The insurance industry business model can be categorized into two main business types, service domain and support domain. The activities of the service domain constitute the value chain of the enterprise and the support domain provides the infrastructure and support necessary to support the value chain. Support activities may include general services, finance, human resources, or information systems and technology.
A value stream provides a working model for an organization. It constitutes the service domain, the technology domain and the organizational domain and models the different functions that an organization must perform to deliver. It is through the act of defining these areas that roles and responsibilities are defined and organizational structure emerges. A value chain describes the company’s product offering from start to finish. A value chain is a chain of activities that a business operating in a specific industry performs in order to deliver something of value (product or service). A business unit is an appropriate level for building a value chain, not a divisional or corporate level. Products pass through the activities of a chain in order, and with each activity the product acquires some value. The chain of activities gives the product more added value than some of the independent activities.
The following seven core activities describe the insurance industry value chain as an end-to-end process:
Stage 1 of the value chain: marketing:
Marketing plays a vital role in the insurance industry. This is the first step in the value chain process for insurers. At this point, a company should determine what policies it will offer. It is used to increase sales and maintain market positions for large companies and small companies to grow and expand their business. Regardless of size, marketing tactics and strategies are developed by all industry players to target consumers and prospects to cover their insurance needs for home, health, life and business coverage. .
Value Chain Step 2: Risk Modeling:
As part of marketing, a business needs to determine the policy mix and pricing strategy. To determine how premiums will be calculated for each policy, the company must also perform risk modeling. Risk management is very important for the insurance industry. Insurance means that insurance companies take on the risks of customers. Insurers consider all available quantifiable factors to develop high and low insurance risk profiles. The level of risk determines the insurance premiums. As a general rule, insurance policies involving factors with a higher risk of loss are charged at a higher rate. With plenty of information at their fingertips, insurers can assess the risk of insurance policies with much higher accuracy. For this purpose, insurers collect a large amount of information about policyholders and insured objects. Statistical methods and tools based on data mining techniques can be used to analyze or determine the risk levels of insurance policies.
Insurance products are priced, or rated, according to a complicated algorithm that matches risk characteristics to the possibility of a claim. Pricing adequacy ultimately plays a critical role in achieving an underwriting profit. Using the information gathered from the risk modelling, the company can then determine the actual prices for each policy.
Value Chain Stage 3: Sales:
Once the marketing and risk modeling have been completed, the player in the insurance sector is now in a position to start selling its insurance policies to its customers. Previously, most insurance buyers worked exclusively with insurance agents to determine and meet their insurance needs. The agent was the main source of information, education and advice. However, today’s buyers are demanding more choice and insurance companies are trying more varied sales strategies to reach a much wider base of potential customers. Insurers are experimenting with orchestrating a combination of various distribution channels – including the internet, call centers, social media and/or agents – to meet changing market needs. Selling involves quotes, proposals, risk assessments and commission calculations. Commissions are paid to all parties involved in the distribution channel.
Value Chain Stage 4: Policy Administration:
After selling a font, the next step is to write the font. Most life insurance providers use policy administration systems to manage their applications, policy changes, birthday processing, and other business-critical functions. This step involves keeping full records and providing support for all policy lifecycle transactions – from policy issues, billing, collections and policy processing to claims.
A typical insurance company produces millions of printed insurance policies each year. These policies are created using technology, with clerks and support staff responsible for the accuracy and timely delivery of documents. An army of staff oversees the assembly, printing and mailing of each policy, as well as the filing or archiving of all documents for future reference.
Value chain step 5: invoicing:
Every policy issued and every insurance company sells is a financial transaction that must be recorded, tracked and supported. Billing Services generates invoices, accepts payments and coordinates monthly payment plans for each policy. The billing department is also responsible for providing customer support on all billing-related matters. Customers may be billed once their policies are written.
Value Chain Stage 6: Claims:
Customers who have paid their premiums may at some point make a claim. Effective claims management is essential to the success of large and small businesses working in the insurance industry. Major components of the claims handling process include developing strategies to reduce costs and fraud while keeping customers satisfied. The company’s complaints department and/or the intermediary (if applicable) must be made accessible to the claimant. If an intermediary is a first point of contact for claimants, complaints should be sent to the company’s complaints department in a timely manner. The insurance company contacts the policyholder or sends an acknowledgment upon receipt of the claim. This activity is optional, however, as customers may never make a claim. Once a complaint has been filed and, if applicable, after the receipt of any additional documents necessary to process the complaint, complaints must be informed of the acceptance or denial of the complaint within a reasonable period of time after the receipt of notification. .
The insurance company contacts any other company involved in the claim within a reasonable time and resolves intercompany disputes as soon as possible. The insurance company endeavors to settle the claim as soon as possible and notifies the policyholder in writing of the reasons for any delay. Rapid settlement of claims as well as quality and timely information provided to the insured are essential competitive characteristics for insurance companies. After agreement between the company and the insured on the amount of compensation, payment is made within a reasonable time.
Value Chain Stage 7: Customer Service:
The customer service business consists of meeting the needs of customers until their policies expire. Customer service is clearly very important to winning new customers and retaining existing customers. Customer service has traditionally fallen into one of three broad categories; consulting services, information services or transactional services. Each category focuses on achieving specific goals or results and is usually associated with a service channel through which the services are delivered. Advisory services are the most interactive category and generally focus on longer-term relationships, ensuring clients’ needs are met with appropriate insurance products or services. These services are a critical component of long-term value as customers’ insurance needs change over time.
Information services provide accurate and timely information in response to customer requests. Examples include address or payment status inquiries, complaints or contract status, and financial and rating information. Transactional services are specific requests that initiate or trigger actions or changes and tend to take the form of significant policy changes, administrative changes, or operational changes. Examples include first notice of loss, adding a vehicle or coverage to an existing policy, coverage, address changes, and requests for ID cards and forms.
How money is made in insurance business:
The main sources of income for insurance companies are earned premiums and investment income. Expenses are incurred losses/claims and underwriting and other expenses. Earned premiums, a source of revenue, are the total of all premium payments received by an insurer for the current period of coverage. Premiums are not considered “earned” until the period of insurance they cover has ended. Investment income is the residual income generated as a result of investing premiums in the capital markets. Investment income also includes annuities and income from assets.
The incurred loss is the sum of all claims paid, adjusted for the change in claims reserve and related claims expenses for the same accounting period. Underwriting charges include all costs associated with a policy, including commissions and the share of administrative, general and other expenses attributable to underwriting. Along with other expenses, the profit of the insurance company is calculated by subtracting from the total income.
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Creation Date Thursday, December 20, 2012 Views 30028