Chapter 2 Flashcards
Identify three types of organizational structures and provide advantages and disadvantages to each.
**i) Line Organization – **
Advantages include:
1. Simple
2. Clear delegation of authority
3. Quick decision making
Disadvantages include:
1. Managers must be experts in all areas
2. Manager is involved in all decisions as power is concentrated at the top and innovation is stifled
3. limiting employee growth and development.
**ii) Functional Organization – **
Advantages include:
1. employees receive expert advice and decisions are made by manger with knowledge in a specific area.
2. Managers can be specialists
Disadvantages include:
1. employees have more than one boss which may cause conflicting instructions
2. buck passing may occur among managers resulting in delays in decisions and
3. with too many managers, employees are often distracted from their jobs.
iii) Line and Staff Organization
Advantages include:
1. clearly defined authority and responsibility
2. quick decisions are possible and managers have other managers they can consult with
3. better communication is encouraged.
Disadvantages include:
1. conflicts that may occur when managers exert control over another manager’s staff
2. managers may feel obligated to ask for advice
3. Costs associated with additional an layer of managers may be a burden.
What are the three steps in this management function?
i) Creating an organizational structure
ii) Defining employee relationships
iii) Establishing position descriptions
What is the purpose of defining employee relationships?
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.
What is the purpose of position descriptions?
Position descriptions outline responsibility and authority by stating title, purpose, primary responsibility and scope of position.
Identify and explain three legal forms of businesses.
i) Sole proprietorship – Business is owned by single individual
ii) Partnership – Voluntary association of two or more persons in owning a business
iii) Corporation – Legal entity created by government charter, ownership is evidenced by shares in the company
Explain four different operating affiliations available to brokerages.
i) Loosely-knit Affiliations – Informal meetings of managers to discuss common concerns
ii) General Purpose Group – Formal extension of loosely-knit affiliations where managers receive education, management assistance and preferred attention from insurers
iii) Clusters – Brokerages band together to share back room services and to achieve economies of scale resulting in preferential treatment from insurers
iv) Common Identity Groups – Brokerages belong to these groups in order to benefit from the images and resources of a common national or international identity.
Identify five factors brokerages should consider when studying affiliations.
i) Services and support
ii) Exclusivity
iii) Fees
iv) Contractual agreement
v) Financial strength
Define “law of agency.”
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.
Explain how the law views responsibilities of agents/brokers. To whom do they owe primary responsibilities?
Agents owe their primary allegiance and fiduciary responsibility to insurers and brokers owe their primary allegiance and fiduciary responsibilities to clients
Explain how brokers receive their authority.
Brokers receive their authority through agency or brokerage agreements with insurers
Identify three types of authority and briefly explain each.
i) Express authority – This authority is anything legal that parties have agreed to either orally or in writing. Example – Binding authority contained in brokerage agreements
ii) 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.
iii) 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.
Define “ratification.”
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 broker’s actions were unauthorized.
Describe two different types of sub-brokers and the responsibilities of each.
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 service.
