M92 Insurance Business and Finance: Coursework Assignment Report

This document presents a detailed solution to an M92 Insurance Business and Finance coursework assignment. The report addresses various key aspects of the insurance industry, including stakeholder analysis, strategic planning using SWOT analysis, and risk management. It explores the implications of underwriting decisions on stakeholders like shareholders and creditors, and provides recommendations for managing their expectations. The assignment also delves into challenges faced by insurance brokers, such as diversification and employee management, and proposes solutions using tools like the balanced scorecard. Furthermore, the solution outlines the three lines of defense model for risk management and provides practical examples of risk control activities. The assignment solution covers financial and non-financial aspects, providing a holistic overview of insurance business and finance principles.

Running head: M92 INSURANCE BUSINESS AND FINANCE
M92 Insurance Business and Finance
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer to Question 1...................................................................................................................2
Answer to Question 2...................................................................................................................3
Answer to Question 3...................................................................................................................6
Answer to Question 4...................................................................................................................8
Answer to Question 5.................................................................................................................11
Answer to Question 6.................................................................................................................15
Answer to Question 7.................................................................................................................16
Answer to Question 8.................................................................................................................19
Answer to Question 9.................................................................................................................21
Answer to Question 10...............................................................................................................25
References..................................................................................................................................31

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Answer to Question 1
a) Stakeholders can be defined as the people related to a company in some manner that are
affected directly or indirectly by its actions. Some of these stakeholders include the
customers, government, public, employees and the government. Apart from these, there
are also external stakeholders like the creditors, advocates and the people impacted by the
business of the entity (Pérez and López 2015). In the given situation, the case is related to
the underwriter of TFI plc, a commercial insurer. As an insurance underwriter, my
primary job is to ensure that the risks involved in insuring the people and assets are
thoroughly analysed to establish a good pricing level for the accepted insurable risks. In
this process, the needs and priorities of the stakeholders related to the organisation also
need to be taken into consideration. In this situation, as an underwriter, I have decided to
not insure fossil fuel energy companies and instead shift my focus towards renewable
energy companies. Due to this decision, there is a significant chance of the profitability of
the entity being adversely impacted in the short run. Hence, the two most relevant
stakeholders to consider in this regard are the ones who are directly related to the
profitability of the organisation. The two most significant stakeholders that need to be
taken into consideration in this situation are the shareholders and the creditors of the
entity. Their needs are directly dependent on the profit making ability of the entity. The
primary concern of the shareholders is the lack of profits earned by the entity in the short
run. This may result in the lack of payment of dividend in the short term by the entity. It
may also impact the growth in the value of their investments. The creditors will be
concerned about the timely payments of their debts by the company. These are the
aspects that need to be kept in mind at the time of undertaking this strategy.

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b) The primary action that will be taken to manage the expectations of the shareholders in
the short run is through communication in the general meeting of the company (Petronio
2017). The positive aspects of this step like sustainable development and environmental
benefits will all be explained to the shareholders. Even though the profits may decrease in
the short run, the long run benefits of this process will outweigh the benefits foregone in
the present scenario. Hence, an effective communication channel would be maintained to
address the concerns of the shareholders. In order to address the concerns of the creditors,
one set of action that would be implemented by the entity is to provide them an option to
change their credits to secure creditors and also improve the terms of the credit given to
them. Adequate information would be provided to them about the long-term solvency of
the company to ensure them about the priority given by the company to make their
payments (Crane and Livesey 2017). Apart from ensuring the solvency of the company,
this will also play an important role in ensuring the enhancement of the reputation of the
company in the long run.
Answer to Question 2
a) In this particular case, the main issue is related to an entity called CWS plc. It is a
medium sized broker which specialises in providing insurance to large scale international
companies. However, as a part of the aim of the company to diversify its business, it has
undertaken three new businesses in the recent years. However, due to this expansion, a
new set of problems have arisen which are required to be faced by the company. They
include an increase in customer complaints, increased training needs of employees
company wise, a lack of unified strategy reducing the morale of the employees,
differences in pay and bonus scales across the entity and difficulty in accessing sufficient

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number of insurers due to the diversification in portfolio (Bratton and Gold 2017). One
thing which is evident is that the company has already diversified its portfolio and has
entered into a new line of business. The requirements now faced by the company are to
ensure that it overcomes these new challenges successfully and overcomes the challenges
posed by the new line of business. Hence, it can be said that the strategic planning and
management tool undertaken by the company should focus on improving the quality of
the services provided by the company and focus it towards achieving the objectives set
prior to diversification. Hence, the best strategic tool to use in this situation is the SWOT
Analysis. This tool measures the strengths, weaknesses, opportunities and threats faced
by the company as a part of this new measure undertaken by it.
b) The SWOT analysis measures the strengths and weaknesses of the organisation. It also
gives an account of the threats and opportunities faced by the organisation as a part of its
business expansion procedures. The strengths of the organisation are its experience in the
insurance industry and the large number of acquisitions that have been undertaken by the
entity over the years. However, the threats and opportunities suggest the weakness that
are faced by the company over the past few years as a part of conducting its business in
the long run. The most significant challenge faced by the company is to have a portfolio
which has access to all the necessary businesses in the industry. Currently, the company
is unable to balance its portfolio between insuring the large scale companies and also
being in successful in providing insurance to the small scale businesses. This needs to be
overcome by the business to become successful. The other challenge faced by the
company is to create a business strategy which meets the requirements of all the
employees like disparity in pay scales and improving their motivation levels (Barbara et

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al. 2017). The strategy should focus on reducing these disparities while also unifying all
the employees. This also includes meeting the training needs of the employees who are a
part of the organisation. The third challenge faced by the company is to retain customers
while improving the ability of the employees through training. As the training undertaken
by the employees does not immediately result in an improvement in their performances,
the company needs to ensure that it does not lose out on consumers during the time in
which it tries to improve the quality of the services provided by it (Pradhan and Pradhan).
The fourth challenge faced by CWS is to overcome its weaknesses like the lack of
experience in dealing with individual consumers and facing the competition in the area of
providing insurance to small scale consumers. As a relative newcomer in the industry, the
company should focus on improving its business practices to establish a business for
itself in the insurance market without losing focus on the already established business of
providing insurance to firms of international scale.
c) The primary challenge can be overcome by conducting a thorough analysis of the
established businesses in providing insurances to individual consumers. Some of the parts
of their business practices which can be classified as essential should be undertaken by
the business as a part of its strategy. Expert training should be given to the employees to
ensure that they become well equipped to meet the requirements of individual consumers
while also improving the overall quality of the services provided by them. A balanced
scorecard can be implemented by the organisation to ensure that the new strategy meets
both the financial and non-financial needs of the organisation in the long run (Hansen and
Schaltegger 2016). All the employees should meet the requirements of the organisation
both financially and non-financially. This makes sure that the organisation becomes

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unified and all the employees hired by it work towards the achievement of a common
goal. The final challenge of the company can be overcome by focusing its resources and
strategies on balancing its business priorities between both the insurance provided to
international businesses and the priorities and preferences of individual consumers.
Additional priority should not be given to either of the businesses undertaken by the
entity. This ensures a stability amongst the internal aspects of the business and there will
be a better unification of the business procedures undertaken by the entity (Mwega 2016).
Answer to Question 3
a) In any business related to the insurance industry or otherwise, organisations tend to adopt
the three lines of business model to protect the business from the risks faced by it in the
long run (Mabwe, Ring and Webb 2017). The first line of business which can be taken by
the business is the managers of the entity who have a direct relationship with the control
of risk. As these managers are tasked with the responsibility of overseeing the business
procedures undertaken by the entity, they should ensure that there is no leak of data
related to the customers by improving the security measures undertaken by the entity.
Implementation of new technology should also be taken by the entity to improve the
monitoring of the business on a geographical level (Klapkiv and Klapkiv 2017). This
ensures that the business becomes more secure on a basic level as the managers deal
directly with most of the employees working in the organisation. The second line of
defence is the people working in the risk management, compliance and specialist
functions. The IT specialists should be charged with the responsibility of improving the
security of the IT systems of the entity and also in bringing new technology which
monitors the business worldwide (Camillo 2017). Similarly, the insurance based experts

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should undertake the responsibility of ensuring that the underwriters do not enter into
illegal contracts or sign contracts with unfair terms. Similarly, the financial experts
should be charged with analysing the reasons for the lack of improvement in the financial
performance of the entity and suggest measures and investment avenues to improve the
overall performance. The internal audit team should be responsible for having proper
internal control mechanisms as a part of the business undertaken by the entity. These
teams are responsible with maintaining appropriate records for the transactions
undertaken by the entity and also with the responsibility of avoiding any mismanagement
of documents internally. These lines of defence should be strictly implemented to make
sure that there are no problems caused to the entity (Elamer et al. 2018).
b) The risk management control activity which can be undertaken by JDB Ltd. to overcome
the risks posed by the problems identified during the internal audit procedures are as
follows:
 The IT team should be charged with the responsibility of identifying the new
technology which is essential for monitoring the geographical aggregation by the
entity. It enables the business to expand the place of its business.
 Reinsurance on the most significant risks faced by the entity should be undertaken
on the basis of the advice provided by the credit risk managers (Gu, Viens and Yi
2017). Hence, the risks faced due to unforeseen losses can be overcome by the
entity;
 The underwriting authorities should be subject to internal audit on a regular basis.
This ensures that they do not misuse the powers vested on them by the authorities;

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 The IT team should be briefed with the process of improving the security in
relation to areas which are related to the protection of the consumers. This ensures
that the privacy of the consumers and the data of the company are maintained
successfully;
 The accounting team should be charged with the responsibility of identifying the
reasons for the lack of returns on the investment opportunities undertaken by the
entity. These reasons should then be used in the identification and analysis of the
new investment opportunities which become available to the entity. This will
result in the entity making more profitable investments in the future (Teichgraeber
and Brandt 2017 November).
Answer to Question 4
a) In the given situation, WP Ltd. is conducting its business as a commercial combined
insurer. The insurance policy that has been provided for analysis is related to the
insurance scheme for fast food restaurants. This policy consists of a varied range of items
like fixtures and fittings, buildings, employer’s liability and public liability. The scheme
is currently operating on a flat rate basis and is charged on the basis of per location. The
underwriting terms for a scheme need to be written on the basis of the companies for
which insurance is being provided. To establish the risk premium for this particular
scheme, there are a varied set of factors which need to be taken into consideration. These
factors are as follows:
 Historical data of related to the fast food restaurants should be taken into
consideration. This enables the underwriter to understand the risks which are
faced by the companies operating in the restaurant business and the likelihood of

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the occurrence of the insurance related problems in their cases. The statistical
analysis of the past claims from restaurant businesses and the amount of payment
made to them should all be considered in establishing the pure risk premium for
this particular scheme (Besman et al. 2017).
 Ownership structure and the methods of conducting businesses in case of most of
the modern day entities are required to be taken into consideration. This provides
reliable information about the risks faced by the restaurant businesses and the
likelihood of them going bankrupt in the future (Firdaus and Kusumastuti 2015).
If the restaurant business is heavily debt oriented or too dependent on obtaining
funds from external sources, then the risks occurring due to the default of the
payments are likely to be higher. Hence, the entity should avoid the same;
 Financial condition of most of the restaurant businesses operating in the industry
should be taken into consideration. This is done by measuring important ratios by
the entities like the analysis of balance sheets, profit and loss statements and the
ratio analysis of the various entities operating in the industry (Andjelic and Vesic
2017). Some of the ratios which can be measured by the underwriter to obtain a
better understanding of the condition of the business include the current ratio,
debt-to-equity ratio, interest coverage and profit margins of the businesses;
 The quality of the management employed by most of the entities should be
considered. A more responsible management is likely to operate in a manner
which is less risky and more focused on achieving the goals of the organisation
(Mackay, Mostert and Petzer 2015). Similarly, the quality of the management also
affects the quality of the business practices undertaken by the entity. A poor

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quality management will put unnecessary pressure on the creditors and employees
to take unethical measures which will adversely impact the business.
 International risks for restaurants operating on a global scale need to be taken into
consideration. If a restaurant has branches worldwide, then its business is likely to
be impacted in an adverse manner due to the troubles occurring outside of the
country (Giambona, Graham and Harvey 2017). Hence, they need to be taken into
consideration to ensure that the business is not adversely impacted by some
external factors which may not exist at all times when the entity conducts its
business.
b) One of the most prominent insurance-related function is that of an underwriter. The main
function of an underwriter is to accept or reject risks by thoroughly evaluating them and
analysing them. The underwriter can select the risk that the entity should take on the basis
of various date which are available to him at a given point of time. Hence, in order to
understand the same, the underwriter should make a note of the data which is available in
relation to a restaurant (Cao, Chen and Wang 2015). Based on the information provided
by the clients and an analysis of the claims undertaken by them, the restaurant businesses
can be classified as high risk, moderately risky or low risk. Apart from this data related to
the reinsurance and retention of various restaurant based businesses should be taken into
consideration. If there is a high rate of retention in the previous years, it means that the
business is less likely to default in terms of payment of insurance premiums. It also
means that the payouts made to such companies have been lower over a particular period
of time. Hence, utilising the tools available with them, the underwriters can successfully
measure and classify the risk profile of a company and the industry in which they are

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operating. These factors help WP Ltd. in setting up an accurate pure risk premium for an
insurance policy (Keller et al. 2018). Similarly, another insurance-related function which
will help in this aspect is the investment function. The investment function will analyse
the risk profile of an investment opportunity on the basis of the expected rate of return.
Apart from correctly calculating the risk profile of an investment opportunity, it also
calculates the benefits that would be available to the company (Roll et al. 2015). If the
risk of the investment opportunity is high, then the pure risk premium taken from the
investment opportunity would also be high. Hence, the investment functions plays a
critical role in understanding the profitability of the insurance scheme and set up the risk
premium accordingly.
Answer to Question 5
a) In this situation, as a Claims manager for AVS Ltd., the main purpose is to evaluate the
potential long-term relationship with a Third Party Administrator (TPA). The duty of this
TPA is to handle all personal claims whose value is below £5000 in value. However,
before entering into a contract with the TPA, there are a few issues which need
investigation to be able to determine whether entering into a contract with the entity
would be profitable or not. They are as follows:
 Decline in the staff retention rates: When compared to 2017, the staff retention rates of
the entity have come down from 89.2% to 81% in 2018. This is an indicator of the
reduction in the employees who have joined the business in the current year. This is an
indication of the increased losses by the company as companies tend to cut the jobs of the
employees to reduce the losses incurred by them as a part of the other business activities
undertaken by them (Cloutier et al. 2015). It also suggests that the entity is also not able