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Conflict of an Insurance Broker

In: Business and Management

Submitted By dora8968
Words 811
Pages 4
In the case “Conflict of an Insurance Broker”, whether or not A&A presents the Reliable bid to the museum constitutes a potential conflict of interest. As the insurance broker, A&A should be professional to obtain the best insurance coverage for the museum’s needs; more precisely, the market indicates that the value of the needed policy is around $100,000; therefore, A&A should remove Reliable insurance company whose annual premiums quoted was $60,000 from the proposed list, and then present the other four comparable insurance companies with annual premium that ranged between $90,000 and $110,000 to the museum. From the museum’s standpoint, however, the tight operating budget forces the museum to be extremely frugal in its spending and always choose the lowest bid for any service without regard for quality, A&A should meet the requirement of the museum to present the lowest bid so as to save money, Reliable to the museum. Specifically, the potential conflict of interest here is the biased judgment. In general, not only are professionals are paid for using specialized knowledge to make judgments for the benefit of others but also part of the value of their services lies in the confidence that can be placed in a professional’s judgment. Hence, The insurance broker, A&A, does not merely meet the museum’s requirement to save money, but also have the responsibility to conduct in accordance with the code of ethic and propose the most suitable prices to maintain the museum’s needs.
What’s wrong with such a conflict? There are two possibilities, First, If the museum is served by continuing with Haverford, which is financially sound and provide the reliable coverage at reasonable prices, A&A will be given a 17 percent commission by Haverford and the museum will get the reliable coverage, as well. By the look of it, it is a win-win situation. This 17 percent contingency payment, however, is generally not disclosed to the museum, and A&A will receive a higher commission and a large contingency payment. Regardless of museum’s behalf, for example, if A&A present the only four solicited proposals to the museum due to the high financial stake in the outcome, this is morally wrong. Second, if A&A present the Reliable bid to the museum, the stake will be high. Because Reliable is a financially shaky insurance company that may probably raise the premium in the future years. If so, A&A will bring the blame of museum for not making suitable evaluation. Furthermore, Allowing the museum to accept a low-ball bid, not a reliable bid, might also jeopardize A&A’s relation with the reputable insurers who submitted honest proposals in good faith.
The conflict usually occurs in the course of being a professional, Roughly, for A&A, to be professional is to make a professional judgment without any biases. The role of broker is to provide the best and reliable advice for the clients but not decide for them. Therefore, there are two possible approaches for A&A to manage this conflict.
One is to disclose all the five bids, including Reliable so that the museum will be unaffected by the conflict. The greater transparency, the less opportunity there is for conflict of interest to occur. The museum can make its own decision among these alternatives. For advising not to accept Reliable bid, A&A will not be responsible for the wrong decision made by the museum if relations with Reliable are not successful. Even if the museum choose the high premium given by the other four comparable companies that result in bankruptcy, The museum cannot blame it to A&A because A&A is not responsible for the museum’s operation.
The second approach is to form a standing advisory board to consider the proposals. This independent third-party can avoid an insider, such as executives or a director, who has the close relationships with the insurance companies involved. The advice made by this board is objective without being biased by any interests. Therefore, this advice can be relied on to make the best decision. If the museum distrusts the advice due to the high premium, A&A can give evidence that this advice is made by a third-party regardless the incentives. What’s more, A&A also can present the adequate reasons why not choose the lowest bid but the higher one. By maintaining a better understanding of this advice, the museum may have more trusts on it.
In a word, the advice made by A&A should not be influenced by the conflict of interest. What A&A should focus on is to decide what is best for the museum without any biases and professional to do it.

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