1.

Centralization vs Decentralization

Describe a decision that is centralized (or decentralized) in your company. How could you
decentralize (or centralize) the decision? What could happen if it were decentralized (or
centralized)?

- In an insurance company, like the one that I am currently associated with, most of the
decisions are only made by the top management. One specific decision that is
centralized is the formulation and screening of a specific category of covered life
insurance, whether it could be beneficial to the current status of the stock market
regardless of whether the stocks are high or low. One problem of this is the
dissemination process of the pieces of information that are made by the top
management which are always late and sometimes irrelevant to the current situation of
the specific region or branch of the company. This centralization could be decentralized
if there would be a specific branch or regional manager that would foresee the current
situation and needs of the company in that specific region or branch. With this
decentralization, the plans and decisions would be more precise and updated in which
the current region or branch needed. With this, the company would more productive and
reliable.

2. Moral Hazard
Describe a moral hazard problem your company is facing. What is the source of asymmetric
information? Who is the less-informed party? Are there any wealth-creating transactions not
consummated as a result of the asymmetric information? If so, could you consummate them?

- The moral hazards in an insurance company like insular life are that the company worries
its policyholders that by offering payouts and cash assistance to protect them against
losses, accidents, and illnesses and they may actually encourage risk-talking to the
policyholders and this often forces the insurance company to pay out more claims and
cash assistance. The promised amount of claims and cash assistance would be followed
according to the contract, but when the unfortunate event occurs to a policyholder and in
that time of claim, the stock market is low, the claim or the cash assistance that the
policyholder would also be low, and this is also stated in the contract which was signed
by the policyholder. The source of this asymmetric information would be seen in the
contract which the policyholder would sign, but apparently, due to the required extensive
time for the policyholder to read all the statements in the contract, the policyholder would
tend to sign it immediately even before reading and understanding all of the things that
are written in the contract. The transaction is between the client and the company is
already consummated on the time when the client or policyholder would sign the required
documents and started paying for his or her chosen contract or policy from the insurance
company, it would be paid monthly, quarterly or annually.