Category: Insurance

Introduction

Risk management refers to the concept of identifying, assessing, evaluating, prioritizing, of possible risks that a firm or an individual faces in a bid to minimize, control, or monitor impact of identified risks through applications of resources. One of the ways of controlling or minimizing impact of risks is the risk transfer (Dorfman, 2007).

Risk transfer, also known as insurance, involves engagement of a third party through a contract to pay a given sum of money in the event that such a suspected loss occurs. Insurance contracts involve premium and principles of insurance.

One of the principles is subrogation and indemnity requiring insurer to pay insured sum assured in the event that a loss is caused by insured risks.

The following scenarios confirm how the principle of indemnity and contribution affects insurance practices.

Scenario:

You have purchased a homeowner’s insurance policy for your home that you live in with your spouse and 2 children of 19 and 17. You live in a single family residence built in 1996 that is 1 story with 3 bedrooms and 2 ½ bathrooms. The coverages for your policy are as follows:

Coverage A: $190,000

Coverage B: $19,000

Coverage C: $75,000

AOP Deductible: $1,000

Coverage D: $38,000

Coverage E: $300,000

Coverage F: $5,000

Hurricane Deductible: 2%

You also purchase for your insurance an auto policy covering all 4 drivers in your household and the 3 vehicles you own. The coverage in your auto policy is as follows:

• Personal Injury Protection: $10,000 ded: $0
• Liability: Bodily Injury $50,000 / $100,000
• Liability: Property Damage $50,000
• Uninsured Motorist: $50,000 / $100,000
• Medical Payments: $5,000
• Collision Deductible: $500
• Comprehensive Deductible: $500

Both policies were purchased on March 1st, 2012 and are for 1 year. During the year your household had the following claims. Please indicate how much the insurance company is required to pay for the claims and under which coverage are they paying:

1. April 12th,2012: a water pipe burst in your kitchen while the dinner was being cooked and it produced $69,000 to your home and $5,500 to some small appliances and kitchen items.Water pipe is part of the constructed house hence any losses associated with physical damages caused to any part of the property is compensated on the basis of coverage A (Dorfman, 2007). Therefore, the amount of $74,500 will be compensated from the $190,000 Coverage A taken by the policy holder.
2. May 21st, 2012: you son driving back from school while raining loses control of the vehicle and hits a traffic signal knocking it down. The city sues you to repair the damage and is awarded by the court a judgment for $83,525. Your son did not suffer any injuries but the vehicle required $8,600 in repairs. The insurance will pay a sum of $50,000, which was the principal sum insured for property damages under the auto policy. The owner will have to meet the cost of the remainder, which is $89,525 – $50,000 = 39,525. This is because the insurance firm only promised to indemnify the policy holder up to $50,000 in case of any property damages under the auto policy. However, the owner will not have to pay the remainder as the insurance policy will under Coverage E (Vaughan & Vaughan, 2007).
3. July 16th, 2012: Hurricane Jimmy barreled through South Florida and caused wind damage to your home in the amount of $105,000 in repairs and $91,500 to your personal property inside. The total damage of the hurricane is $204,500. Given the hurricane deductible of 2%, the insurance will pay the difference between damages caused and the deductible derived from the sum assured (Dorfman, 2007). The deductible is 2% of 672,000 = $12,450. Therefore, the insurance firm will pay $192,050 ($204,500 – $12,450) based on Coverage E.
4. August 20th, 2012: After several days of constant very heavy rains in the afternoon in South Florida, waters level went up and caused extensive flooding in your neighborhood. The rise of these flood waters caused $14,500 of damage to your home, $28,000 to your personal property, and $6,000 to your automobile. Total damages caused by the flood were $48,500. Coverage C takes care of all personal property loss caused by water losses, fires, floods, hurricanes, and any other causes that lead to damage of personal property (Harrington & Niehaus, 2003). Insurance firm will pay the $48,500 from the Coverage C policy.
5. February 14th, 2012: while cooking a Valentine’s Dinner for spouse and the kids were away at a friend’s house your kitchen caught on fire but this time it caused a major short circuit that caused the flames to grow quickly and the house totally burned down with all your belongings being destroyed. The fire also spread to two neighbors properties who then successfully sued you in court for their losses: the first had damage to their home for the amount of $109,000 and belongs for $98,000; the second for damage of $174,000 for their home, $103,000 for belongs, and $58,000 for their car that was completely destroyed in the garage. It was necessary to spend $61,000 to rent another place while your home was being rebuilt. The total damages will be paid by the insurance policy given that all the possible coverages and auto policies were taken enough to play a role in compensating the insured for the loss of the house. All the coverages taken will come into play to provide the compensation since the house was brought down by fire.
6. March 10th, 2013: Your son had a car accident where he hit another car and overturned your vehicle for a total loss. Your son fortunately was not hurt in the accident because of his seatbelt but your car had a total loss valued at $31,000. The other car he hit had two passengers who suffered extensive injuries: the driver required surgery and hospitalization for $101,500 and the passenger was in coma for 2 months and required surgery costing $233,000 in medical bills. The other car was also a total loss and was valued at $43,500.

Under the following, the insurance will provide compensations for the losses incurred during the accident. Liability policy that was taken in the amount of Property Damage $50,000 will be used to compensate for the $31,000 loss of the car.

Under the Bodily Injury liability policy of $50,000 / $100,000, the insurer will compensate for the loss caused to the other parties. Since the insured had a comprehensive policy with a deductible of $500, the insurer will pay all the losses caused to the third party less $500.

References

Dorfman, M. (2007). Introduction to risk management and insurance (9^th ed.). Upper Saddle River, NJ: Prentice Hall.

Harrington, S. & Niehaus, G. (2003). Risk management and insurance. New York, NY: McGraw-Hill.

Vaughan, E. & Vaughan, T. (2007). Fundamentals of risk and insurance. New York, NY: John Wiley & Sons.

Introduction

To maneuver a company to success the past, present and the future environment of the business must be reviewed regularly to avoid risks. The management should therefore create a risk management utility to handle possible risks that might affect the operations of the entity.

The case study company, The International Dentists Insurance Company (IDIC failed to do so and now it has to face the consequences since it is being faced with problems that it could have been solved if they were detected early. The Mega Insurance Company (MIC) has however offered to buy the company so as to save it from the eminent solvency.

This is a dangerous move for MIC and therefore there is need for risk analysis to determine what risks face MIC if it buys IDIC. To begin with, if MIC buys IDIC half of its employees will have to be laid off this is because MIC will be introducing a new system which is not familiar to the IDIC staff, IDIC filling system will also be changed and computer illiteracy is very high hence the IDIC staff will need a lot of training.

Risk Management Process

The Enterprise Risk Management (ERM) management process will be used for this report; it can be defined as the “process of aligning strategy, processes, people, technology and knowledge with a purpose of evaluating and managing the uncertainties the enterprise faces as it creates value” (Dempster, et, al, 2008).

There are processes involved with this such as: risk identification, analysis, evaluation, risk treatment, monitoring and review, communication and content analysis. The approach has been chosen for this report, because it is a structured and comprehensive move towards risk management, instead of the traditional individual or “silo” approach to risk management (Bennett, ET, al, 2000).

ERM also endeavors to establish risk management in all important decisions all over the organization including understanding behavioral risks that can be conducted through a human resource (HR) audit.

Risk Analysis of threats

The first step in risk management is to identify the threats facing the normal operations of a company in order to identify how they will affect efficiency in the routine operations. The above issues create a threat for MIC as the laid-off employees will need compensation while those will stay behind will need new training on the new system.

This will definitely cost MIC a large amount of capital, time and labour. Another threat is handling IDIC clients, MIC has to facilitate the change, and not all stakeholders will be willing to co-operate, IDIC records are kept in files hence MIC will need to access the clients information by reading through the files which is tedious, they will also need to change the data so as to incorporate it into their system and finally they have to contact the clients and explain to them the new policies of the company.

In addition, MIC will need to change their system so as to accommodate the new employees, clients and information; and this therefore requires it to expand and upgrade their system. Integrating the employees into their system will also cause a security threat to MIC hence they will require proper management to prevent this from happening.

IDIC had a broker insurance system therefore clients information could be accessed by other companies hence this posses a threat to MIC security system. All of the above threats make MIC vulnerable since these are complicated issues that require immediate solutions and resources too (Hubbard, 2009).

Impact Analysis

Laying 50% of IDIC employees will create a problem for MIC and the staff union; in previous occasions this usually created a depressing image for a company due to the negative publicity which reduced the clients trust in it. Training the staff about the EPR system and the computer technology will be very tedious and as indicated above, it will need both human and capital resources.

This will reduce productivity for a while since the employees will obviously be slow and also it will create a financial problem for the company.

The outdated filing systems will be difficult to extract information from; such systems are characterized of missing some data, wrong data entry, and misplaced data among others: MIC will therefore need experts to get the information and arrange for it to be applicable. MLC will therefore have to solve the above issues with much care so that they will not adversely affect its operation which can be bad for business (Frenkel, ET, al, 2002).

Risk Determination

Operational risks

Financial risks

Risk Management Plan & Control Recommendations

1. MIC needs to create some controls to manage these threats; the controls can be general for all or they can also be specialized according to the specific threat. The controls can also be assigned to specific limit or be handled by the company as a whole on the other hand, having specialists to handle them will be much easier faster, and more efficient.
2. A team should be formed that should comprise of a team leader and the members. The members should be from all the departments affected: for example there should be an expert on computer systems, information management and data analysis, public relations officer, operations manager, legal issues manager, and human resource manager among others. The above experts will then appoint other people to whom they will delegate various responsibilities to make the work easier. The experts will also ensure that the transition is done in an efficient way and also cost effectively. MIC should also assign resources to the team so that they can be able to execute their responsibilities.
3. The computer systems expert will ensure that the security systems are functioning well and if need be, upgrade them. The expert will then organize the IDIC training by hiring the trainers and providing all the necessary resources through the management and then coordinate the activity so that it takes the least time but achieve the required results. The information management expert will co-ordinate the recovery of data from the IDIC systems so that all the data required is achieved.The expert will also ensure that all the data that is missing will be acquired through other methods. The expert will also ensure that all the clients and employees from IDIC confirm that the information pertaining to them is correct.
4. The public relation officer or communications manager will communicate to the company’s stakeholders and update them on the new developments in the entity. Any communication inward or outward should be directed to the manager so as to prevent false rumors from spreading. The manager should also ensure that there is a person handling the media because information getting to them should be from the right person due to the fact that the media is a very powerful tool in influencing people as they tend to trust the media more than any other source of information.
   The expert should therefore ensure that the media is broadcasting the correct information about the company and the crisis at hand. The supervisor is also responsible for communication in the company since the employees and the clients need information regarding the issue. They should therefore be provided with guidelines on what to do during the crisis to avoid confusion and panic (Knief, 1991). The expert can use written materials to provide the information or call for meetings so that questions raised would be answered.
5. The human resource expert will be responsible for the inclusion of the IDIC staff into MIC: the expert should offer guidelines on how the process should be carried out, announce who will be laid off and if there is compensation then the manager should also clearly explain how it will be distributed to the employees.
6. The operations expert will ensure that the normal company activities run smoothly without interruption and if they will be affected, the expert should ensure that the interruption is minimal.
7. The legal officer will handle all legal issues concerning the change and represent the company in any legal suit filed against it. The officer will also oversee any agreements and contracts agreed upon regarding the acquisition and ensure they are properly documented for future purposes.
8. MIC management will be the core players in this: they should ensure that there are enough resources for the change; they should also monitor the activity to ensure that everything is going as planned. They need to create a time frame in which the activity should be done so that the team appointed can plan so as to meet the deadline (Crouhy, et, al, 2001)

Conclusion

Every business will always be faced with risks, what matter is how the risks are mitigated to avoid interruption of the entity’s operations. Companies should ensure that that they are always ready for any possible risk so as to prepare in advance. Despite the risks facing MIC the company can successfully buy IDIC without undergoing major problems once all the risks are taken into consideration and managed.

Reference list

Bennett, W, Golub, Leo M, & Tilman. (2000). Risk management: approaches for fixed income markets. NJ: John Wiley & Sons.

Crouhy, M, Galai, D, & Robert M. (2001).Risk management. Canada: McGraw-Hill.

Dempster, M. A. H. Alan, H, D. (2008).Risk management: value at risk and beyond. Paris: CRC Press.

Frenkel, M, Ulrich H, Gunter D, Rudolf. (2002).Risk management: challenge and opportunity. Deutschland: Huschens.

Hubbard D, W. (2009). The failure of risk management.NJ: John Wiley & Sons.

Knief, A. (1991). “Risk management”. Washington, D.C: Hemisphere Pub. Corp.

Every business organization has its own philosophy, which drives it towards big success. The same is true for insurance companies that offer different types of insurance covers. Usually, the founders of any organization architect the philosophy under which it will operate.

The inception of State Farm Insurance Company dates back to 1922 when one farmer, George Mercherle opted to work as an insurance agent because his health conditions could not allow him to continue farming. He turned out to be one of the best sales representatives for an insurance company he was working with.

However, at one point, Mercherle was not happy with the company’s insurance policy to farmers. According to him, the company oppresses farmers through low insurance rates and poor business practices. Farmers paid high premiums despite the fact that they incurred less compensation incidents and drove less kilometers that those staying in urban areas.

Over time, Mercherle recommended new policies that detailed new modalities of selling insurance to farmers and city folks. Nonetheless, the employers turned down the offer and instead, told him to go and start his own insurance company. Driven by desire to offer better insurance, Mercherle and other people with same views started State Farm Insurance Company.

The policyholders became the owners of this automobile insurance company and in 1928, the company started to decentralize starting from an area office in Berkeley, California. By the year 2000, State Farm had grown into a great insurance empire with over 27 regional offices and 1000 service centers all over United States and Canada. (Rhonda, 2010, p.1).

The philosophy of State Farm Insurance lies in offering insurance coverage at an affordable price in tandem with flaxen claim resolution. This philosophy has been the driving gear of State Farm Insurance Company and today, with 76,500 workers and over 16,000 insuring agents, the company posses with 67 million policies and an asset base of US$ 25 billion-making it the biggest fiscal institution in United States.

The current philosophy of “Good Neighbor” is a reckoning force behind State Farm success. This philosophy has remained vital in establishing different insurance covers at affordable price to consumers. For example, under home insurance cover, State Farm insurers all types of houses ranging from single homes to condominium leasing houses. Perhaps what State Farm ought to do is to insure letting houses against burglary, defacement or conflagration in line with the philosophy.

Where fire has destroyed houses, State Farm through their Good Neighbor philosophy, should provide alternate accommodation while awaiting repair of destroyed property. However, through this philosophy, State Farm covers all expenses arising from such disasters. (State Farm Corporate Website, 2010, p.1).

Most insurance companies offer general life insurance, which does not include health. However, State Farm offers general health insurance in addition to disability and long term care insurance coverage. The philosophy of Good Neighbor that is, offering affordable insurance to consumers has seen many American homeowners receive health care insurance at a time when they need medical services most.

The introduction of long term care is so far one of the best insurance coverage targeting the old, persons with disabilities, and the injured. In the current global economic downturn, underprivileged people can access health care services or health care insurance premiums at a cheaper price thanks to “Good Neighbor” philosophy from State Farm. (Case Study: State Farm, 2010, pp. 1-5).

As a mode of enhancing this philosophy, State Farm should target Young Adults aged between 18 and 25. This is because there are over 33 million uninsured persons in America falling in this age gap. With the philosophy, State Farm should provide insurance brands to students and young adults falling in this age gap in order to detach them from other insurance and make them independent.

Additionally, since State Farm prefers business model (use of agents) rather than insurer model (use of call centers and internet), there is high probability that in the current information technology age, many persons falling in this age do not have an elusive insurance coverage. Business model has its advantages that include job creation among other things.

However, the Good Neighbor philosophy of State Farm can reach young adults easily now that many of them are prone to internet than attending call centers. Many young adults perceive State Farm as conservative and one that clings to traditional ways of doing business. However, with the Good Neighbor philosophy, which targets all people the adoption of insurer model through call centers and internet, will see young adults seek insurance brands from State Farm. (State Farm Plans Book Ucla 2010, 2010. p.1).

State Farm is a mutual insurance company belonging to many policyholders. The first capital of starting State Farm came from policy holders who until now remain owners. Although currently comprising of shareholders, the company does not pay form of dividends to shareholders. Instead, all dividends including profits and status belong to policyholders.

This is the reason why State Farm continues to expand as policyholders choose to use their financial earnings to expand the company. Additionally, the structure protects the company’s finances in that, even if share prices drop or shareholders stage demonstrations, the company will still move on smoothly as this appears no issue. Current statistics indicate that State Farm is the most successful insurance company in United States especially as car and home insurer.

This is because of its Good Neighbor philosophy that includes affordability and ability to handle claims fairly and squarely. The mission statement of State Farm is to assist people to deal with arising risks, recuperate from misfortunes and attain their objectives. In order to exhibit good neighbor philosophy, State Farm embarks in market partnership with insurance consumers build on shared values such as financial empowerment, honesty, mutual trust and eminent insurance services. (Case Study: State Farm, 2010, pp. 8-10).

Reference List

Case Study: State Farm. (2010). Web.

Rhonda, C. (2010). State Farm Mutual Insurance Company. Web.

State Farm Corporate Website. State Farm Insurance Company. (2010). Web.

State Farm Plans Book Ucla. (2010). Web.

Executive Summary

The assessment of the quality of service delivery in an organisation is important as it allows consumers to make informed decisions. It also helps the organisation to respond appropriately to improve its services.

In the past, service quality has been defined as “the extent to which a service meets customers’ needs or expectations” (Asubonteng et al., 65). A common definition is, “Service quality is the difference between customers’ expectations of service and perceived service” (Fitzsimmons and Mona 25).

In order for this to be achieved, an analysis of the organisation using the SERVQUAL methodology is necessary. SERVQUAL methodology evaluates five dimensions of quality service delivery. They include reliability, assurance, empathy, tangibles, and responsiveness (Fitzsimmons and Mona 26).

A gap analysis in service delivery is also important as it allows the identification of “causes of service quality shortfalls in each or all of the dimensions” (Fitzsimmons and Mona 28). A service quality gap analysis for Oman Insurance Company was carried out with the aim of establishing the quality of services offered by the company.

An analysis of the five gaps identified followed with calculation of the weighted and un-weighted values of SERVIQUAL scores for each using the recommended formulae (Fitzsimmons and Mona 26).

The data used in the calculations was obtained from the analysis of the responses from questionnaires issued to both the customers of the insurance company as well as the employees.

The results showed a small but significant gap in service delivery for which recommendations were made on how to reduce it. This essay therefore discusses the procedure of analysing the gaps in service delivery in the company, the results of the analysis, and the recommendations towards improving quality service delivery at Oman Insurance Company.

Service Quality Gaps

The service quality concept constitutes about seven major gaps with three (Gap 1, Gap 5, and Gap 6) being important “since they have a direct relationship with customers” (Luk and Layton 113). Gap 1, which deals with customers’ expectations against management perception (Luk and Layton 114), was partially evaluated in the study.

Gap 2 deals with management perceptions versus service specifications while Gap 3 comprises service specifications against the delivery of those services (Luk and Layton 115). The fourth gap is the difference in service delivery and external communication (Luk and Layton 114).

Gap 5 highlights the difference between the perception of the customers of the services delivered against their expectations of the services (Luk and Layton 114). This gap formed the main approach in the survey.

Gap 6 focuses on the discrepancy between the expectations of the customers and the perceptions of the employees while Gap 7 highlights the discrepancy between the management and employees’ perceptions (Luk and Layton 114). These were evaluated using the questionnaire issued to the respondents for the study.

Methodology

The analysis of the service delivery quality was made using data obtained using a questionnaire. The questionnaire prepared constituted two parts, which evaluated customers’ expectations and opinions about insurance companies against their perceptions of service delivery at Oman Insurance Company.

Confidentiality was guaranteed in the questionnaire by ensuring that there was no place for the respondents to fill in their personal details. Thus, their answers were anonymous. A score of 1 to 7 was assigned to the responses with 1 representing those who strongly disagreed with the quality and 7 representing those who strongly agreed with it.

The five dimensions of SERVQUAL methodology, which evaluated the quality of service delivery, were assessed. These included reliability, assurance, empathy, tangibles, and responsiveness. The questionnaire was pretested before the start of the analysis that involved the use of 20 individuals with knowledge of the insurance company.

The recommendations from the pre-test were then incorporated into the questionnaire with printing of the final drafts being made for issuing to the respondents.

The questionnaire was issued to clients who received services from the major branches of the Insurance Company. Selection was randomly made. This means that the sample of people selected was representative of the actual number of people receiving services from the insurance company.

The number of respondents was 200 clients. The survey was carried out over a period of five days. The results were then analysed with presentations being made from them.

Appropriate conclusions were also made. The making of recommendations on how to improve service delivery at the firm followed. The recommendations were mainly addressed to the management of the company.

Results

Out of the 200 questionnaires prepared, three were not answered. The respondents did not fill two of them appropriately. As for the demographics, 146 respondents were male while the rest (54 respondents) were of the opposite sex.

The ages of the respondents were varied with the most common age being above 40 years, which constituted 59% of the respondents. Most of the respondents also had a level of education above college level with most being undergraduates. The results of the five dimensions of SERVQUAL methodology are as follows:

Tangibles

The assessment of this factor of the company involved the assessment of customers’ perception of equipment, personnel appearance, and physical facilities in the company. The customers strongly agreed with the idea that an excellent insurance company should have modern looking equipment.

The average score was higher than the perception of the same in Oman Insurance Company. They agreed, though not strongly, that Oman Insurance Company had modern looking equipment though this was below their expectations.

As for the physical facilities, the customers also strongly agreed that these should be visually appealing, but their perceptions of the same at Oman Insurance Company fell below their expectations. The appearance of employees in Oman Insurance Company was as per the customer expectations.

They therefore agreed strongly that they were neat. The average scores were, however, negative for the above factors. For an excellent insurance company, the customers agreed strongly that their materials such as pamphlets or statements should be visually appealing.

Their perception of this in the Oman Insurance company fell below their expectation. Thus, the average score was negative for the company. In general, the average score for the tangibles in the Oman Insurance Company was negative. The score was at -1.40. This represented the best score of all the five factors assessed on service delivery in the company.

Reliability

On reliability, the questionnaire assessed the ability of the company to perform the promised service dependably and accurately (Wisniewski, and Donnelly 359). In the first question on reliability in the questionnaire, the expectations of the customers on an excellent insurance company was high, as they strongly agreed that it should fulfil promises by the scheduled time.

A number of respondents held the same sentiment about Oman Insurance Company with most of them strongly agreeing that the company fulfilled most of its promises to them on time. However, the average score was lower compared to their expectations.

The quality of problem solving for an excellent insurance company also featured on reliability with most of the respondents claiming and agreeing strongly that such a company should show strong interest in solving its problems.

Against this expectation, the Oman Insurance Company scored lower in the degree to which this characteristic was true for the company. The company was scored as being good at listening and solving problems in the services it offered though this was inadequate time for most of the respondents.

The performance of services for the first time by the company was also below the expectations of the customers, and so was record keeping in the company.

The overall expectations of the customers on reliability received a strong agreement with a score of 6.06 with the company scoring 4.26 on perceptions on the same by their clients. This means that a gap of -1.70 existed in the company in the area of responsibility. This was the largest of all the areas.

Responsiveness

The assessment of responsibility was done by using questions, which focused on the “willingness to help customers and or provide prompt service” (Dick 28). In the first one, customers strongly agreed that adequate information should be given to them in the case of an excellent insurance company regarding when the services would be performed.

This was against a poor perception of the same in the Oman Insurance Company, which though above average, customers perceived that the services were not as good as their expectations of an excellent insurance company.

The employees were also a little less willing to help them as compared to their expectations of an ideal insurance company. This situation elicited a negative score.

The employees of the company also received a lower rating in their ability to attend to their clients compared to an ideal insurance company. Employees of an excellent insurance company were expected never to be too busy to respond to customers’ requests.

The respondents agreed strongly to this opinion. Oman Insurance Company, on the other hand, received lower scores in this aspect of service delivery making the overall score negative. The responsiveness gap score for the company was at -1.69.

Assurance

The perception of assurance for the Oman Insurance company was weighed against the expectations for an excellent company in the same field. This involved evaluation of “Knowledge and courtesy of employees and their ability to inspire trust and confidence” (Valarie, Parasuraman, and Leonard 39).

It included factors such as competence, credibility, security, and courtesy (Dick 28). In the evaluation of employee behaviour, customers strongly agreed that, for an excellent insurance company, this should instil confidence in customers. In comparison to this case, the company received lower scores on the same with a negative score being obtained.

The customers also strongly agreed that employees of an excellent insurance company should be consistently courteous with customers. They felt that this was slightly poor in the Oman Insurance Company with a negative score being obtained.

The knowledge of employees in the insurance company was assessed in this section of the questionnaire with customers being asked if it was adequate to answer their questions. They strongly agreed that, for an excellent insurance company, employees should have knowledge to answer their questions.

Their perception of this in the Oman Insurance Company was lower thus earning it a negative gap score. The overall gap score in this category was -1.55.

Empathy

Empathy is the last dimension assessed in the SERVEQUAL instrument. It involves assessing the “Care and individualised attention that the firm provides to its customers” (Wisniewski and Donnelly 363). Constituents include communication, accessibility, and understanding of the customer (Wisniewski, and Donnelly 363).

Oman Insurance company customers strongly agreed that the organisation offers them individualised attention. However, this perception of customers was not as good as what they expected from an excellent insurance company.

They strongly agreed that an excellent company should offer individualised attention to the clients’ needs. The resulting gap score was negative for the company.

The operating hours for an excellent insurance company should be convenient to all customers. They strongly agreed with this opinion. The company also received a negative score in this suggestion since most of the customers perceived the company as not offering convenient hours compared to an ideal company.

The employees were also described as giving special attention to each customer. Again, this was below their expectations of an ideal company. Upon evaluation, they had customers’ interest at heart since the score was the same both for the Oman Insurance Company and for an excellent insurance company.

Customers responded that employees of Oman Insurance Company understood their specific needs though their score was below that of an excellent insurance company with the overall score being negative. This dimension of the SERVEQUAL instrument received a negative score, which was at -1.52.

Discussion

The results of the survey found an existing gap in service delivery at Oman Insurance Company. The Gap scores were -1.40 for tangibles, -1.70 for reliability, -1.69 for responsiveness, -1.55 for Assurance, and -1.52 for Empathy.

The un-weighted and weighted averages for all the dimensions were later calculated and presented in the table below.

From the table, the average of the Weighted SERVQUAL score was -1.6

Conclusion

Therefore, based on the above expositions, it suffices to declare the evaluation of service delivery in a company a crucial exercise that comes in handy to direct any changes that should be instituted in the company. The paper has used Oman Insurance Company as a case example to demonstrate the role of assessment of the quality of service delivery in the company.

In the analysis of service delivery for Oman Insurance Company, various aspects of the company were compared against an ideal insurance company. A questionnaire was the tool of choice for this task with respondents being the clients of the company.

The results highlighted an existent service delivery gap in the company. The company should use the results of this survey to alter its services in a bid to ensure that the gap is closed and the services delivered are up to the expectations of the customers. This outcome will go a long way in improving the performance of the company.

Works Cited

Asubonteng, Patrick, Karl McCleary, and John Swan. “SERVQUAL revisited: a critical review of service quality.”Journal of Services Marketing 10. 6(2000): 62-81. Print.

Dick, Schaaf. Keeping the Edge: Giving Customers the Service they demand. New York: Plume Penguin, 2006. Print.

Fitzsimmons, James, and Mona Fitzsimmons. Service management: operations, strategy, and information technology. Boston: McGraw-Hill, 2004. Print.

Luk, Sherriff, and Roger Layton. “Perception Gaps in customer expectations: Managers versus service providers and customers.” The Service Industries Journal 22.2(2002): 109-128. Print.

Valarie, Zeithaml, Autor Parasuraman, and Berry Leonard. Delivering Quality Service: Balancing Customer Perceptions and Expectations. New York: Free Press, 2004. Print.

Wisniewski, Michael, and Moris Donnelly. “Measuring service quality in the public sector: the potential for SERVQUAL.” Total Quality Management 7.4(2000): 357-365. Print.

Introduction

Objective

The research seeks to establish the impacts of group variables, performance variables, and independent variables on the performance and profitability of Mitsui Sumitomo and Asahi insurance companies.

Overview of the companies under study

Mitsuisumitomo insurance company is involved in domestic non life insurance. Moreover, it participates in global life insurance, risk cover, and finance generating activities or businesses.

It has over time countered hindrances to growth with anticipation of becoming one of the leading companies in non life insurance industry. It has endeavored to commit itself in offering one of the highest quality services with the main target of establishing a sure breakthrough to growth as an insurance company meeting anticipated global standards.

Asahi mutual life insurance company is also another player in the insurance industry in Japan. It currently stands as one of the largest life insurance companies in Japan.

It has extended its services to countries like China to sell it life insurance policies. In addition, it offers group operations to China. This has greatly increased demand of it services in China. However, the company involves in, performance appraisal to meet global standards.

Conceptual model

The profitability and performance of insurance company is determined by the following factors, (Embley 134):

Operation factors

• claim settlement with minimal disputes
• companies infrastructure such as buildings, road
• information dissemination through agents and brokers
• customer satisfaction

Organizational factors

• staff qualifications
• adaptability to market trends
• involvement in community projects
• rates of return on investments

Others

• government policies
• legality of the practices
• competition
• sampling variability

Conceptual model on the effects of staff qualification on claim settlement in insurance companies.

• Literature review

Independent variable is a characteristic which is manipulated by a researcher in case of an experiment or case study in order to identify its effects in another variable mostly dependent variable(Embley 134).

A dependent variable or orientation variable is the characteristic which the researcher studies to record the effects of the independent variable on the conceptual model; (McArdle at al 279) staff qualification is the independent variable since the researcher seeks to establish the effects of staff qualification on time, service evaluation, and amount of settlement to be made in case of a claim by the insured.

Therefore claim settlement is dependent on staff qualification or competence level (Willer 79).

Figure 1

Qualified staff is the independent variable; the researcher manipulates staff competences to find out the impacts on the dependent variables. Qualified staff enables the brokers and agents to get relevant and factual information regarding the company. Therefore, they are able to influence the potential customers to the companies (Willer 79).

Moreover, the information disseminated by brokers and agents is thoroughly scrutinized. Availability of adequate information regarding a company to customers boosts the customers awareness this in turn increases customer confidence. The customers are able to sell companies policies to other potential customers. This results to the increased number of the customer to the company.

Regression analyses

The above questionnaire was issued to the respondents who are either customers or potential customers to the two insurance companies. That is Asahi and Mutsui insurance companies. There were twenty respondents on the study.3.2 data collected (Chatterjee and Hadi 8).

The above data represent the study results of company one (Mutsui life insurance)

Summation = 1+2+3+4+5+6+7+8+9+10 =Ʃ55

Number of observations = 10

Mean Ʃ55/10 =5.5

PF₁ =F₁(X₁, X_2, X₃, X₄, X₅) (Cameron and Trivedi l 239).

r=Ʃ(x₁-5.5) +(x₂-5.5) +……..+(x₅-5.5)/√Ʃ(x₁-5.5)² +………. (x5-5.5)²

Ʃ =(x₁-5.5) +x₂-5.5) +(x₃-5.5) +(x₄-5.5) +x₅-5.5)

=-23-9.5+23+3-14

=20.5

( x₁-5.5)²+(x₂-5.5)²+(x₃-5.5)²+(x₄-5.5)²+(x₅-5.5)²(Yan and Su 267).

=90.25+529+ 529+9+196

=√1353.25

=36.79

R =20.5/36.79

=0.5572

This is a positive relationship between the variables. The goodness of fit on the observed (O) results and expected (E) results are good. Since (O-E) ² is low (Cameron and Trivedi 239). The statistical results obtained give a positive relationship between variables hence it is significant in giving the performance and their relationship (.Babbie 56).

The below data represents the responses from the questionnaire in regards to company two (Asahi)

PF₂=F₂(X₁, X₂, X₃, X₄, X₅) (Cameron and Trivedi 239).

Summation = 1+2+3+4+5+6+7+8+9+10 =Ʃ55

Number of observations = 10

Mean Ʃ55/10 =5.5

r=Ʃ(x1-5.5) +(x2-5.5) +……..+(x5-5.5)/√Ʃ(x1-5.5)² +………. (x5-5.5)²

Ʃ =(x₁-5.5 ) +(x₂-5.5)+(x₃-5.5) +(x₄-5.5)+(x₅-5.5)

=2+17-39+10+8

=-2

√( x₁-5.5)²+(x₂-5.5)²+(x₃-5.5)²+(x₄-5.5)²+(x₅-5.5)²

=4+289+1521+64+100

=√1978

=44.4747

r=-2/44.4747

=-0.618

The additive, linear model shows a linear connection between variables. The goodness of fit for the company is poor since the observed (O) results are higher the expected(E) results(O-E) (Yan and Su 267).however, the regression analyses of the statistics above gives the relationship between the variables under study. The analysis gives an impression of the negative relationship between the values.

Linear additive model of the entire sector (Yan and Su 267).

0.5572-0.618

=-0.0608/2

=-0.0304

From the values obtained r ranges from -1 to +1 signifying that r is greater than 0.99 the correlation is considered linear and when r is less than 0.99 the connection has an error (Yan and Su 267).

The additive, linear model essentially takes a simple connection between independent and dependent variables.it therefore gives quick facial impression of the data analysis (Yan and Su 267).

Regression analysis is a tool that measures the relationship between variables. Incase r=0 it means that there is no correlation among variables in question when r=positive value imply a positive relationship and r=negative imply a (-ve) correlation, an increase in one variable leads to decrease in another set of variables.

Regression analysis aid statisticians to identify whether two variables are related or not (Yan and Su 267). These variables are:

• Correlation which describes merely the presences or absence of relation
• Correlation which shows the degree of magnitude of relationship between two measures

Conclusion and recommendations

In a nutshell, all variables including dependent, independent, quantitive or qualitative variables impact on individual performance and profitability. A regression analysis gives the relationship between variables and enables companies to analyze the effects of independent on dependent variables. Companies should always perform regression analysis to improve and assess its continuity in the market.

Appendices

A questionnaire

Indicate your responses by either a tick or a cross (×) alongside the response options in the questionnaire (Chatterjee and Hadi 8).

The responses will be: Strongly Agree (SA),Agree(A),Neither(N),Disagree(D),and Strongly Disagree(SD)

Questions

• The old people are charged higher premiums than the young people.

• The females take the life insurance cover than the male counterparts.

• Economic status of people is a key motivator to taking life insurance cover.

• Life insurance cover is taken by individuals with life threatening illness such as stroke, diabetes, cancer among others.

• The rate of return on investment to a life insurance company depends on the number of the assured.

• Do life insurance company performance and profitability solely depend on physical infrastructure?

• Have information communication technology trends today impacted positively on insurance market trends?

• Undue competition in insurance industry compromises the service delivery to customers?

• Do brokers and agents influence potential customer’s decisions?

• Location of insurance significantly influence the number of people who use it services?

Works Cited

Babbie, Earl R. The Basics of Social Research. Belmont, CA: Thomson/Wadsworth, 2008. Print.

Cameron, Adrian C, and P K. Trivedi. Regression Analysis of Count Data. 2nd edn. Econometric Society Monograph No.53, Cambridge University Press, 1998. Print.

Chatterjee, Samprit, and Ali S. Hadi. Regression Analysis by Example. Hoboken: Wiley, 2012. Web.

Embley, David W. Handbook of Conceptual Modeling: Theory, Practice, and Research Challenges. Berlin: Springer, 2011. Print.

Lane, Jan-Erik. The Public Sector: Concepts, Models and Approaches. London [u.a.: SAGE, 2000. Print.

McArdle, William D, Frank I. Katch, and Victor L. Katch. Essentials of Exercise Physiology.Baltimore, Mar: Lippincott Williams & Wilkins, 2006. Print.

Willer, Mirna. Unimarc Manual: Authorities Format. München: Saur, 2009. Prin

Yan, Xin, and Xiaogang Su. Linear Regression Analysis: Theory and Computing. Singapore: World Scientific Pub. Co, 2009. Web..

Abu Dhabi motor insurance companies opened a new chapter in their businesses when a plan to access drivers’ information from a single database was announced. Insurance companies usually collect and store the personal information of individuals to whom they provide insurance cover.

Accessing drivers’ information before offering them insurance cover will allow companies to decide the amount of premium to charge based on their past records. In that regard, the database will provide information that will help insurance companies to determine the level of risk associated with each applicant (Ruiz, 2014). Insurance companies have relied on vague information such as age and the nationality of applicants to issue insurance cover for many years.

However, a centralized database will provide accurate and adequate information that will improve their operations. It will also improve road safety, reduce the number of fraudulent insurance claims filed by drivers, and enhance the process of determining the amount of premiums that applicants should pay (Ruiz, 2014). Careful drivers will pay low premiums while careless drivers will pay higher premiums. The data system will improve fairness because reckless drivers have been paying low premiums at the expense of careful drivers.

I think that a common database will improve the operations of insurance companies by enabling them to issue insurance cover that is commensurate with the risk associated with different drivers. In addition, it will improve their profitability. Many insurance firms lose a lot of money because many drivers provide erroneous information in order to pay lower premiums.

For instance, some individuals change their insurance companies after they get involved in road accidents because such occurrences usually result in higher premiums. Companies will not lose their clients due to fraudulent transactions that are usually initiated by reckless drivers. Insurance companies will benefit from access to accident histories of drivers who apply for insurance cover.

They will get information about the number of accidents a driver has been involved in, the repairs done on their vehicle, and any insurance claims filed against their insurer (Ruiz, 2014). On the other hand, centralization of insurance information is a positive move that will save insurance companies a lot of money that is lost through fraudulent claims.

According to the article, there are 35 companies that offer motor insurance and approximately 20 have agreed to share their information through a centralized database (Ruiz, 2014). Companies compete effectively in different markets due to their competitive advantages that are confidential and unknown to other firms.

Requiring insurance companies to share information with others could cause resistance among some firms because of the unwillingness to expose their operations to competitors and government agencies. Some companies might fear that sharing information could lead to loss of clients.

Dubai’s Roads and Transport Authority has presented a mandatory request to all insurance companies to prepare and issue data to the common database (Ruiz, 2014). Many companies that engage in illegal financial transactions keep their operations private for fear of exposure. Sharing information with other companies and government agencies could expose companies that might have been involved in illegal activities while addressing claims filed by clients.

Lack of transparency and accountability is one of the major challenges that insurance companies face. Clients provide misleading or prevaricated information in order to pay lower premiums. Lack of adequate information renders insurance companies unable to determine the real value of premiums that drivers are required to pay because they cannot determine their risk levels on the road.

I think it would be irrational for some companies to reject the plan to share information with other insurance firms because the move has many benefits. Companies that have agreed to share information are aware of the benefit that they will enjoy by getting unlimited access to applicants’ profiles before issuing them with insurance cover.

Drivers will be compelled to provide accurate information that matches their profiles in the database. On the other hand, insurance companies will be compelled to address all cases of insurance claims in a transparent and just manner because government agencies such as the UAE Insurance Authority will be accessing information related to their operations.

A centralized database containing drivers’ information from different companies will improve the credibility and integrity of insurance companies. This is possible because some companies support the involvement of government agencies in overseeing the activities of insurance companies. For example, the chief executive officer of Guardian Insurance Brokers supported the involvement of the UAE Insurance Authority in the resolution matters related to insurance (Ruiz, 2014).

If government agencies are involved, companies will be more transparent, corruption will reduce, and clients will be treated fairly. On the other hand, drivers will not swindle insurance companies because information regarding their histories will be used to determine whether their insurance claims are legal or illegal.

Enhancement of honesty and transparency will improve relationships between drivers and insurance companies. It will also oblige drivers to be more careful because they will have no illegal means of altering their premiums by providing incomplete or false information to new insurers. The use of driving license and vehicle chassis number to retrieve information regarding claims will streamline the operations of insurance companies, increase efficiency, and make work easier.

The move has been welcomed by many insurance companies because of the efficiency and effectiveness a centralized database will offer. However, it could also increase illegal use of people’s information. Corruption cases are on the rise among insurance companies and some could use the new information for selfish gains.

On the other hand, there is no guarantee that the new system will streamline business operations because insurance companies have been accused of using dubious techniques to avoid paying insurance claims to clients. There is a possibility that companies will collude with each other in order to reduce their operation costs and increase the premiums paid by certain drivers. There is no assurance that the system will be transparent and fair.

Companies operate differently due to variations in their organizational structures and designs. Some companies possess more detailed information regarding their clients than others. Therefore, certain firms will benefit more than others. The creation of a centralized database seems beneficial to the operations of insurance companies. However, it will give certain companies a competitive edge over others because of unlimited access to information that many of them did not spend money collecting through research.

On the other hand, sharing information should be optional because some companies’ policies could be against sharing their clients’ information. Relationships between customers and companies are very important and comprise a major pillar of organizational success. This move could compromise these relationships because certain clients might feel violated and as a result decide to change their service providers.

Reference

Ruiz, R. (2014). UAE Insurers Can Now Use Single Database for Drivers’ Data. Retrieved from https://www.thenational.ae/uae/insurers-can-now-use-single-database-for-drivers-data-1.445219

Introduction

Risk management is a very crucial aspect in all fields of life. It is even more important when it comes to the business world that is faced by a variety of risks (both financial and non financial), which could lead to losses and to the extreme; it may lead to close down of business organizations.

Risk management entails the process of carefully identifying, assessing and prioritizing risk in a given setting, industry or business organization (Rowe, Mason, Dickel and Snyder 1989).

It also involves the strategic application of the available resources in an effort to reduce, scrutinize, and manage the probability and effects of the risks while at the same time trying to maximize opportunities for better performance of a business (Chapman and Ward 1997).

This piece of work will give an in depth discussion of the aspect of risk management in businesses. Much emphasis will be given to the issue of climate change and how it influences the flood risk in Queensland Australia and its effects to businesses affected. The insurance industry will be the main focus.

Discussion

There are various business risks with each being associated with different effects and hence necessitating different mitigation strategies. Climate change in any given part of the world could be linked to a variety of risk factors depending on the situation and the particular risk involved (NSW Department of Environment and Climate Change October 2007).

Floods in Queensland, Australia are a major risk to not only personal lives but also to businesses and hence the need for effective risk management practices (Department of Finance1991). Transport is very much affected by the floods leading to delays, loss and damages of products in transits in a given business.

Delays in delivery of the products means delay in production processes and also delay in making deliveries to consumers (Grey 1995). Insurance industry is related to all forms of businesses where various activities and products are insured for instance against risks such as damages, floods, losses or fire.

In regard to flood risk in Queensland Australia, the insurance industry has had a rough time in the process of managing the risk for instance in terms of compensations. This is because the risk is so prevalent. All in all, the insurance industry has taken responsibility of providing maps of areas that are at high risk of flood. It also cooperates with the government in mitigating and managing flood (Cooper, Grey, Raymond and Walker 2004).

Although it is hard to ascertain the risk caused or associated with floods in Australia, there exist some ways through which it could be estimated, for example through the impacts suffered (Tweeddale 2003). The major problem of the insurance industry however comes in the process of ascertaining the real floods threats for the purpose of compensation.

This is because there may be chances of people claiming compensation from insurance companies even when the risk suffered is not associated with floods. According to Anonymous (2011), revenue for different crops such as fruits and vegetables declined following floods in Australia.

The insurance industry has been experiencing difficulties in understanding and pricing floods and this has led to obstacle in achieving market available for insurance cover (BTE 2001).

According to Australian Bureau of Agricultural and Resource Economics and Sciences (2011), it is evident that the risks linked to floods are very harmful to businesses. For this reason, there is dire need to come up with ways through which the risk can be managed.

There are various strategies that could be applied in an effort to mitigate the risk including identification of threats and opportunities so as improve performance through maximizing opportunities and reducing threats (Vose 2000; The Royal Society of London 1992).

It also requires rigorous thinking where the aspect of managing risk should be integrated with the overall decision making process in an organization (Coag 2004). An organization should also set up strategies that aim at being prepared for any form of risk so as to minimize the negative effects (The National Flood Risk Advisory Group 2008).

Effective communication is also a strategy that ought to contribute to better risk management. This is because risk management occurs in a social context and hence the need to involve all the stakeholders for effective action to be taken (Sai Global 1999; Kaplan and Norton 2000).

Cox, Gutteridge and Davey (2001) asserts that the task of managing flood risk is very much involving and for this reason, it ought not to be left for a single individual or party. Instead, various parties should join hands in making the situation better for the best of everyone involved.

They include individuals, the government, non governmental organizations and other corporate bodies (International Standard ISO/FDIS 31000 2009). When all the above named parties are effectively involved in the process of risk management for instance the floods, there are usually fewer surprises due to preparedness and there is also exploitation of all the available opportunities due to proper understanding.

The combined efforts also lead to improved planning, performance, and effectiveness. There is also the issue of enhanced accountability, governance and assurance due to transparency. Economy is also achieved in the course of risk management (Arnold 2008; Insurance Council of Australia not dated).

According to Department of Transport and Regional Services, Canberra EMA (1999), Climate change issue and its effect on floods risk in particular have played a great role in Tasmania. Tasmania is an Australian island that is very significant due to the wealth it holds in terms of natural resources, most of them being underexploited.

The fact that this is an island makes the risk of flooding to be very involving mainly due to the aspect of mobility of people and goods from this place to the neighbouring areas as well as from the neighbouring areas to the island. In the recent past, Tasmania has been faced with a number of risks including the Tasmanian fires which claimed a significant number of lives and property.

Floods are also a notable phenomenon in this island. The collapse of the main bridge, Tasman Bridge exacerbated this issue making crossing over to different directions difficult. This did not only affect the mobility of individuals but also of products and services thus affecting various businesses (Rawlings-Way, Worby and Mocatta 2008).

Conclusion

From the above discussion, it is evident that the risk of flood is very influential. It is associated with a number of losses and damages particularly in the contemporary business world. The insurance industry in Australia is very touched by the issue of floods due to the fact the risk is very prevalent and affects various sectors of the economy for instance agriculture and tourism industries.

Reference List

Anonymous, 2011. Economic impact of Queensland’s natural disasters, PWC.

Arnold, M., 2008. The Role of Risk Transfer and Insurance in Disaster Risk Reduction and Climate Change Adoption Available [online] from

Australian Bureau of Agricultural and Resource Economics and Sciences, 2011. The impact of recent flood events on commodities, ABARES Special Report

BTE, 2001. Economic Cost of Natural Disasters in Australia. Report 103, Bureau of Transport Economics, Canberra.

Chapman, C.B. and Ward, S.C., 1997. Project Risk Management: Processes, Techniques and Insights. Chichester, John Wiley & Sons

Coag, 2004. Natural Disasters in Australia. Reforming Mitigation, Relief and Recovery Arrangements. A report to the Council of Australian Governments by a high level officials’ group, August 2002

Cooper, D.F. Grey, S.J., Raymond G.A. and Walker P.R.,2004. Project Risk Management Guidelines: Managing Risk in Large Projects and Complex Procurements. Chichester, John Wiley & Sons

Cox, G, Gutteridge H and Davey, 2001. Analysis of Community Attitudes of Flood Related Risks Volumes 1 and 2, Hawkesbury Nepean Floodplain Management Strategy, Parramatta.

Department of Finance, 1991. Handbook of Cost Benefit Analysis, Australia, Australian Government Publishing Service.

Department of Transport and Regional Services, Canberra. EMA, 1999. Managing the Floodplain. Australian Emergency Management Series, Part 3, Volume 3, Guide 3, Emergency Management Australia, Canberra.

Grey, S., 1995. Practical Risk Assessment for Project Management, Chichester, John Wiley & Sons

Insurance Council of Australia, not dated. Flood Insurance in Australia – some useful Information, Current Issues Brief

International Standard ISO/FDIS 31000, 2009. Risk management — Principles and guidelines, ISO/FDIS 31000

Kaplan and Norton, 2000. Having trouble with strategy? Then map it, Harvard Business Review, Vol. 78, No. 5, September-October 2000.

NSW Department of Environment and Climate Change October, 2007, Floodplain Risk Management Guideline on Residential Flood Damages.

Rawlings-Way, C., Worby, M. and Mocatta, G., 2008. Tasmania, New York, Lonely Planet

Rowe, A.J., Mason, R.O., Dickel, K.E., and Snyder, N.H., 1989. Strategic Management: A Methodological Approach, Third Edition, Reading, MA Addison-Wesley

Sai Global, 1999. Risk Management Guidelines Companion to AS/NZS 4360:2004. Standards Australia/Standards New Zealand

The National Flood Risk Advisory Group, 2008. Flood risk management in Australia, The Australian Journal of Emergency Management, Vol. 23 No. 4, November 2008

The Royal Society of London, 1992. Risk: Analysis, perception and management. London, The Royal Society

Tweeddale, H.M. 2003. Managing Risk and Reliability of Process Plants. Amsterdam, Gulf Professional Publishing

Vose, D, 2000. Risk Analysis: A Quantitative Guide. Chichester, John Wiley & Sons

Middlesex Insurance Company conducts market research on demand to help the management make informed decisions on available products, new products and market trends and segmentation. Market research also helps in identifying specific product attributes that match the capabilities of the target market.

Market research on available products also assists the firm address matters relating to accessibility, prices and effectiveness. Market research is an indicator of activities that complement insurance as well as revealing people’s perception, understanding and trust of insurance. This is important to Kate Farm because of the uptake and designing and conducting customer awareness and marketing strategies.

Middlesex Insurance Company’s research plan guides the collection and analysis of data in the following ways; the research team outlines the research objectives, the audience, and how the results will be used. The team defines the key questions and points out the primary and secondary sources the information to be used.

The research team then makes a decision on the method they intend to use in data collection, then determine and document the procedure for participants’ selection. Data analyzing plan is developed and a timeline set for the process. The team members assign themselves roles and responsibilities for conducting the research.

They organize logistics, schedule collection of data, design data collection tools such as interview guides and analysis matrices. The team collects data, some of the main data collection techniques are Mail questionnaire telephone interview, personal interview and online interview (Kotler & Keller, 2009). After collecting data, they analyze it, draft a report and finally draw a final report to the management.

According to Talvinen (1994), marketing information system inform the management on the current market trend. Middlesex Insurance Company has developed an effective long-term marketing strategy which is very helpful and important for every organization that wants to get and attract the necessary audience according to Shaw and Stone (). This strategy is aimed at adding more clients on their book within twelve months.

The organization uses a guide on’ how to save on insurance’ as a lead generator. This guide is sent via sales letters, newsletters, handouts, emails, endorsement and direct mail marketing. Prospective clients continuously receive mails until they respond positively.

Middlesex Insurance Company offers good content in the mailed offer so as not to bore the recipients, those who do not respond within two weeks, are put in another marketing funnel. A newsletter is sent to them, then a follow up with another guide, they are kept in the newsletter system.

Segmentation, Targeting, Positioning, and Dealing with Competition

Middlesex Insurance Company provides property and casualty policy cover, therefore, it targets two customer segments, home and automobile buyers. Kotler and Keller (2009) classify this consumer segment as demographic consumer market.

Demographic consumer market adopts demographics to understand consumers. In this segmentation, consumers are categorized according to their age, race, gender, income, education, family size, family life cycle,occupation.

According to American Housing Survey(2006), first time home buyers averaged thirty-three years with a household income of approximately sixty-four thousand dollars a year. Middlesex Insurance Company’s customers are generally aged between 30 and 50 years, with a majority below 40 years. Move up homebuyers earned substantially higher than first time buyers, most doubled the average earned by first time buyers.

Most customers who were first timers bought homes covering 1500 square feet. These houses were also single family homes as many of them were married with children. Eleven percent of the customers bought town homes and another eleven percent insuring condominiums.

The move uppers bought slightly larger homes with a large percentage moving into detached homes, eight percent moving to town homes and another eight percent insuring condominiums.

On the other hand, Aizcorbe, Bridgeman and Nalewaik (2009), one’s willingness to pay for a vehicle depended on their household income.They listed other factors to be considered as educational attainment and age. Middlesex Insurance Company’s customers in 2010 who insured 2011 model-year cars had $ 8000 more income than households who bought 2010 model-year cars.

Those who bought newer model-year in 2010 had $ 5000 more income and in 2011, newer model year owners earned about $ 6000 more income. In all cases, owners of newer model year cars earned significantly higher income compared to owners of the older year models.

Product and Service

Middlesex Insurance Company demonstrates an effective and efficient service delivery to the client base by offering best offers at affordable rate (Sawhney, Balasubramanian, & Krishnan, 2004).The company has evaluated sales and profits related with each offer (Kotler & Keller, 2009).

It provides homeowner’s insurance that combines certain personal insurance such as loss that occur to the house, the house’s content, loss of the house use, loss of homeowner possessions and also insurance against accidents that occur at the home or at the homeowners hands within the territory of the policy.

Types of policies

Middlesex Insurance Company offers three types of homeowners’ insurance policies.

Basic form homeowner policy

Middlesex Insurance Company offers this insurance policy against eleven listed perils. This include “fire, storms or hailstones, vandalism or malicious mischief, theft, destruction from automobile and aircraft, explosion riot or civil strife, glass breakage, smoke, volcanic activity, and personal liability. Exceptions include floods, earthquakes.”

Broad form homeowner policy

This is a more advanced policy that gives coverage against seventeen perils that include the eleven listed above. The policy covers named perils and indicates the event that would be covered.

Special form homeowner policy

This is the most comprehensive policy cover offered by Middlesex Insurance Company. The policy covers all risks associated with homeownership. It is mostly used for single-family homes.

Middlesex Insurance Company also offers three main types of auto insurance.

Comprehensive coverage

This insurance policy cover damages the customer’s car that are not caused by other motorists. These include damage to the whole car, or parts from such events as fire, theft, storms, tornado, floods and hail. It also covers the car in event of hitting an animal.

This policy is optional and purchased for vehicles that are worth more than $ 1000. This policy coverage does not raise the premium and the policy owner has the option to choose from deductible amount.

Collision coverage

This policy covers the vehicle against physical damage because of collision. In this case, if the policy owner crashes, the insurance will pay to fix the vehicle. This policy cover is optional and the monthly deductibles range between $ 200 and $1000. This policy is ideal for vehicles worth more than $ 4000 and policy owners who have no accident history.

Pricing

Middlesex Insurance Company sets insurance rates 10% below market rates to attract customers (Baye, Gatti, Rupert, Kattuman, & Morgan, 2007). In addition to this, other factors are significant in calculating prices. In case of homeowner insurance, the following are considered: the company selected this price setting method in line with research done and available data on risks connected to homeownership (Kotler & Keller, 2009).

Location

Where the customer lives is a factor to be considered. Middlesex Insurance Company gather claims experience based on location and use this to adjust the premiums. For instance if a customer lives in high theft area then they will pay more.

Coverage

The more the cover purchased the higher the premium will be. For example, a $50,000 insurance policy is less expensive than $85,000 policy. In addition, a town house insurance policy will be less expensive than a condominium. Other considerations will be a customer’s customization of their insurance policy with optional coverage’s, like a bicycle, these will increase the premium.

Proximity to fire station

The closer a customer lives to the fire station the lesser the premium on the policy. The company assumes that the property stands a greater chance of being saved from fire.

Amount of deductibles

The more the customer pays on the deductibles the lower the premium will be. For example if the standard policy deductible is $500 and the customer chooses to pay $ 1000, this definitely reduces the premium.

Security features

Having a safe home environment is advantageous especially in calculating premiums.

Installation of alarm systems, smoke detectors, carbon detectors and other security features will reduce insurance premiums.

The following factors determine the pricing of auto insurance:

Age

Policy owners who are younger than 25 year of age pay more rates. In the insurance industry, research indicates that younger drivers get into more accidents as compared to older ones.

Driver’s Record

The policyholder’s driving record is critical in determining the amount to be paid. The more traffic violations the higher the premiums. They however drop every year that violation is not reported.

Place of residence

If the customer lives in a city where crime is reportedly high, the rates will be high. This is because the likelihood of a crime affecting the customer’s car indicates the likelihood of that customer making acclaim.

Make and model of the vehicle

The type of car the customer insures will determine the amount of premium. A customer driving a sports car will pay more because it is more likely to get broken into.

Marketing Channels

Middlesex Insurance Company uses agents as the main marketing channel. The company sells 80% of policies through this channel. According to Kotler and Keller (2009), these are independent organizations involved in the process of making the products available to the customers. The agents owe the company a number of duties these include: the agents perform the tasks specified by the agency and not to perform unauthorized tasks.

The agents discharge duties with caution and due diligence, the agent does not engage in conduct that benefits them to the detriment of the company. The agents should not accept inconsistent obligations with the work owed to the company. The agents can represent the conflicting interests of other companies only after full disclosure and with consent of Middlesex Insurance Company.

The agents should not take advantage of their position in transactions for their own interests rather than for the interests of the company. An agent should not usurp the company’s opportunities by passing them on to a third party.

The company makes full disclosure of all information relevant to transactions that the agents are allowed to perform. The company also pays the agent as stipulated in the agreements. The laws of the United States of America regulate the relationship between the agents and Middlesex Insurance Company (Randall, 1999).

Marketing Communications

Middlesex Insurance Company deploys marketing strategies to attract prospective customers. The company pursues to have a target audience by developing creative messages that they will receive without resistance (Kotler & Keller, 2009).

The company has contracted a firm to undertake direct mail pieces in the target audience area. The target audience receives regular sales materials as well as newsletters. This is done every two weeks. The company also creates personalized advertisements that are emailed to customers. The internet is one of the latest techniques the company has employed in marketing.

The company is investing in a zip code exclusive online advertizing to get unique exposure. The company’s website developer has initiated the construction work. Through the internet host, they intend to link the agents’ sites to the Company’s Website. Here agents act as Intermediaries who facilitate advertisers as well as consumers linking with each other (Rochet & Tirole, 2003).

This way it stands to reach target audience as more people are using the internet and searching for insurance. “Web-based sellers use online advertising to drive consumers directly to their sites where they can browse for goods and services and purchase them with a few clicks. Online advertising accounted for 8.8 percent of all advertising in the United States in 2008” (Hallerman, 2008).

According to Evans (2009), internet based sellers use advertizing to attract consumers directly to their websites where they check for products and buy them with a click of the mouse. Middlesex Insurance Company is continuously looking to find new agents to work with. It advertises in the local newspaper in order to attract prospective agents.

References

Aizcorbe, A., Bridgeman, B., & Nalewaik, J. (2009). Heterogeneous Car Buyers: A Stylized Fact. Finance and Economic Discussion Series Division of Research and Statistics and Monetary Affairs, 12.

American Housing Survey. (2006). American housing survey: Current housing reports. Washington DC: U.S Department of Housing and Urban Development.

Baye, M., Gatti, J., Rupert, J., Kattuman, P., & Morgan, J. (2007). A dashboard for online pricing. California Management Review, 202-216.

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Executive summary

Royal Automobile Club of Queensland (RACQ) Insurance Company suffers a serious issue in realising successful operation. The senior management team of the company is at the forefront when dealing with disruptions and challenges that hinder effective operation.

RACQ is well capable of managing its risks, since risk management is its chief agenda. The company has been adversely affected by changes in the social, monetary, and environmental backgrounds that have taken place around the globe in the recent years.

Several of the changes took on a higher level of intricacy after the economic crisis of 2008 and international monetary decline.

This paper discusses the aspects that led to this issue, which consist of placing the clients of RACQ at the core of its operations, the requirement for the company to administer capital and risk coupled with combining sustainability aspects in its chief processes and functions.

The knowledge of customer needs coupled with positioning these needs at the heart of all operations is a fundamental business value for the success of any insurance company in the world. With the standing of RACQ worsened by the 2008 monetary crisis, the company should consider rebuilding customer confidence.

In a report, Dr. George Hopkins, the Chief Executive Officer of the company, is quoted admitting that RACQ must take note of the requirements of its clients particularly now that several of them suffer insecurity due to the financial crisis.

The development of competitive products is a continuous challenge for RACQ. However, the inventiveness of the company to discover new techniques of managing risks and pricing them strategically so that both customers and the company benefit has been at the heart of this company for years.

In RACQ, the senior management identifies the meaning of working effectively and competently carrying out operations in an orderly way with lowest dissipation to generate the proposed outcomes.

Optimised functioning is a requirement for enhanced business operations, more competent handling of allegations, decreased costs, advanced competitiveness, greater profitability, and higher shareholder value.

In distressed economic markets, upholding capital stores and achieving reputable proceeds on investments of proprietary and clients is a difficulty task and frequently an insurmountable challenge for RACQ.

This paper also focuses on Strategic Human Resource Development (SHRD) plan that Royal Automobile Club of Queensland Limited should employ to curb this issue. A number of recommendations, implementation, and evaluation for the senior management of RACQ are given at the end of this paper.

For instance, RACQ must join hands with the government to boost the confidence and loyalty of customers in the company and as well develop fiscal literacy.

With the creation of superior and beneficial judgments concerning the effective operations of RACQ, this move will be a confirmation that the company engages its clients excellently and has carried out the essential recommendation steps.

Several of the judgments that senior management and HRD experts of RACQ formulate when carrying out HRD evaluations might carry ethical issues. Ethical issues entailed in this evaluation of HRD are confidentiality and application of deception.

Introduction

Royal Automobile Club of Queensland (RACQ) Insurance Company experiences a key issue in effective operation. The risk carriers, risk managers, and key investors of the company are at the forefront when dealing with disruptions and challenges that hinder effective operations.

The task of RACQ is to bring some certainty, manageability, and steadiness in what is conventionally a messy world. The monetary, social, and environmental transformations that have occurred around the globe in the earlier decade have been arduous for the company.

Numerous of those transformations took on a higher level of intricacy after the 2008 economic crisis and international monetary decline (Bekiaris, 2006, pp. 98-101). In a bid to address this issue, this paper discusses the aspects that caused the problem initially.

This paper also focuses on Strategic Human Resource Development (SHRD) plan that Royal Automobile Club of Queensland Limited should employ to counter this issue. The SHRD involves concentrating on the tasks that analytics of RACQ must carry out in assisting the company overcome the issue of its operation.

This paper targets the senior management team of RACQ to assist it acquire better awareness into the issues at hand and how to address the same (Ryder, 2006, pp. 66-69).

Positioning Customers at the Centre

The knowledge of customer needs and positioning them at the heart of all operations underscores fundamental business values for the success of any insurance company in the world.

This matches the contemporary equivalents of what earlier cohorts of senior managers understood as “the client is king” in addition to “the client is at all times right”.

However, merely because consumer-centricity has been identified for a long time as a vital element in defining success of businesses does not imply that companies are excellent at it (Pokrajac, 2011, pp. 6-9).

For instance, RACQ should do more to position its clients at the heart of its operations and must work hard to remain in line with this principle. The endeavour is worth undertaking since the rewards thereafter merit the efforts employed.

By positioning clients at the centre, RACQ will improve the loyalty and confidence of its customers (Peterson, & Roberts, 2011, pp. 29-76). This undertaking will sequentially give rise to increased sales returns, higher revenues, and eventually improved shareholder value.

In the year 2009, a report from the Insurance Industry Working Group (IIWG) stressed on the importance of insurers involving their clients in a move to position customers at the centre of companies’ operations.

With the status of RACQ worsened by the global economic crisis of 2008, the company should rebuild customer trust (Introducing Anziif Committees, 2010, pp. 46-47).

Dr. George Hopkins, the Chief Executive Officer of the company, stated that RACQ must take note of the needs of its clients particularly now when numerous of them suffer uncertainty due to the 2008 financial crisis.

Developing Competitive Products

The development of competitive products is a continuous challenge for RACQ (O’Brien, 2004, pp. 48-50). Nevertheless, the inventiveness of the company to discover new techniques of managing risks and pricing them strategically so that both customers and the company benefit has been in place for quite some time now.

Development of competitive products is a perpetual practice. RACQ cannot be contented coupled with depending on the products at hand; on the contrary, they have to innovate endlessly, not simply to be in motion with market transformations, but also be ahead in the market if achievable.

Insurance companies that are effective in assisting policyholders become weather-resistant and weather-responsive and eventually become weather-profitable (Kalamaras, Rando, & Pitchford, 2006, pp. 439-441).

RACQ faces a challenge in assisting individuals and groups to transform and become weather-resistant by giving them insurance against weather-changes-associated incidents like floods and storms, coupled with assisting the government become weather-responsive by offering insurance to renewable energy schemes and attempts to decrease emissions of greenhouse gases.

On the other hand, RACQ puts immense significance on providing customers with an extensive and new variety of products for security savings and venture. RACQ continually studies the market with the intention of establishing new products and developing its product contributions.

In so doing, the company stays competitive and offers its clients product resolutions that can befit their various financial objectives and insurance requirements (Delpachitra, 2008, pp. 137-147).

RACQ is as well committing much time to building up comprehensible products like car loans, car hire, and car insurance just to mention but a few. This move follows earlier complaints from its customers that the diction used in a number of its policies was extremely intricate.

Regardless of the encouraging impressions that RACQ present in its reports, a recently conducted survey illustrates that several participants, of whom three-quarters represented their customers, believe that RACQ has poor standing as regards development of competitive products.

A participant stated that there were presently very few new products in broad insurance and reinsurance schemes. In addition, a different participant affirmed that RACQ was cumbersome, sluggish, and not particularly inventive.

In general, participants considered that if not addressed, the issue facing RACQ and other companies would hold back development for competitive products and make the insurance industry more exposed to rivalry mainly from banks (Turner, & Guilding, 2011, pp. 89-94).

Enhancing Functional Efficiency

Senior management in RACQ recognises the significance of working effectively and competently executing operations in a systematic way with lowest wastage of resources to generate the proposed outcomes.

Optimised function is a requirement for enhanced business operations, competent handling of allegations, decreased costs, advanced competitiveness, greater profitability, and higher shareholder value.

Earlier in the year 2011, RACQ made an impressive judgment to revolutionise its business operations and set off on a series of transformational projects. This move created quantifiable enhancements across every region, but the task is far from complete.

The functional capacities must be founded on four strategic foundation stones, viz. functional change, profitable development, people administration, and consumer-centricity.

Functional change signifies the designed and methodical progression of implementing, centring on clients, efficiency, and competence (Armstrong & Paolucci, 2010, pp. 521-538). These might be the true basics on which to construct, but RACQ does not feign it is a straightforward undertaking.

Keeping Strong Capital arrangements and Good Profits

In distressed economic markets, upholding capital stores and achieving reputable proceeds on investments of proprietary and clients has been a hard and frequently unrealisable challenge for RACQ. RACQ has undertaken three strides from the economic catastrophe and financial decline.

Foremost, its capital sources have suffered exhaustive drawbacks like lesser returns and lesser-kept profits, liquidity claims, scarcity investors, little rates on interest, and a decrease in the rate of securities, possessions, and other benefit classes.

Being at a position of less capital intimidates solvency spots of RACQ and its capacity to satisfy the claims of its customers, renders its to the threat of regulatory nonconformity with capital sufficiency rules, and makes it more difficult to write new dealings.

Secondly, its investment selections have lost worth (Swanson, Hume, Hutcheon, & Scott, 2012, pp. 18-22).

Thirdly, the venture of the clients of RACQ depreciated and assets have as well depreciated giving rise to disgruntled customers.

Strengthening Risk Management

The instability in the economic markets extended the handling of risk by the policies and progressions of insurance companies (Bianchi, Ebner, Korherr, & Ubl, 2011, pp. 88-106). They held up well compared with those of banks, but their review and strengthening occur in all key areas where appropriate.

Every approach of handling of risk should be extensive (Connelly, Paolucci, Butler, & Collins, 2010, pp. 3-14); that is, every approach has to be devised at the centre, incorporated across the company, and executed by the leaders of every business line.

Recommendations

Implementation

Evaluation

RACQ should use a computer-based approach with the help of its employees. During a talk with clients, or from filed documents by customers, the information and feedback should be keyed into the system.

Eventually, the information and feedback from customers will be merged with the data from other distribution conduits to construct a single customer outlook.

After the senior management team creates smarter and beneficial judgments about marketing, this will be a confirmation that the management understands clients and has carried out the necessary recommendation steps.

Another way of evaluation is the use of SAS, whose success will be marked by an inclusive enterprise data management atmosphere, integrating every kind of data to permit analyses with the interpretation of both structured as well as unstructured data like text messages, visual information, and electronic mails.

The final evaluation is the assessment of business solutions by business analysts. A move in the right direction is indicated by attainment of higher profits, improved client relationships, better risk management, and a successful human capital policy.

Several judgments that senior management and HRD experts of RACQ formulate when carrying out HRD evaluations carry ethical issues.

One ethical issue entailed in evaluation of HRD is confidentiality. In asking employees questions concerning their performance or performance of others, the outcomes of these investigations might thwart or cause unpleasant treatment by their colleagues if uncovered.

For instance, if evaluation of senior management engages in inquiring employees of the performance of their managers, managers might become angry with employees who report negatively about them. Where achievable, confidentiality should be maintained by use of codes instead of names.

Another ethical issue is the application of deception. For instance, some analysts might feel that a study would give better outcomes if human resources do not recognise they are carrying out an evaluation analysis, or if provided with fake or deceptive information.

This exercise is unethical. Employees would possibly become irritated with the senior management and thus destroy confidence, which is hard to reinstate. Options to deception must be taken into account.

The value of Human Resource Development (HRD) can be articulated in accordance with costs and benefits by measuring Return on Investment (ROI) through incorporation of interdisciplinary endeavors with HRD actualities and distinctiveness. The ROI assessment for HRD is not merely an accounting subject.

The gain of HRD intervention could embrace a value different from monetary, for instance, improvement of customer relations that cannot be expressed in terms of dollar value (Wang, 2000, pp. 23-30). Monetary returns for HRD intervention can be computed in dollar values and include profits for the company.

Conclusion

From this research paper, it is clear that RACQ Insurance Company experiences a weighty issue in effective operation. The senior management team of the company is in the forefront when dealing with disruptions and the challenges that hinder effective operations (Klumpes, 2002, pp. 237-256).

Aspects that lead to this issue include failure to take note of positioning the clients at the core of operations, the need for the company to manage capital and risk, and integration of sustainability aspects in its key processes and functions.

RACQ must join hands with the government to better its operations, not just to boost the confidence and loyalty of customers in the company, but also to develop fiscal literacy.

The senior management of RACQ has a critical role to play in dealing with its effectiveness issue. The evaluation of the key issues in RACQ helps to determine how well the company deals with the setbacks of its success.

References

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Bianchi, T., Ebner, G., Korherr, R., & Ubl, E. (2011). The Austrian Insurance Industry in CESEE: Risks and Opportunities from a Financial Stability Point of View. Web.

Carmona, J. (2012). Players brace for the Storm Surge. Caribbean Business, 40(30), 12-16.

Connelly, L., Paolucci, F., Butler, J., & Collins, P. (2010). Risk equalisation and voluntary health insurance markets: The case of Australia. Health Policy, 98(1), 3-14.

Delpachitra, S. (2008). Activity-based costing and process benchmarking: An application to general insurance. Benchmarking: An International Journal, 15(2), 137-147.

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Kalamaras, M., Rando, A., & Pitchford, D. (2006). Driving plastered: who does it, is it safe and what to tell patients. ANZ Journal of Surgery, 76(6), 439-441.

Keneley, M., & McDonald, T. (2007). The Nature and Development of the General Insurance Industry in Australia. Australian Economic History Review, 47(3), 278-299.

Klumpes, P. (2002). Incentives Facing Life Insurance Firms to Report Actuarial Earnings: Evidence from Australia and the UK. Journal of Accounting, Auditing & Finance. Summer, 17(3), 237-256.

O’Brien, A. (2004). Collision course. Money, (14446219)7, 48-50.

Peterson, P., & Roberts, F. (2011). Financial Guarantee Insurance and Failures in Risk Management. Journal of Insurance Regulation, 30(1), 29-76.

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Swanson, S., Hume, A., Hutcheon, W., & Scott, R. (2012). Direct Insurance: Would You Like Fries With That? Journal of the Australian & New Zealand Institute of Insurance & Finance, 35(1), 18-22.

Turner, M., & Guilding, C. (2011). An investigation of the motivation of hotel owners and operators to engage in earnings management. Qualitative Research in Accounting & Management, 8(4), 89-94.

Wang, G. (2000). Training economics: An alternative approach to measuring ROI for HRD programs. Dallas, American Society for Training and Development.

Wilkins, M. (2010). The Need for a Multi-Level Approach to Climate Change—An Australian Insurance Perspective. Geneva Papers on Risk & Insurance – Issues & Practice, 35(2), 336-348.

Executive summary

The main purpose of this report is to relay its two parts. Part one contains financial performance analysis of Aviva Life Insurance Company for the financial years 2006 and 2007. The analysis was conducted using financial ratios.

The following are the applied ratios in the analysis: current ratio, quick ratio, interest cover ratio, capital gearing ratio, gross profit margin, return on capital employed, asset turnover, dividend yield, dividend cover and earnings per share.

The second part of the report contains a detailed discussion on determinants of sources of finance that include cost, risk, flexibility and control. A large company like Aviva Life Insurance has various reasons for obtaining funds; some of the reasons are discussed in this part.

The report has given a discussion of both internal and external sources of funds. Some of the internal sources are ordinary and preference share.

The external sources discussed are debt finance, Bills of exchange, Lease finance and debenture finance. Lastly, is the proposal of which source of finance is suitable for the company, with a complete rationale.

Introduction

This report’s main objective is to relay to you analysis of Aviva Life Insurance Company. The company is a public limited type that has its shares traded in the stock market (it is listed).

The analysis is done in two parts and the first part consists of a two-year (2006 and 2007) financial performance of the company from investors’ point of view.

The following ratios have been used in the analysis: dividend yield, dividend cover, earnings per share, current ratios, quick ratio, gross profit margin, operating profit margin, return on capital employed and capital gearing. This part of the report also includes non-financial information of the company under consideration.

Part two of the report consists of a comprehensive analysis of different sources of capital and a proposal of the best source to select considering variables involved.

Company’s profile (non-financial information)

The company is based in the U.K. It was created after a merger between Commercial Union and General Accident, which took place in the year 2000. In the same year, the company’s name was CGNU but, later on in July 2002, through shareholders’ decision, its name was changed to Aviva Plc.

In its move to expand, the company executed a strategy that involved £1.1 billion acquisition plan; the company acquired was RAC plc.

Aviva Life Insurance Company through its foreign market entry strategy acquired AmerUS Group, a Company based in the U.S. Aviva Life Insurance Company is dealing with insurance products such as life insurance scheme, Pension schemes, investment management, funds management and General insurance.

It has a global market coverage which it attained by establishing its subsidiaries. Some of the countries in which it has its subsidiaries are Poland, U.S.A., China and Canada (Eckett 2005, p. 215).

Financial analysis

Financial analysis is a process-conducted by financial managers of identifying the financial performances of a company by comparing the items in profit and loss account and those in balance sheet.

This is so because the items in the profit and loss account emanate from those in the balances sheet (Shim and Siegel 2007, p. 213) For example, the values of assets found in the balance sheet are responsible for sales, revenues and expenses to be found in the profit and loss account.

The process involves activities like comparison of sales levels for different financial periods. The process also involves conducting ratio analysis, for example, quick ratio analysis, to say the least.

The information is important to various stakeholders including, shareholders, lenders, the government, suppliers and the company’s management team. Shareholders or actual owners are interested in a company’s both long and short-term life.

For this reason, they are interested in ratios such as profitability ratios (which seek to establish the viability of a company) and dividend ratios (which seeks to establish returns to owners in form of dividends (Wilson and Machugh 1987, p. 177).

Creditors of a company are interested in a company’s ability to meet its short-term obligations as and when they fall due. They will need like liquidity ratio (which seeks to measure a company’s liquidity position) and current ratio (which measures a company’s quantity of current assets against current liabilities.

Long-term lenders to a company have both long and short-term interest in a company’s ability to pay both interest and principal amount of debt as and when they fall due.

They therefore use liquidity ratios (to assess short-term ability to meet current obligations), profitability ratios (to ascertain whether a company can pay its principle), gearing ratio (to gauge a company’s risk in an investment) and investment coverage ratio (to ascertain the company’s safety as regards the payment of interest to the lenders) (Johnston 1992, p. 229).

Directors and management of a company are interested in its efficiency to generate profits, the company’s viability from the investor’s point of view, the company’s ability to generate sufficient returns to investors and gearing ratio to gauge the safety and risk associated with the company.

Potential investors of a company are interested in a company’s both long and short-term ability to generate acceptable return on their money. The government is interested in a company’s profitability levels in order to ascertain the levels of tax liabilities.

A company’s competitors are interested in its performance as reflected by the market share and will use ratios that portray the company’s competitive strength, like sales on return ratios. Customers are interested in the company’s ability to provide goods and services both in long and short-term (Gill and Chatton 2001, p. 222).

Financial analysis is important because it measures the company’s past performance and change in performance, whether to favourable or unfavourable side.

Such comparison is then used to interpret the company’s performance, bearing in mind the factors that influence both the present and past performances. Financial analyses are also important because they indicate the average performance of various companies in a given industry (Kwok 2008, p. 275).

Financial ratios

Dividend yield (1.99% in 2007, 1.83% in 2006)

Dividend yield shows the percentage dividend returns to investors. The company’s shareholder dividend yield increased by 0.16. The increment is linked to increase in the dividend per share.

An increase in the market price per share could also cause the increase. An increase in dividend yield is a strong point of attraction for prospective investors. Therefore, the higher the dividend yield, the more attractive a company is in the eyes of invertors (Shim and Siegel 2007, pp. 273).

Dividend cover (2.69 in 2007 and 2.39 in 2006)

Dividend cover shows the number of times dividend could be paid out of available profits of a company. The ratios show an increase in the dividend cover by 0.3 in the financial year 2007.

This increase could be due to the increase in the profitability levels of the company. Aviva Company seems to have had a high operational efficiency that resulted in the increase in profit (Wilson and Machugh 1987, p. 277).

Earnings per share (0.71 in 2006 and 0.74 in 2007)

EPS shows the returns on each share held by shareholders. Aviva Life Insurance Company records an increase in EPS by 0.03.

The increase is attributed to increase in net profit. In the investors’ view, a company experiencing increase in EPS is more attractive than that which has stable or decreasing EPS (Wilson and Machugh 1987, p. 278).

Asset turnover (1.21 in 2006 and 1.32 in 2007)

Asset turnover of a company indicates a level of utilization of assets to generate revenue. Aviva Life Insurance Company records an increase of 0.11 in the utilization rate of its assets, between the two financial years. The increase led to an increase in earnings before interest and tax.

Return on capital employed (13.83 in 2006 and 14.04 in 2007)

ROCE indicates the return investors earn from every £ they invest in a company. Aviva Life Insurance Company records an increase in its ROCE by 0.21. The increase is attributed to the increase in earnings before interest and tax (EBIT).

It should be noted that ROCE is a function of assets turnover, financial leverage and profit margin. Therefore, financial leverage and asset turnover are the prime factors behind Aviva’s profitability levels.

If the company’s ROCE levels continue in the same trend, then it will definitely be capable of paying back its loan principle plus interest as and when they mature (Wilson and Machugh 1987, p. 280).

Gross profit margin (18.92 in 2006 and 19.31 in 2007)

GPM indicates a Company’s ability to control its cost of sales. It also refers to the profit earned by the company from every £ of its sales. Aviva Insurance records an increase in its GPM due to increase in revenue. A company can partially manage its cost of sales. Therefore, its influence in the value of GPM is insignificant.

Gearing ratio (15.32 in both periods)

Gearing ratio indicates the portion of total capital that is comprised of fixed charge debt and share capital. Aviva Company records stable 15.32%. This ratio means that only 15.32% of the total capital of the company is contributed by share capital and the remaining 84.68% are sourced through borrowing.

This analysis indicates a heavy reliance on debt as a source of capital by the company. It should be noted that a highly leveraged company faces high risk. This is because debt repayment process should continue regardless of prevailing economic condition.

Therefore, if a company’s levels of cash flow are not sufficient for loan repayment, then the company could face bankruptcy charges.

Interest coverage (12.98 in 2006 and 13.22 in 2007)

Interest coverage ratio shows the number of times a company is able to pay its fixed charges with earnings before interest and tax before they become exhausted. Aviva Insurance Company’s interest coverage ratio increased by 0.24 times, from 12.98 times to 13.22 times. The increase is attributed to increase in EBIT.

Current ratio (2.02 in 2006 and 2.54 in 2007)

Current ratio indicates the number of times a company can pay its current liabilities with its current assets before they get exhausted. It also shows how capable a company is of paying its short-term obligation as and when they fall due.

Aviva Company has recorded an increase in its current ratio by 0.52 from 2.02 times in 2006 to 2.54 times in 2007. This increase could be because of increase in the company’s accounts receivables and decrease in payables.

The company is in the industry that deals majorly with service provision, therefore, inventory levels is the least influence to the value of current asset (Wilson and Machugh 1987, p. 285)

Analysis of sources of capital

Determinants of sources of finance

According to Shah (1995, p. 123), there are numerous sources of funds including equity capital, debt finance, bills of exchange, lease finance, overdraft sources, debenture finance, venture capital and retained earnings, ordinary share and preference share.

Some of the factors that determine the choice of a source of finance are risk, cost of the source, control and flexibility.

Cost

Every source of finance has some cost attributable to it. For example, in comparing the cost attributed to equity source of finance and debt source, the tax allowable characteristic of debt finance renders it less costly as compared to equity source.

Therefore, for the companies that seek to minimize the cost of borrowing funds, debt finance is the way to go (Shah 1995, p. 124).

Risk

Every company that is operational stands a chance of encountering some elements of risk. For example, debt source of finance is so risky because, during tough financial times, a company could default to serve the loan interest and thus risks being rendered bankrupt (Mahagaonkar 2009, p. 153).

Control

Control of the management and decision making in a company are affected by the levels of debt finance of a company. Shareholders who are determined to maintain the control over the company should use debt finance to a limited level.

Flexibility

In the current highly dynamic financial market, organizations should adopt a dynamic financial structure to facilitate a flexible financial performance. During financial deficiencies, companies need funds to meet operational needs.

A highly leveraged company is highly inflexible and faces difficulties in generating funds. As a result, for flexibility, a company should limit its use of debt finance (Magoon 2008, p. 204).

Areas of interest when considering a loan application

Every organization that seeks for a loan has an investment project. Loan applications are made by entities with deficit finances, to entities with surplus finances. Lending institutions can be commercial banks, hedge funds, Federal Reserve institution, World Bank and International Monetary fund.

The lending process begins with an application made by the borrower to the lender. The lending institution, upon receiving the application, conducts an approval process to ascertain qualification of the borrower for loan consideration (Seabrooke 2006, p. 115).

The main areas of concern are credit assessment, business assessment and capacity to pay.

During credit assessment, the lending institution will be interested in determining whether the borrowing entity has guarantors and if yes, whether the guarantors meet credit eligibility requirements, the current debt level of both the borrower and the guarantor and what use have the past-borrowed funds been put.

A guarantor is the party to loan contract who will be responsible for the full payment of loan amount in the event of failure on the part of the borrower (Pogson 1969, p. 98). This information is important to provide an assurance to the lender that the lent amount will be recovered according to the terms of the contract.

The business assessment process involves ascertaining the feasibility of a project, whether the borrower is the manager of the project and whether the terms of the loan suit the purpose for which it is sought. This process helps the lender to avoid making investments in impractical projects.

It also has connection with the assurance of recovering the lent amount. During ability to pay assessment, the lending institutions are interested in ascertaining whether the borrower will be able to pay back the loan by evaluating his personal and business financial information.

The lending institution would be looking for the financial status and credit history of the lender. The lender is very much interested in the historical payment trend of the borrower because that signifies expected future payment behaviour.

A borrower with credit history characterized with continuous default in loan payment has a very slim chance of qualifying for a loan consideration.

In other words, a borrower with a good credit history has a good chance of loan approval, whereas, a borrower with bad credit history stands a slim chance of loan approval (Pogson 1969, p. 99). The lending organization would also be looking at the capacity of the borrower to repay the loan.

The projected cash flow statement of the project will reflect the same. Another important area that should be given more weight is collateral. An asset (fixed asset) serves as a secondary security to the loan. In case of default in loan repayment, the lender would recover the amount by liquidating the assets.

The lender will also conduct an evaluation of whether the project to be funded meets all the applicable Federal, state and local planning, environmental and programming requirements.

Following loan evaluation is the approval or rejection. If the loan is approved, the parties sign the agreement document and the contract becomes legally binding. The last process is the disbursement of the amount requested to the borrower according to the arrangements (Seabrooke 2006, p. 144).

Purpose of obtaining finance for large companies

According to Seabrooke (2006, pp. 233), operational activities of a business need funds to facilitate the processes.

Large Companies like Aviva Life Insurance Ltd would therefore obtain finances for the following reasons: to finance working capital, growth, expansion of businesses, obtaining of assets, seeking for an alternative source of finance and t acquisition of equity.

Businesses borrow to finance working capital, companies like Aviva Life Insurance should borrow funds and invest in inventories and other working capital before revenues are due to be collected from customers.

This works this way, the company borrows funds and uses them to buy inventories that are then converted into cash. The cash is, therefore, used to pay for the cost of purchasing the inventories.

Companies can also borrow funds to manage the levels of growth. Return on equity analysis can be done on the company to ascertain the levels of the company growth without obtaining more external funding.

When the company‘s growth rate is higher than it can manage, it needs to borrow from an external source to finance the growth. This is true because when a business is increasing its market coverage or opening up new subsidiaries in different locations, it will need substantial amount of funds (Pogson 1969, p. 178).

These funds may not be available from the internal sources like retained earnings, and thus should be sought from the external sources and used to finance the growth activities of a company.

If a company cannot easily obtain funds from either internal or external source, it should control its growth activities to manageable levels. Unfortunately, if a company’s growth levels are not managed, the resultant could be major business fallout.

Expansion of a business is another issue that requires an external source of finance. A part from seeking for external funds to finance a company’s growth activities, it can be to finance a sudden company’s expansion. Aviva Life Insurance Company would plan to make a quick expansion through acquisition processes.

The process needs a substantial amount of money that would not be available internally. This kind of investment decision is considered to increase the value of the acquiring firm (Pogson 1969, p. 134).

Pogson (1969, pp. 299) asserts that a company could also borrow to finance acquisition of an asset or an equipment to facilitate its activities. Although, there is another way of possessing equipment – through leasing, though some companies do not prefer this process because it lowers a company’s credit rating.

Companies have indefinite life span. Shareholders, on the other hand, can change their shareholding positions in various companies. If a major shareholder in a company quits by withdrawing the ownership, then the company could resort to borrowing in order to finance the amount by which the remaining equity is deficient.

Internal sources of finance

For small companies, this is personal savings (contribution of owners to the company). For large companies, equity finance is made of ordinary share capital and reserves (both revenue and capital reserves). Equity finance is divided into the following classes:

Ordinary share capital

This is raised from the public through the sale of ordinary shares to the shareholders. This source of finance is available to limited companies. It is a permanent source of finance, as the owner/shareholder cannot recall this money except under liquidation.

It is thus, a base on which other finances are raised. Ordinary share capital carries a variable return (ordinary dividends). These shares carry voting rights and can influence the company’s decision-making process during Annual General Meeting (Gowthorpe 2005, p. 123).

Reasons why ordinary share capital is attractive despite being risky

• Shares are used as securities for loans (a compromise of the market price of a share).
• Its value grows
• They are transferable at capital gains
• They influence the company’s decisions
• Carry variable returns – is good under high profit
• It is a Perpetual investment – thus a perpetual return
• Such shares are used as guarantees for credibility

Advantages of ordinary share capital

• They facilitate projects especially long-term projects because they are permanent.
• Its cost is not a legal obligation.
• It lowers gearing level – reduces chances of receivership/liquidation.
• Used with flexibility – without preconditions.
• Such finances boost the company’s credibility and credit rating.
• Owners contribute valuable ideas to the company’s operations (during AGM by professionals).

Preference Share Capital (Quasi-Equity)

It is also called quasi-equity because it combines features of equity and those of debt. It is preference because it is preferred to ordinary share capital that is:

1. It is paid dividends first – preferred to dividend
2. It is paid asset proceeds first – preferred to assets.

Unlike ordinary share capital, it has a fixed return. It carries no voting rights. It is an unsecured finance and it increases the company’s gearing ratio (Gowthorpe 2005, p. 125).

External sources of finance

Debt Finance

Debt finance is a fixed return source of finance as the cost (interest) is fixed on the par value (face value of debt). It is ideal to use if there is a strong equity base.

It is raised from external sources to qualifying companies and is available in limited quantities. It is limited to value of security and liquidity situation in a given country.

Advantages of Using Debt Finance

• Interest on debt is a tax allowable expense and, as such, it is reduced by the tax allowance.
• The cost of debt is fixed regardless of profits made and, as such, under conditions of high profits, the cost of debt will be lower.
• It does not call for a lot of formalities to raise and, as such, its ideal for urgent ventures.
• It is usually self-sustaining in that the asset acquired is used to pay for its cost, i.e. leaving the company with the value of the asset.
• In case of long-term debt, amount of loan declines with time and repayments reduce its burden to the borrower.
• Debt finance does not influence the company’s decision since lenders do not participate at the AGM.

Disadvantages

• It is a conditional finance, i.e. it is not invested without the approval of lender.
• Debt finance, if used in excess, may interrupt the companies’ decision making process when gearing level is high, creditors will demand a say in the company, i.e. and demand representation in the BOD.
• It is dangerous to use in a recession and, as such, a condition may force the company into receivership through lack of funds to service the loan.
• It calls for securities that are highly negotiable or marketable, thus, limiting its availability.
• It is only available for specific ventures and, for a short term, which reduces its investment in strategic ventures.
• The use of debt finance may lower the value of a share if used excessively. It increases financial risk and requires a rate of return by shareholders, thus, reduces the value of shares (Gowthorpe 2005, p. 123).

Bills of Exchange

Bills of Exchange are a source of finance in particular in the export trade. A bill of exchange is an unconditional order in writing addressed by one person to another requiring the person to whom it is addressed to pay to him/her as the order a specific sum of money.

The commonest types of bills of exchange used in financing are accommodation bills of exchange (Gowthorpe 2005, p. 123).

Lease Finance

Leasing is a contract between one party called lessor (owner of asset) and another called lessee where the lessee is given the right to use the asset (without legal ownership) and undertakes to pay the lessor periodic lease rental charges due to generation of economic benefits from use of the assets.

Leases can be short term (operating leases) in which case the lessor incurs the operating and maintenance costs of the assets or long-term (finance leases) in which the lessee maintains and insure the assets (Gowthorpe 2005, p. 126).

Debenture Finance

A form of long-term debt raised after a company sells debenture certificates to the holder and raises finance in return.

The term debenture has its origin from ‘DEBOE’ which means ‘I owe’ and is a certificate or document that evidences debt of long-term nature whereby the person named therein will be given the issuing company the amount usually less than the total par value of the debenture.

These debentures have maturity period of between 10 and 15 years but may be endorsed, negotiated, discounted or given as securities for loans. In this case, they are liquidated before maturity date.

The current interest rate is payable twice a year and it is a legal obligation (Gowthorpe 2005, p. 127).

A proposal for source of finance

Based on the company’s financial analysis, it would be appropriate if the required additional finance (10%) were sourced through issuance of initial public offerings (IPO).

The company’s leverage level is already high, thus, an additional financing from any other source that legally obligates the company to meet fixed charges would be a cause of financial strain to the company. The company’s cash flows are high enough to facilitate payment of loan within the right time.

However, to avoid any financial risk associated with borrowing more debt, IPO is the safest direction. Retained earnings are also a good source of finance but the only problem with the method is that it would negatively affect dividend decisions of the company.

That is, instead of paying dividends to the shareholders, the earnings would be reinvested. Unstable dividend decisions send a message of poor performance to the potential investors. As a result, sends off potential investors (Gowthorpe 2005, p. 125).

Debt finance is another source. Though it is not advisable because Aviva Life Insurance Company already has high gearing levels and therefore, additional debt is riskier. During tough financial conditions, the company could be forced into liquidation if lenders file a bankruptcy case.

Debt financing is said to render a company inflexible, that is, a company becomes unable to meet short-term obligations. This method of finance also lowers the value of shares of a company if used in excess (Gowthorpe 2005, p. 123).

Conclusion

Ratio analyses are investor-tools used to assess the performance of a company. They provide the investors with a company’s overview from different financial perspectives. Financial information provides a basis for decision making, for instance, decision on appropriate sources of finance to a company.

Potential lenders heavily rely on these analyses to make informed decision concerning loan applications. The company (Aviva Insurance) is suggested to raise its funds through IPO because the method facilitates long-term operation of projects and enhances the company’s flexibility.

Other sources of finance present the company with constraints that are advantageous. Therefore, in regards to factors revolving around the company’s operation, issuing of shares is the safest way to raise the required amount of capital.

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