FINANCIAL MANAGEMENT IN THE ACTIVITY OF INSURANCE

Scope of Financial Management 

• Planning

• Budgeting

• Managing and assessing risk

• Procedures

PLANNING: is the process of making plans for something. For example, Financial manager projects plan how much money the company will need in order to maintain positive cash flow, allocate funds to grow and share the information with business colleagues.

BUDGETING: is to provide a particular amount of money from a budget. E.g, the financial manager allocates the company’s available funds to meet costs, such as rents, salaries, raw materials and obligations.

MANAGING AND ASSESSING RISK: is the process of identifying, assessing and controlling threats to an organization’s capital and earnings.

Financial managers assess and provide compensating controls for a variety of risks, including:

• Market Risk

• Credit Risk

• Liquidity Risk

• Operational Risk

PROCEDURES: is an official way of do something or the actions of conducting a certain manner. Financial manager sets procedures as way the financial team will process and distribute financial data, like invoices payments and reports, with security and accuracy.

Objectives of Financial Management 

• Maximizing profits 

• Tracking liquidity and cash flow

• Ensuring compliance

• Developing financial scenarios

• Manage relationships 

MAXIMIZING PROFITS

Maximizing profits is a process business firms undergo to ensure the best output and price levels are achieved in order to maximize its returns.

But it can be a bad thing to a client, profit maximizing is a good thing. for example, labor are used or if the business decided to raise the prices for executing projects, all in pursuit of profit maximization.

ADVANTAGE OF PROFIT MAXIMIZATION

• Measurement standard: in the absence of profits, the business loses its the key goal and incurs a direct risk to its survival. Profits are the right measurement of the viability of a business model.

• Economic survival: profit is vital for the survival of any business.

• Social and economic welfare: resource allocation and payments for land, labor, capital and organization lends itself to social and economic welfare. In a business, profits demonstrate proficient use and allotment of resources.

DISADVANTAGES OF PROFIT MAXIMIZATION 

• Attention not paid to risk: higher risk directly questions the survival of a business. In the pursuit of profit, when you ignore risks is involved, which may prove unaffordable at times.

• Profit definition is unclear: profit can be gross profit, net profit, before tax profit or the profit rate. Different perceptions of the term exist among organization and individuals.

• Time value of money is ignored: the formula is based on the idea that the higher the price, the better the proposal, but what about its timing? In finance, when considering present value, we know that cash now won’t have the same in the future.

TRACKING LIQUIDITY AND CASH FLOW

In general, liquidity is the ability of a company to meet its current liabilities using its current assets. Cash flow refers to the cash that flows into and out of a company.

LIQUIDITY

Liquidity: is the assets of an organization that is easy to convert to cash with the loss of little to no value. A savings account is the type of liquid assets. 

Liquidity is the amount the cash an organization has to cover its immediate and short term obligations. 

Long term obligation is one that has a time frame greater than 12 months. Short term obligations that have frame 12 months or less.

CASH FLOW

Cash Flow: is base upon, the operating activities of the business. The cash at the beginning of the accounting period is called the opening balance. Also, the cash at the end of the accounting period is called the closing balance. Some of this ways a company can increase cash flow include selling more goods or services, reducing costs and collecting faster on accounts receivables.

ENSURING COMPLIANCE

Ensuring compliance is a key priority for most businesses. This could involve keeping on top of health and safety requirements, making sure your business operates within the bounds of environment permits, or just ensuring that internal procedures to maintain efficiency and quality are allowed.

Ensuring compliance keep up the state, federal and industry specific regulations.

Five Step To Ensure Compliance With Policies And Procedures In Your Organization

• Recognize and reward: it’s not always easy, when adhering company policies and procedures  especially if it places additional admin on top of an already challenging workload. This can mean that even as performance overall improves, some teams or individuals can lag behind. If compliance monitoring shows that one team is performing well whilst another is below standard, it can be tempting to resort to the stick (particularly after the tenth reminder). However, positive reinforcements is often far more successful, and rewarding the strong performers can be powerful way of encouraging stragglers to up their game. Successful team has put in, reinforcing the benefits to them and increasing the chances that they’ll maintain their new behaviours. 

• Provide effective documentation: corporate policies and procedures are too often hidden in huge, densely worded documents. It’s legal responsibilities by providing health and safety while your business will cover everything for you and other compliance documents as part of an employee, handbook, in reality this can end up forgotten. Even your most dedicated team members are unlikely to refer back to their induction paperwork on a regular basis! It’s good practice to provide formal documentation up front so employees have a clear understanding of what’s expected of them. However, it’s also important to make your policies and procedures visible at the point where they should be implemented. Reminders, your business can make help when you have a right point and followed the checklist and appropriate procedures to the letter signage.

• Monitor effective: a long way to make sure your policies and procedures are followed, there will unfortunately always be some points that just don’t stick. At this point, a stronger approach could be necessary, and that means monitoring key compliance points and following up if they’re not adhered to. At a simple level, employees sign to confirm an activity logs or checklists where effective activity has been completed. Alternatively, it might be possible to automate reporting in some areas to save time and provide ongoing compliance data. While monitoring can be effective, it’s also important to use it only where necessary. Too much control and surveillance can affect employee engagement and performance, particularly if it’s seen as overkill. Monitoring everything could also lead to an “if everything’s top priority, nothing is “scenario, so it’s important to choose your battles carefully.

• Clearly explain the benefits: often, what seem like minor admin points to your team can be of vital importance to your company’s regulatory compliance. For example, monitoring the temperature of a tap is unlikely to be considered high priority by a team member with a long to do list. However, skipping this task could have serious repercussions for your company if it leads to non compliance with legionella legislation. Providing regular training and refreshers to your team on what your policies and procedures are there for is vital. It’s a great way to ensure your employees understand why they’re being asked to follow these rules, and can help keep their importance front of mind. This is particularly truth for policies that might seem “nit-picky” without the right context, and which are therefore at a high risk of being forgotten.

• Ensure your policies are practical: if politics and procedures aren’t followed consistently, it’s important to understand the reason why. While it’s easy to attribute poor record keeping or missed monitoring checks to laziness, it’s also possible that your procedures could be at fault. Consult with teams to understand their working practices, and how compliance procedures fit in with their day to day operations. If a policy is a pain to implement, for example, if it takes too long, or if it interrupts their activity flow too much, this reduces the likelihood that it will be followed. Integrating compliance requirements as seamlessly as possible into your existing processes will make them much easier to follow and increase compliance without the need for constant intervention.

DEVELOPING FINANCIAL SCENARIOS

These are based on the business current state and forecasts that assume a wide range of outcomes based on possible market conditions.

MANAGE RELATIONSHIPS 

Relationships management is the process in which companies foster positive relationships with their customers. To do this relationship managers collect and analyze customer data to find trends and issues that could be useful for improving client communication. A good client relationship manager needs a fair amount of emotional intelligence, interpersonal skills, negotiation skills, and a strong aptitude for analytics to be successful.

What are the words related to Financial Management 

• Banking

• Accounts

• Business

• Commerce

• Economic

• Financial affairs

• Investment

• Money

• BANKING: is an industry that handles cash, credit, and other financial transactions for individual customers and businesses alike. It provides liquidity needed for families and businesses to invest in the future, and is one of the key drivers of the US economy.

• ACCOUNTS: is a statement of transactions during a fiscal period showing the resulting balance. It also a record of debit or credit entries to cover transactions involving a particular items as cash or notes receivable.

• BUSINESS: is an enterprising entity engaged in commercial, industrial, or professional activities. Business can be refers to the efforts and activities undertaken by individuals to produce and sell goods and services for profit. It can be for profit entities or non profit or organization fulfilling a charitable mission or furthering a cause.

• Here are four types of Business:

1. Limited liability company (LLCs)
2. Corporations
3. Partnerships 
4. Sole proprietorships

• COMMERCE: is an exchange of goods or the value of buying and selling things, or services between two or more entities.

• ECONOMICS: be defined as the way to learn of scarcity and its implications for the use of resources, and production of welfare over time and it growth the production of goods and services and a great variety of other complex issues of vital concern to society.

• FINANCIAL AFFAIRS: is the policies related to accounting, budgeting, purchasing, travel, and other business and financial functions 

• INVESTMENT: is an asset acquired or invested in to build wealth and save money from the hard earned income or appreciation.

• MONEY: is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context 

What is Financial Management?

Financial Management is professional plans, organize and control all transactions in a business. Financial management is practice of handling a company’s finances in a way that allows it to be successful and compliant with regulations.

Types of  Financial Management

The functions above grouped into three boarder types of financial management:

• Capital budgeting

• Capital structure

• Working capital management