Introduction
Internal control is a process that is put in place by the organization’s authority and structure which is supposed to be flowed to help the organization accomplish the set goals. Internal control helps improve or manage the organization’s risk and capital requirement. This results in better management skills and strategic decision-making of the company (Birkett, 1999, p. 123). The increased various products of both financial and non-financial and the increasing scandals arise the need to enhance standard controls all that is active in the capital market our greatest inters is in insurance and other financial institutions. This paper’s objective presents the importance and role of internal controls system in the management of risk and the use of the various insurance products.
The internal control system in place with insurance and portfolio approaches
In an insurance company the internal controls can be divided into three parts which are:-internal control for administrators’ operations, this mostly deals with the safeguarding companies’ fund, segregation of functions within the workflow, and review of company internal control within the company (Bebear, 2002p. 45),. The second part involves safeguarding funds of self-funded plans those not pre-empted from the state insurance regulation. And the third internal control deals with safeguarding funds of fully insured plans. (Fabozzi and Modigliani, 1996p.203). The most commonly used control is the generally accepted risk principle (GARP). Where it regulates the trading activities in major financial institutions. It mostly concentrates on the risk management objective and policies for the business to deliver an overall business strategy which is to be implemented through supporting controls and procedures. In the insurance sector, there are various risks that are experienced such as marketing risk, operation risk other than the financial risk. Relevant controls should be installed to ensure that the company undertakes the relevant measures to avoid the organization being affected by the following risk (Bebear, 2002p. 27).
Internal audit control is another important internal control that helps in assessing the various risks, they will also ensure the policies and procedures are consistent with regulatory practices and with those of the industry. With the use of audit control, the auditor assesses the corrective measures to ensure to enhance the organization complies with the programs that address the regulatory risk (Fabozzi and Modigliani, 1996, p.234). With the relevant insurance policies, it helps reduce the various types of risks since quality strategies are used even at an economic town turn.
Explain why current approaches are valid but why an internal system will be more beneficial
The relevant installation of internal control helps greatly or acts positively towards the company performance. Some of the major contributions of internal control are:-Internal planning, with there installed internal controls the insurance company will be in a position to plan. This is through using the right strategies and policies in the organization and with the identified risks will be in a position to plan in a way that it will be in a position to deal with the risk in the process of the organization operation. Increased investment, the major goal of the insurance company is kept in operation through people’s investment (Bebear, 2002p. 43). With the relevant internal controls the company will be performing well hence the public will feel safe when investing with the company hence increased investment. Reduction of risk with the relevant procedure various risks are identified that help deal with the various risks such as operational risk and financial risks. With the relevant procedure risks will be avoided and if encountered the insurance company will be in a position to deal with it. Hence there is increased certainty in its performances.
Conclusion
Internal control helps improve or manage the organization’s risk and capital requirement. It is not only specific to certain types of organization but it applies to all and like in our case the insurance company. With the relevant internal controls the proper planning, reduced risks, and increased investment will be realized. This results in better management skills and strategic decision making of the company
Reference list
Bebear, C., (2002),”Remarks On Development of Global Regulation For Financial Services Industries And Impact On Insurance’, Geneva Papers On Risk And Insurance: Issues And Practices, Vol28, (1).
Birkett, W. P., (1999)Competency Framework for Internal Auditing (CFIA). Altamonte Springs, FL: The Institute of Internal Auditors Research Foundation.
Fabozzi, F.J., and Modigliani, F.,(1996), Capital markers: Institutions and investment,2nd ed, Englewood Cliff, NJ: Prentice Hall.