Question

Discuss the use of both cash flow forecasts and financial budgets to aid decision-making within an insurance company

Answer 1

Use of Cash Flow Forecats in Decision Making within and Insurcance Company:- An Insurance Company should always keep liquid cash to satisfy the calims of their policyholder as and when arises. Cash Flow Forecast act like a key for insurance company to forecast the liquidity of the business for the number of upcoming years.

The Forecast will help the business to identify how much cash will be left over with an average past claim settlement rate and in case if for any of the years business is getting short of cash, Cash Flow Forecast will help them in giving early indicator for the same and give time to arrange for the shortfall of the cash.

Use of Financial Budget in Decision Making within and Insurcance Company :- An Insurance Business is a risk insurer business and Insurance Business should always aware of it maximum risk taking capacity. It should asses of how much more risk can be taken by selling the policy to new policy holder. And not only risk assesment, Financial Budget help the company also to plan for any further investment or expansion of the business.

It gives an base for the insurance company to know how much budget of cost can is available with them to spends. And also at the end they can compare the actual number with the budget to access there favourable and adverse variances.