Building Blocks of Insurance

Insurance is a highly competitive industry that includes many different lines of business. Automotive, homeowners, life, disability, and health insurance are just a few of the numerous types of insurance that are provided to customers. Each of these types of insurance can be broken into several pieces. Marketing, actuarial, claims and underwriting are all different pieces that make up the whole. Insurance companies include many different departments, an extremely diverse group of personnel, and a wide variety services. Insurance companies even need to purchase insurance themselves in some cases. All of these things must be coordinated to build and maintain business partnerships in a profitable, yet customer-friendly way. With so many unique types of insurances and support activities, the industry includes business management decisions of all types. Insurance companies require management competence in the areas of accounting, financial analysis, marketing management, strategic management, and international business.

Insurance companies generally have several different lines of business. This can create a very complicated and in-depth set of accounting requirements, which would be a good fit for the Accounting for Managers core class. The companies must assign costs effectively to different units of the business, and must be very aware of cash flows, income, and relevant balance sheet ratios. The actuarial work of insurance companies would also be an excellent topic for the Accounting for Managers core class. Actuarial science is the discipline that applies mathematical and statistical methods to assess risk. The part of the actuary is to determine the probability of certain situations in order to predict possible future loss. This part of insurance would likely be very interesting to students, as many of the methods and calculations used to determine insurance rates are much different than people may expect. In this Accounting for Managers core class, the student learning outcomes are for the student to be able to assess and utilize financial information and financial statements in order to make business decisions. In Actuarial Science, all of the information that is either being used or being determined, is based on data from previous years. In the case of business insurance, this information is based on Financial Statements and outcomes from previous years. The goal of Actuarial Science, in the context of insurance, is for charged premiums to exceed the predicted financial loss. Managers need to be able to verify and interpret previous years’ information using financial statements in order to manage premiums, losses, and risks from years prior.

Excess insurance, or insurance that is applied when losses have exceeded a predetermined amount, is a good topic to use for the core class of Financial Analysis and Application. Excess insurance is generally purchased by an insurance company to provide