Line Of Business: Definition And Examples

Line Of Business Definition And Examples

Line of Business (LOB) is a common term that usually refers to products or services which are offered by a business or manufacturer for a particular customer transaction or business need. In the insurance industry Line of Business also has a regulatory and accounting definition to meet a statutory set of insurance policies. Sometimes Line of Business is also considered as the internal corporate business unit. On many occasions, a Line of Business examines its position within an industry using an industry-analysis method or other relevant industry information.

LOB can apply to any industry but it is very common in the banking and insurance sector. Generally, the Line of Business is divided by product type, customer size, customer needs, channel, and brand. Some common examples of a line of business are consumer banking, small business banking, casualty insurance, reinsurance, wealth management, retail brokerage, etc.      

Examples Of Line Of Business

1. Consumer Banking

2. Small Business Banking

3. Mergers & Acquisitions

4. Property & Casualty Insurance

5. Reinsurance

6. Retail Brokerage

7. Wealth Management

8. Large Accounts

Consumer Banking

Consumer banking is also known as personal banking or retail banking. Consumer banking includes banking products for individuals like credit cards, loans, mortgages, and bank accounts. This type of banking provides services to consumers as individuals, not businesses. It’s a common way for people to manage their money, have access to credit, and deposit their money in a secure manner. Consumer banking has different types depending on the sizes and the most common two types are Commercial Banks, and Credit Unions and Cooperatives. As of December 2019, the top five largest U.S. commercial banks by assets were:

1. JPMorgan

2. Bank of America

3. Wells Fargo

4. Citibank

5. U.S. Bank

Small Business Banking

Small business banking provides funding for small and medium-sized enterprises. Moreover, it represents a major function of the general business finance market. Usually, this type of banking supplies monetary support for different types of firms. There are many reasons small business banking is very important; for example –

1. Small business requires a checking account that earns interest

2. Another essential feature for a small business banking account is mobile banking access

3. Small business banking creates efficiency and makes accounting much simpler

4. Treasury Management of small business banking provides a holistic perspective of all your business finances when using multiple vendors

5. Small business banking provides a business credit card which is very essential

6. A money market account is another great feature of small business banking 

Mergers & Acquisitions

A line of business offered by investment banks usually provides client advice in areas like legal structure, valuation, financing, capital structure, taxation, and other considerations. According to Investopedia

“Mergers and acquisitions (M&A) is a general term used to describe the consolidation of companies or assets through various types of financial transactions, including mergers, acquisitions, consolidations, tender offers, purchase of assets, and management acquisitions.”

The structures of mergers are:

1. Horizontal merger

2. Vertical merger

3. Congeneric mergers

4. Market-extension merger

5. Product-extension merger

5. Conglomeration

6. Purchase Mergers

7. Consolidation Mergers

Property & Casualty Insurance

This type of line of business provides insurance for individuals and businesses that include health, life, and property such as automobiles and homes. So basically, property insurance cover stuff that you or your company own, and casualty insurance includes liability coverage to help protect you if you’re found legally responsible for an accident. Some examples of property and casualty insurance are –

1. Homeowners Insurance

2. Car Insurance

3. Condo Insurance

4. Renters Insurance

5. Power Sports Insurance

6. Landlord Insurance  

However, property and casualty insurance does not include other types of insurance coverage such as life insurance, health insurance, and fire insurance.

Reinsurance

Reinsurance is a type of insurance that a company buys from another company to insulate itself from the risk of the event of a major claim. This type of line of business sells insurance to other insurance companies; in other word agreed to cover certain types of claims for a fee. Reinsurance is described as “insurance of insurance companies.” The main purpose of reinsurance is that no insurance company has too much exposure to a particularly large event or disaster. Some of the key benefits of reinsurance are –

1. Companies can share or transfer specific risks with other companies

2. Companies can have additional profit by purchasing insurance elsewhere for less than the premium the company collects from policyholders

3. Reinsurance lets the companies free up additional capitals which is a great help to capital management

4. It allows companies to accept new clients and avoid the need to raise additional capital

5. Companies can get expert advice from other insurance companies

Retail Brokerage

This type of line of business allows individual investors to buy securities such as stocks. In this type of brokerage, most clients are individuals. According to TheFreeDictionary

“While there are small retail houses for elite clients, most of these brokerages are large organizations with high overheads because they usually need larger client bases than other brokerages. Brokers at a retail house often earn high commissions, and their research departments produce investment recommendations for individual, as opposed to institutional, investors.”

Retail brokerages also sell additional securities and financial products such as mutual funds, limited partnerships, options, and real estate investment trusts.

Wealth Management

This type of Line of business provides banking services for high net worth individuals. Usually, wealth management is a money management and investment advisory service that provides solutions for affluent clients. The wealth management firms make money by charging fees for the various services they provide to their clients. Most of the wealth management clients are high net worth individuals and ultra-high net worth individuals. There are three types of wealth management firms –

1. Product Vendors

2. Customized Traders

3. Planner/Coaches  

Large Accounts

This type of line of business is responsible for sales and service to large customers. The customers might ask for customized service from the company. Most software companies provide this type of service and customized support. Here large accounts don’t mean the biggest accounts of a company. It refers to those accounts that have the most importance to your company rather than those with the largest size.

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