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IAI Actuarial Core Principles · Business Management · Communicating strategy; culture and structure in decision making; strategy case studies

Bharat General Insurance is organised into separate motor, health and property divisions, each with its own underwriting, claims and marketing staff. The board wants each division to respond quickly to its own market. Which disadvantage of this divisional structure should the board most expect?

The main expected disadvantage is duplication of functions and resources across divisions, since each division has its own underwriting, claims and marketing teams. Divisional structures usually improve market responsiveness, accountability and performance measurement, so the other options are not their typical weaknesses.

  1. ASlow response to changes in each product market
  2. BUnclear accountability for the profit of each product line
  3. CDuplication of functions and resources across divisionsCorrect
  4. DOver-specialisation in a single technical skill within one department
  5. Inability to measure divisional performance separately

Explanation

A divisional structure gives each unit its own copy of functions such as underwriting, claims and marketing, so resources are duplicated and economies of scale are lost. Its strengths are market focus, accountability and measurable performance, so the other options describe advantages or functional-structure issues.

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