The Functions of Separate Departments Within an Insurance Company
In every company having a field organization, there will be an agency department. It is usually headed by an executive officer, often the “vice-president in charge of agencies.” He may, however, leave the actual working operation of the department to a “director of agencies,” a “superintendent of agencies,” or a functional officer of similar title.
The primary function of the agency department in most companies is to recruit, train, supervise, and handle most of the affairs in connection with fieldmen, general agents, branch managers, and local agents. The agency department of an insurance company is its sales department.
It is responsible for the continued growth of the company. It edits and publishes the house organ, holds sales meetings, handles advertising and publicity, and looks after the general problem of educating the public as to the nature of and uses for the multitude of different types of life insurance coverages written by the company.
Insurance companies do not write every risk submitted to them by their agents. They must select among them and eliminate the cases of doubtful profitability. The underwriting department is charged with the responsibility of fixing the standards of selection and of passing judgment upon all risks. If, in the judgment of the underwriter, there is no question about the high quality of a risk, he will accept it.
If the risk is questionable, he may investigate it further. Ultimately, he may turn it down. He may also cancel existing risks which show a very poor loss experience or develop unfavorable characteristics. Underwriting has been defined humorously as canceling business for small agents. Right or wrong, underwriters do underwrite the agent as well as the policyholder.
The underwriting department not only passes on risks but also reviews the rates and policy forms on all accepted business. In certain casualty insurance lines the underwriting department has charge of applying and administering the various state-approved term life insurance rates. The underwriting department also handles problems dealing with line limits, reinsurance, and retrocession.
The functions of the legal department are virtually self-explanatory. Insurance companies deal in contracts. These contracts are subject to all the general law pertaining to contracts as well as to those phases of law and judicial opinion which apply particularly to insurance. A legal department is, therefore, essential to the operation of an insurance company.
The legal department performs several specific duties. It draws up contracts with general and local agents, supervises the conformance of the company to insurance codes, defends the company against informal complaints brought against it by various insurance commissioners, and litigates the company’s case whenever it may be the plaintiff.
The legal department assists the investment department by checking real estate titles, bond indentures, and corporate charters, and by helping in foreclosure proceedings. It advises in the preparation of insurance contracts, riders, and special forms. It also helps in the investigation of claims.
Insurance companies are financial institutions investing huge sums of money every day of the year. A special department is set up to manage these investments. This department selects and services the securities that make up the company’s investment portfolio. In a life insurance company, especially, an outstanding investment department is vital to the smooth functioning of the business.
A major part of the business of life insurance is investment. Even in the fire and casualty insurance business, investment is an important function, for investment profit accounts for a sizable portion of the earned income of these carriers. Stockholders’ dividends are paid almost exclusively from investment profits. The president of the company often exercises active control of this department.
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