The collapse of HIH Insurance, one of Australia's largest insurance companies, in 2001 raised significant ethical issues that have been widely debated and analyzed in the years since.
One major ethical issue surrounding the collapse of HIH was the company's failure to properly manage risk. Insurance companies rely on accurately assessing and managing risk in order to remain financially stable and able to pay out claims to policyholders. However, HIH took on too much risk and made poor investment decisions, which ultimately led to the company's financial ruin. This lack of risk management not only had serious consequences for HIH's shareholders and employees, but also for its policyholders, who were left in a difficult situation when the company was unable to pay out their claims.
Another ethical issue was the lack of transparency and accountability within the company. HIH's management team was found to have engaged in questionable business practices, including providing false and misleading information to the company's board of directors and auditors. This lack of transparency and accountability contributed to the company's downfall and raised serious questions about the ethical culture within the organization.
In addition, the collapse of HIH had a ripple effect on the Australian insurance industry as a whole, raising concerns about the adequacy of regulation and oversight in the sector. The government and regulatory bodies were criticized for not taking stronger action to prevent the collapse of HIH, leading to calls for increased regulatory oversight and stricter penalties for companies that engage in unethical behavior.
Overall, the collapse of HIH serves as a cautionary tale about the importance of ethical behavior in business. It highlights the need for companies to properly manage risk, maintain transparency and accountability, and adhere to ethical standards in order to protect the interests of all stakeholders, including shareholders, employees, policyholders, and the broader community.
Sample Essay on Collapse of HIH Insurance
FASB and IASB are two bodies that have been working in unison since 2002 to enhance and integrate U. That is, forecast the paid losses where the asterisks are located. Linbarger Case Analysis The multifaceted accounting design that the Linbarger Company faces is that it can't have the capacity to comply with the guarantees they made to the insurance agency. Each year the company will find that its forecast of current liabilities C is inadequate, just as mentioned in the HIH Winterthur Memorandum 1998. It is my professional judgment that the volumes of actuarial judgment applied by both actuaries is very much at odds with the risk characteristics of the business.
. There were many companies, governments, communities, and sporting clubs that suddenly found themselves in a bizarre situation, without insurance. The paper " auditing Practices, Professionalism, Ethics, And Standards" critically discusses the contemporary auditing practice and its flaws with particular focus to the professional ethics regarding auditor independence and a critique of the relevant standards. . Consider the risk year 1980.
The Corporate Code of Ethics at Home, Far Away and in Between. Companies should endeavor to apply ethics and be accountable while addressing their clients. This halted the operations of a rail society because they failed to afford the revised insurance. After the subsequent investigations, the HIH directors, associates and senior managers were sent to the custodial sentences because of their culprit activities. Moreover, some legislation was updated and additional clauses were introduced to prevent the occurrence of auditing problems. Current Issues in Auditing, 10 1 , 1-10. So the company is massively under-reserved for that line.
No extra time, effort or money would be required to determine the cause both the why and how of the collapse. Technical section Let us study a long tail liability line that is evaluated at the end of 1983 and was first written for the 12 months calendar year 1980. Having most of non-executive directors has been common for the audit committee in recent times, enabling the committee to handle matters with a fair mode and non-conflicts of interest Mirshekary et al. See the section: A scenario leading to a cash crunch towards the end of the article. The unsettled shareholders had tried to push the management to raise more capital when they realized that the company was heading for insolvency. HIH acknowledged its own under-reserving in words not just numbers in the HIH Winterthur Memorandum 1998 offering shares to the public. How many consumers expect their insurance agents to falsify their applications or claims? Integrated Risk Assessment: Case Study of Lithuanian Family Farms.
This was the largest failure in Australian business history. Due to the ineffective policies and standards in the auditing process as indicated in the collapse of HIH insurance, reforms were instituted. Reasons, Circumstances, Responsibilities Cont. It would have been difficult to do much better in the days of the slide rule, when the standard actuarial non-statistical reserving methods were invented, but much more can be done nowadays given the advent of fast computers and new statistical risk assessment modelling techniques. The consequence of this situation was that the management executives and the Board of Directors did not have a clear idea of the true financial position of the company. Cambridge: Cambridge University Press.
Each year we add another diagonal calendar year. . This was the shocking revelation and was considered as the largest corporate failure in Australian History. Insurance companies are generally believed to use low-risk management model. Evidence from a corporate governance reform in India. Ethical Issue Stolen Property This ethical issue is that Robert Premium Ethics Ethical Issue Ethics What is the meaning of ethics? Justice Owen found no evidence that the board of HIH considered budget performance in their meetings, or even that the information was regularly given to the board. With real data there would also be random variation about the trends in the three directions.
The industry as a whole was large, inefficient and highly fragmented. In relation, the presence of independent auditors with the firm's former members was found beneficial in protecting their sensitive information. Tales of the Collapse of HIH. It is too late. The UK, in particular, is currently experiencing an escalating crisis over Employers Liability cover. In an attempt to restore the industry to health, the Australian government announced a review5 and followed through on its recommendations for drastic reductions to company exposure to public liability claims.
. The company has incurred the considerable damage claims. Clearly unable to perform its role reliably, Gen+ was singled out for mention in the final report of the HIH Royal Commission The HIH Royal Commission, 2003. According to the case study Mr. International Handbook of White-Collar and Corporate Crime. The client's point of view: It was seen as involving the HIH insurance limited, particularly Mr. Neither is credible in my opinion.
By the end of 1983 the company has 46 in cash of which 36 is in reserve. Employing empirical evidence, and simple analytical tools, we describe how a collapse in progress can be identified and show that HIH had been marching inexorably in the past 15 to 20 years towards its ultimate fateful day of ruin, just like many other companies around the world, for essentially the same reasons. Often the provision or the outstanding claim liability is the largest item in the balance sheet. . .
It also expanded globally into the US and UK markets. Impact on Insurance Market Pricing The collapse of the HIH Group caused a large premium increased in a few insurance covers, especially in public liability insurance and professional indemnity. See also excerpt taken from Insurance Day above regarding massive under-reserving in US. Melbourne: Oxford University Press. Sometimes the push to act unethically comes from the consumer. Consider now, say, the last diagonal with values 10, 20, 14 and 10. The process was time consuming and the information made it very difficult to make comparisons, as there were variations between companies and products in terms of costs, service, etc.
