Controls 273
16.5 The Influence on Insurance of Investments 275
References 276
17 Government Regulation oflnsurance Companies
Henry Ellis 277
17.1 The Reasons for Regulating Insurers 277
17.2 Licensing Requirements for Entrants to
Insurance Markets 279
17.3 The Regulation of Licensed Insurance Companies 283
17.4 Regulation and International Insurance Trade 286
References 288
18 Profit and Solvency in General Insurance
Bill Abbott 290
18.1 Technical and Insurance Profit 290
18.2 One-Year Accounting 292
18.3 Insurance Profit in Practice 295
18.4 Ratio Analysis of Performance 297
18.5 The Need for Solvency Margins 298
