A Study On Financial Management Merchanism Of Life Insurance Company

The establishment of socialist market economy, with deepening of financial reform and opening-up, has boosted the rapid development of insurance industry, and the life insurance industry in particular. Along with the further integration of economy and finance, profound changes are taking place in the business environment of the life insurance industry. It has become an increasingly urgent strategic task to improve internal management level and to strengthen the core competitiveness in the market so as to satisfy the needs of new situation. For financial management-the core of life insurance companies’ management, whether its operation pattern can fit into the company strategies or not will directly determine the core competitiveness of the company.Currently, the financial management of our life insurance industry has been exposed to a constantly changing and increasingly strict internal and external business environment. In respect of external business environment, variations of China’s insurance regulatory system, in terms of supervisory scope, focus and pattern, demand adaptive adjustment and reform to financial management. From region to region, the capital market and investors’ stringent requirement on financial information disclosure has proposed a more and more severe challenge to the financial work of insurance companies. With regard to internal business management, it will be a significant issue for the future financial management work on how to integrate corporate strategies, organizational goals and achievement management, how to strengthen the refinement management of products, clients and channels, the way to optimize financial resource allocations and risk control levels, how to improve decision making support in the management domain, and to adapt to life insurance companies’ needs on business mode and tendency of integration and scaling-up. However, the current financial management situation in our life insurance companies cannot apt effectively for the needs of the new business environment and company strategies, which can be reflected in many aspects:there is disharmony existing in the organizational system and functional framework; the finance office is struggling hard to cope with increasingly demanding requirements of the capital market and investors on financial information disclosure; the control and analysis system of internal financial management is too simplified and extensive; the basic financial system construction lags behind the management requirements, etc. To Rise to the challenges confronting financial management, to narrow the gap with the world top insurance companies, and to meet the needs of companies’ development and accomplishment of strategic goals, an effective financial management mode should be put as the first priority for our life insurance companies.By choosing financial management of our life insurance companies as the topic and taking financial management work as an important sub-system of the life insurance companies’ profit-making models, this dissertation, based on system theory, constructs its study logic, the defined framework of which covers:financial strategic goals, that is, the goal and foothold of financial management model; financial factors and their combinations, the most critical for which are financial organizational pattern and information system formed on people, goods and information; ways of connections among the factors and system operation mechanism, mainly reflected by activities and work contents due to certain relationship between different factors, factors and systems, financial system and other operation sub-systems, namely financial information disclosure system, financial budget management system and financial performance evaluation system.Following the above mentioned framework and study ideas, the article, by drawing existed achievements and experiences for reference, through applying system theory, cybernetics and comparison analysis in the study, from the standpoint of organization, control and system, proposes the framework of financial management model for life insurance companies. And through a systematic analysis of the specific contents,5 sub-systems of financial management model with the structure of "2+3" for life insurance companies are brought forward based on specific situations of China: including two basic systems that are financial management system and information system, plus three operating systems named information disclosure system, budget management system and performance evaluation system. Furthermore, the detailed contents, operating procedures, and directions of development for each system are also explored.Studying from the perspective of organization, the paper concludes that innovations of organization structures can give off tremendous energy. Therefore, with the study of financial accounting structure as the starting point for financial management model research, it suggests that financial accounting structure consists with three components:functional divisions of accounting labor, authority and responsibility allocation, and accounting personnel framework. Combinations in different ways may form distinct financial accounting structures.As for accounting functional divisions, the dissertation analyzes accounting function evolvement and background from simple accounting and supervision to an all-round control of accounting. It suggests that financial management functions of modern enterprises have expanded to all procedures through the company operation cycles and decision making process. It’s inevitable for the accounting management work to expand from simple financial accounting to management control with comprehensive budget management as the core, and to management control with operation costing as the highest stage. Financial management work of our life insurance companies should not be taken only as a reporting and supervision-based control system, but instead a comprehensive financial management and control system with information, management, decision making and risk control included should be set up, and an all-round accounting functional system covering statutory accounting, financial management, management accounting and budget accounting should be established. The paper, based on labor divisions, has constructed an internal labor division framework of financial accounting system for life insurance companies.Regarding authority and liability allocation of accounting organizations, the article puts emphasis on two issues:the first one is about distributions of financial rights among owners, operators and the outside interest groups, which in terms of financial accounting organization, refers to making decisions on who shall set up the financial accounting system, who are responsible to and who are to be reported to. Meanwhile, a good analysis of authority and liability characteristics under different types of accounting organizations has been made. The second issue refers to distribution of financial rights among all management levels of the company, namely centralization and decentralization. The paper analyzes the correlative factors such as benefits, costs, performance and environment involved in restricting centralization and decentralization, in addition to characteristics of accounting organizations under centralization and decentralization mode. On that basis, cost functions of centralization and decentralization on account of information and agency-cost relationship are designed.With regard to personnel framework of accounting organizations, the paper explicates that, with the progress of technology, repetitive elementary labor will have more and more scale effect and high efficiency in the financial work of life insurance companies; whereas professional management work is becoming increasingly refined and more closely integrated with the business units. In light of the latest development and practical application of modularity theory, the article proposes that the personnel framework of our life insurance companies should be directed towards both internal and external specialization, and should optimize financial accounting organizations according to finance shared service pattern, choose shared service center or outsourcing mode, carry out centralized and specialized management of financial check and accounting, embrace scale effect, change financial accounting organizations from being cost-oriented to profit-focused, and improve operation efficiency as well as financial management effect.From the perspective of control, the article, based on requirements of modern enterprise regulations on control, by conducting a study from external and internal control, considers that for life insurance companies, external control mainly comes from supervision institutions, investors form capital market and middle-small sized share holders, etc. When reflecting on operation procedures, it refers to companies’ information disclosure to supervision institutions and capital market. While internal control is mainly represented by bureaucratic control between the board of directors and the management, the management and functional department, functional department and staff, headquarters and the branches. In terms of operation procedures, it means internal management. About the work emphasis of these two issues related to financial management, the article has made a detailed analysis and suggestions on the direction of development and improvement:One is to meet external needs on financial information, including provisions of GAAP (generally accepted accounting principles) and supervisory accounting principles. From the standpoint of investors, a system is needed to fairly reflect the accounting and information disclosure of business circumstances of enterprises, wherein variances exist between the principles at home and abroad. While from the perspective of supervisors and the insured, there should be a cautious accounting and disclosure principles about liquidity of enterprises. All these external requests demand a three-dimensional expansion from multiple levels and a comprehensive reflection of business status on financial management work of life insurance companies. After a comparison analysis between characteristics and development tendencies of GCCP and supervisory accounting principles, this paper proposes that life insurance companies should set up a balanced accounting treatment system which can ensure that the information need of various interest groups including supervisors, investors, insurants, all levels of management and staff, etc can be satisfied.The other is to meet the internal need for financial management, mainly by means of budget management and performance evaluation to realize optimal configuration of enterprise resources and win support for management decision making. Starting from company strategies, the paper analyzes the role that financial budgeting and performance evaluation have played in the enterprise value chain. By using game theory, it makes an analysis of negotiating among the relevant interest groups during the budgeting goal determination and break-down process; meanwhile, a comprehensive balanced budget preparation model and the specific operation method and procedures have been put forward. The paper considers that financial performance evaluation includes analysis of monitoring index and financial accounting indicators; meanwhile, it proposes strategic mapping, department index matrix method and index value decomposition to set up a financial analyzing and monitoring index system for life insurance companies. In view of quality requirement on choosing budget evaluation indexes, the paper brings forward the basic pattern and general method of choosing financial evaluation index for life insurance companies, which mainly includes performance index, profit indicators, business quality indicators and output index. An index system which suits the actual business characteristics of our life insurance companies has been initially formed. As to budgeting assessment, the paper can be divided into three levels. One is performance evaluation index, of which, the evaluation is the most convincing one as it’s directly connected with economic and political interests of the examined. Thereby, it’s also called the administrative index among the financial policies and which is considered as one of the most important bases in the company incentive systems. Another one is distribution policy of expenses and capital expenditures, which applies economic means to induct companies’ business development. For the managed that are rational, this policy works very well. The third is window instruction or provisional policy guidance, which are usually made temporarily on account of special situation or event and applied incidentally by the headquarters to regulate and control the subordinate branches by using administrative and economic resources.From the angel of information system, it’s regarded that sophisticated financial management system and operation model can not leave from the corresponding financial information system and to some degree, the development of information technology may lead to the promotion of financial management level. In light of the latest development tendency of the current information technology, the article proposes to eliminate isolated information island and to establish a financial information system closely integrated with business systems according to ERP system, and conducts a specific research on function positioning of the sub-systems under the financial information system, including financial accounting, management accounting, capital and budget management; meanwhile, it has pointed out the path selection of financial information system for our life insurance companies from accounting checking type to an intelligent system.Despite that the financial management model of life insurance companies can be generally ascertained, financial management work itself has strong characteristics of subordination and dynamics. Financial management model is more of an adaptive system, which has to be analyzed through three-dimensional angels of efficiency, effect and covering area. For life insurance companies at different stages, it’s necessary to make adjustable plans when establishing a proper financial management system, which means there should be both acceptance and rejections on the specific content.Innovations or theoretical values of this paper are mainly reflected through the following:Firstly, in terms of study perspectives and logic, the paper, for the first time, probes into financial management model of our life insurance companies from the perspective of system theory. It considers that financial management mode has to be set up based on elements organizing mode and activity conducting rules. Besides, two basic systems including organization system and information system, in addition to three controlling and analyzing systems, namely information disclosure, budget management and performance evaluation are brought forward to establish a comprehensive financial management framework.Secondly, On the detailed choice making of financial management model, by connecting with the development tendencies of theories and practices, some new directions are put forward to life insurance companies for reference, mainly including the following:financial management organization of life insurance companies should reconstruct with the concept of shared services; balanced accounting treatment mechanism should be introduced to information disclosure system; in respect of budget management, a comprehensive budget preparation model with sales as the starting point is suggested; and lastly, a proper index system which suits the practical business characteristics of our life insurance companies should be designed with all efforts.In spite that the article has sketched the framework of financial management in our life insurance companies and expounded each sub-system in depth, in consideration that financial management of our life insurance companies is a systematic, sophisticated and constantly changing system, and subject to the author’s knowledge limitation in the relevant field, knowledge structure and abilities, etc, there is still a lot of financial management related content unmentioned, such as risk control issue, capital management model and more. Some of the issues in this study are relatively not in great depth. For example, the paper mainly adopts normal research method but no corresponding experiment testing models are established. Some of the arguments are not accurate for one hundred percent, which are needed to be probed into with more depth. In future, the writer, as always, will still keep eyes on theories and practices about this issue.