Free Essay

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.

Similar Documents

Premium Essay

Mgt 445 Week 1 Personality and Communication in Negotiations

...work colleagues. His wife was a mortgage broker that was to assist us with the acquisition of our loan and the eventual purchase of our home. Throughout the process, however, we switched mortgage brokers due to a colleague of mine recommending a broker who turned out to be able to acquire a better rate. The other side of the negotiation included the real estate broker for the seller and the two men who owned the house that we would eventually buy. They were two young men (a contractor and a landscaper) who purchased the home several years earlier as an investment. The house had been on the market previously so they were ready to sell but were unable to do so at the price that they were looking for. The Negotiations Within the negotiations of buying the house, there were also negotiations among the parties that affected the communication and negotiation of actually making the purchase. The first was the fact that our real estate agent and our original mortgage broker were husband and wife, this conflict have certainly affected the attitude of our agent when we decided to go a different route with our mortgage broker. This potential conflict was easily resolved, however, due to the positive personality of our agent. He decided that he would remain as independent as possible to avoid conflicts of interest and remain professional. It did make for a little bit of an awkward situation when our new mortgage broker was communicating with our agent,......

Words: 1324 - Pages: 6

Free Essay

Mutual Funds

...by the FSDC Sub‐Committee in itsmeeting on March 4, 2011. 1.4 In this background, SEBI has developed a framework for regulation of investment advisorsthrough the SROroute. 2. Tackling Conflict ofInterestinDistribution of Financial Products 2.1 Itis axiomatic that any industry, in orderto achieve scale and high productivity, must be free of internal contradictions and conflicts of interest. Financialsector is no exception. The financial product distribution space is particularly fraught with these conflicts between the manufacturers of financial products like banks, mutual funds, and insurance companies, etc. and the distributors which sell these products who call themselves by various nameslike agents,financial advisors,financial planners, etc. 2.2 It is necessary to resolve or at least mitigate these conflicts, especially in the case of financial products because of their two peculiar characteristics. Firstly, the products arePage 2 of 11 intangible and conceptually more difficult to understand. Secondly, the pay‐offs are in a distant future and can be camouflaged by several factors externalto the product. Itisin this context that the distributors occupy a key role; all the more so considering the low levels offinancial literacy and awarenessin India. 2.3 Two major conflicts of interest in the financial product distribution space are the following: a. Dual role played by distributors as an agent of investors as well as of the manufacturers. This is due to......

Words: 3165 - Pages: 13

Premium Essay

Ethics in the Marketing of Medical Services

...outpost for the convenience of its patients, or when a physician group opens a walk-in clinic at the mall. But in the United States, the primary mechanisms of placement in health care are those tied to insurance coverage. Patients gain access to medical services through a number of distinct pathways dictated by the nature of their insurance coverage (4). The primary distinction here is between those who obtain their health care through private insurance and those who obtain it through government programs. There are subdivisions within each of these basic categories —and then there are the uninsured. This section gives a brief overview of the main distribution chan- nels for health care, drawn largely from the work of James Robinson (4); it then explores the two major kinds of ethics problems connected with marketing through these distribution channels. Among the insured, self-employed individuals and employees of small firms commonly seek health services through Blue Cross and Blue Shield (BCBS). To attract their wide variety of small customers, BCBS needs broad netWorks of physicians, health care institutions and allied health professionals, and substantial contacts with the insurance brokers through whom smaller insureds obtain their policies. BCBS also needs to supply brokers with marketing materials about the coverage they offer, and has to work with them to support existing contracts. Larger employers sometimes use BCBS, but more often they insure their employees......

Words: 5524 - Pages: 23

Premium Essay

Finance Homework

...from its owners and managers. The advantages are is has unlimited life and can continue after the death of the owners. It also has easy transferability of ownership interest through transfer and sale of shares of the company and limited liability. That is, the liability is limited by the funds invested. c. Companies can go public through use of an Initial Public Offering (IPO) where stock is sold to the public at large. The corporation can continue to grow after the offering by bank borrowing, issuing bonds/debt and or selling more shares of stock in the company. An Agency Problem is a result of a potential conflict of interest between the managers hired by the shareholders to run the company and the shareholders. That is, the managers are hired to promote the best interest of the company to maximize profitability. However, this may conflict with the manager’s personal goals. These problems are addressed by the corporate governance, a series of rules of conduct for the company and its employees, affiliates, clients etc. d. Management’s primary objective is “stockholder wealth maximization by maximizing the fundamental price of the firm’s common stock” 1.firms do have a responsibility to function ethically and honestly in society at large. this benefits the society as a whole and the firm specifically. 2. stock price maximization can be bad for the society if it is done dishonestly. in that case society pays the price for the......

Words: 1974 - Pages: 8

Premium Essay

Research Paper

...JAVEED REG # 71 ZARWA NOOR REG# 72 UNIVERSITY OF CENTRAL PUNJAB Stock Exchange General History of Stock Exchanges In 11th century people of France were concerned with managing and regulating debts of agriculture communities on behalf of the bank.They could be called the first broker in history Bourse come from the Latin “bursa” meaning a bag.In 13th century Bruges, the sign of a purse hung on front of the house where merchants meet latter in 13th century commodity traders gathered inside the house of a man called Van der Burse.And after that they institutionalized that house and became Bruges Bourse .The idea spread quickly in neighbor countries. The Dutch later started joint stock company, which let share holders invest in business ventures and get a share of their profits or losses.In 1602, the Dutch East Indian Company issued the first shares on the Amsterdam Stock Exchange.It was the first company to issue Stocks and bonds.In 1688, the trading of stocks began on a stock exchange in London. It was the first stock exchange in history. A stock exchange is a form of exchange which provides services for stock brokers and traders to buy or sell stocks, bonds, and other securities.Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments,and capital events including the payment of income and dividends.Securities traded on a stock exchange include stock issued by listed......

Words: 6099 - Pages: 25

Premium Essay

Risk Management

...Chapter 1 – Risk What is risk Something that could go wrong or go right Concept based on perspective dependent on personal opinion Underwriter- one who looks and rates policys on whether the insurance comp is going to offer insurance. Risk for underwriter: that’s what they ensure or underwrite * Risk Management Uncertainty concerning loss The difference between expected losses and actual losses Possibility of variation of outcomes from given situation Chance or possibility of a loss Loss exposures: any condition or situation that presents a possibility of loss. Examples picture of store Product liability Slippery floors Case application Michael is a college student majoring in marketing, he owns the following A high mileage 2003 ford that has a current market value of $2500 Retain exposure loss Liability law suit- driving negligent Liability insurance Clothes tv cell phone and other personal prop value at $10,000 Fire caught in kitchen Protection of things- loss reduction, property insuranace Disposable contact value at $200 for a six mo. Supply Disapearanve of contact lense Retain that loss Gets jumped Avoidance Types of risk Pure risk House damaged by fire One family Plant explosion River overflows Speculative risk Invester purchases 100 shares of stock Slot machines Diversified One family Plant explosion Non diversified Department of homeland security alerts a large group River overflows Home buyers are effected by interest rates Risk Management- process, takes......

Words: 508 - Pages: 3

Premium Essay

Foreclosure Crisis in Florida

...Foreclosure Crisis in Florida and Beyond: Suggested Conflict Resolution Framework For Resolving this Crisis American Dream (or) American Nightmare [pic] [pic] David W. Puckett Email: dpuckett@dvergence.com Skype: david.w.puckett Twitter: davepuckett@twitter.com Phone: 813.727.3583 Introduction Each day there are stories reported in the news about mortgage foreclosures, detailing the single biggest financial crisis to hit the nation that is creating a strangle-hold on our economy and preventing economic recovery. While the entire nation has been stunned, the crisis has disproportionately affected the states of Florida, Nevada, Arizona, California and Georgia; these states were hit with an unprecedented loss of value in residential real estate. According to the leading provider of real estate industry statistics, Realtytrac.com (2011), one in every 611 United States housing units had a foreclosure filing during the month of July 2011 and it appears that the foreclosure processing delays, combined with the smorgasbord of national and state-level foreclosure prevention efforts such as loan modifications, lender-borrower mediations and mortgage payment assistance for the unemployed may be allowing more distressed homeowners to stave off foreclosure.. A CNBC report said that the falloff in foreclosures is not based on a “robust recovery in the housing market but on short-term interventions and delays that will extend the current housing......

Words: 18463 - Pages: 74

Premium Essay

Is It Necessary to Separate Retail Banking from Investment Banking? Discuss Possible Advantages and Disadvantages of Such a Separation Using Academic Literature

...remain to be resolved. At the most basic level the questions are two. What caused the crisis? And in light of one’s answer to this first question, what should be done to minimize the risk of repetition if not of identical events then at least of something similar? To say that these questions remain to be satisfactorily answered is not the same as saying that there has been a shortage of attempts. Standard operating procedure starts by rounding up the usual suspects: unethical mortgage brokers, greedy bankers, naïve homeowners, and illinformed investors. Lists focusing less on individuals than mechanisms emphasize agency problems between brokers and banks, the originate-and-distribute model, excessive leverage and short-term funding, the perverse incentives created by executive compensation practices, conflicts of interest within the rating agencies, and permissive monetary policies. These long lists of causes lead to correspondingly long lists of reforms: regulate mortgage brokers, rating agencies, and executive compensation; force banks to keep a participation in any securities they originate; require banks to hold more capital; and revisit whether monetary policy should respond to credit booms and asset bubbles. This of course is only a very incomplete summary of a vast and rapidly-growing literature. The limitations of this standard operating procedure will be apparent. However successful it is at pinpointing the immediate causes of the crisis, it fails to......

Words: 4633 - Pages: 19

Premium Essay

Business Law- Agency

...as between him and his principal. A, being owner of a ship and cargo, authorizes B to procure an insurance for 4,000 rupees on the ship. B procures a policy for 4,000 rupees on the ship, and another for the like sum on the cargo. A is bound to pay the premium for the policy on the ship, but not the premium for the policy on the cargo. Where an agent does more than he is authorized to do and what he does beyond the scope of his authority cannot be separated from what is within it, the principal is not bound to recognize the transaction A, authorizes B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for one sum of 6,000 rupees. A may repudiate the whole transaction. The principal may be bound by unauthorized acts of the agent in two cases: 1. Where by the rule of estoppel the principal is precluded from denying the authority of the agent. 2. Where an agency has been terminated, but notice of termination has not been received by the other parties concerned Types of Agents According to the United States Business Law, there are nine types of agents: 1. General Agent: A general agent is authorized to carry out a broad range of transactions of every kind of business for the principal. The general agent may be the manager of a business or may have a more limited but nevertheless on-going role. For example, a purchasing agent or a life insurance agent authorized to sign up customers for the home office. In either case, the general agent has......

Words: 7209 - Pages: 29

Premium Essay

Bff5270

...may take action against you for infringement. BFF5270: Tutorial Questions Topic 1 – 1A: Introduction to Funds Management 1B: Chartered Financial Analyst (CFA) Ethics Submission due: 2.00pm on the day of the lecture in Teaching Week 2 Note: Tutorial questions are sourced from SPH-BKM = BFF5270: Funds Management, CFASPH = CFA Standards of Practice Handbook and other sources mentioned in the question itself. Students’ work that is copied from solutions or another student(s) or shared and submitted as your own constitutes cheating and/or plagiarism and will not earn any marks. Please be aware that BFF5270 teaching staff can use text-matching software such as Turnitin to check for plagiarism. 2    Question 1 Teachers Insurance and Annuity Association – College Retirement Equities Fund (TIAA– CREF) is a Fortune 100 financial services organisation in the US. It is the leading retirement provider for people who work in the academic, research, medical and cultural fields. TIAA–CREF serves 3.9 million active and retired employees participating at more than 15,000 institutions. Visit TIAA–CREF web site and provide a brief discussion on five basics of long-term investing in your own words. Question 2 (this work is left to students and submission of answers for this tutorial question is not required) Read SPH-BKM = (BFF5270: Funds Management), Chapter 4 (pp.40-44) and access the following web sites: 1) Australian Foundation Investment Company 2) Argo......

Words: 650 - Pages: 3

Premium Essay

Miss

...Case study in corporate collapse: HIH 1 Briefly describe the ‘HIH story’ On 15 March 2001 the HIH Insurance group required liquidation. Formal winding-up orders were made on 27 August 2001—the corporate equivalent of death. By then the deficiency of the group was estimated to be between $3.6 billion and $5.3 billion. The collapse of HIH is the largest corporate failure in Australia. That’s because HIH failed to see, remedy or report what it should be do, and even ignored and concealed the true state of HIH’s steadily deteriorating financial position. The collapse of HIH has reverberated throughout the community, with the following serious consequences: harming to individual, community distress, consequences for the public. 2 Who was affected by its collapse? Firstly, the collapse affects most individual who got benefits from HIH. For example, About 200 permanently disabled people no longer receive their regular payments from HIH. These people have joined other unsecured creditors and policyholders, and they all face a wait of up to 10 years before receiving what the liquidator has predicted will be a ‘very poor’ payment. Secondly, many local industries and organizations are involved by the collapse. For instance, some non-profit organizations have been forced to shut down businesses. A local theatre had to close its doors, with the loss of 70 jobs, because it did not receive sponsorship funds that had been promised by HIH. Thirdly, the collapse caused bad...

Words: 557 - Pages: 3

Premium Essay

Dodd Frank

...fiduciary standards on brokers, regulate short selling, restrict customer arbitration agreements, and engage in other extensive rulemaking. The Act prohibits any “manipulative short sale of any security” and authorizes the SEC to issue rules to enforce this provision.  Brokers must notify customers that they may not allow their securities to be used in connection with short sales, and brokers must disclose that they may receive compensation for lending their customers’ securities. Title IX of the Act includes various other important investor protections. Some areas of concern include the regulation of credit rating agencies, the asset-backed securitization process, corporate accountability and executive compensation, strengthening corporate governance, and municipal securities (Mulhern,125-133) (Gold, Gramlich, and Kerr p61-69). For the Regulation of derivatives, the Dodd Frank attempts to increase the transparency within swap derivatives. The new rules distinguish who can participate with how much and general reforms within the bookkeeping of trading have been captured under the newly imposed provisions. Swap dealers will be subject to capital and margin requirements to lower risk in the system. Dealers will be required to meet thick business conduct standards to lower risk and enhance market discipline. They will also be required to meet recordkeeping and reporting requirements in order for regulating agencies ease of oversight, facilitating greater insurance of prompt......

Words: 1288 - Pages: 6

Premium Essay

Bank and Finance

...Roles of financial system B. The competitive challenge for banks C. Leading Competitors with banks • Savings Associations • Credit Unions • Money Market Funds • Mutual Funds • Hedge Funds • Security Brokers and Dealers • Investment Banks • Finance Companies • Financial Holding Companies • Life and Property/Casualty Insurance Companies IV. Services Banks and Many of Their Closest Competitors Offer the Public A. Services Banks Have Offered for Centuries 1. Carrying Out Currency Exchanges 2. Discounting Commercial Notes and Making Business Loans 3. Offering Savings Deposits 4. Safekeeping of Valuables and Certification of Value 5. Supporting Government Activities with Credit 6. Offering Checking Accounts (Demand Deposits) 7. Offering Trust Services B. Services Banks and Many of Their Financial-Service Competitors Began Offering in the Past Cent ury 1. Granting Consumer Loans 2. Financial Advising 3. Managing Cash 4. Offering Equipment Leasing 5. Making Venture Capital Loans 6. Selling Insurance Policies 7. Selling and Managing Retirement Plans C. Dealing in Securities: Offering Security Brokerage and Investment Banking Services 1. Offering Security Underwriting ......

Words: 3341 - Pages: 14

Premium Essay

Business Ethics

...SUBJECT BUSINESS ETHICS PROFESSOR CYRUS GONDA TOPIC UNETHICAL PRACTISE IN FOLLOWING SECTORS: HOSPITAL GROSSERY HOTEL INFORMATION TECHNOLOGY JOURNALISM GYMNASIUM INTERIOR INSURANCE UNETHICAL PRACTISE IN DIFFERENT SECTORS Hospital No profession is more fundamentally rooted in an ethic than medicine. In the 21st century, almost every young American physician graduates from medical school by reciting some version of an oath of ethical behavior first sworn to by doctors in the fifth century B.C. To be sure, the original formulation by the Greek physician Hippocrates is a bit outdated--starting with its invocation of obscure Greek gods and, among many anachronisms, equating treatment with "dietetic measures" and relegating surgery to barbers. Many medical schools have adopted updated versions of the oath, in which not only the language and concepts are modernized but also considerations such as avoiding overtreatment and factoring the patient's economic well-being into the therapeutic relationship are explicitly included in the pledge. Ethical guidelines are central to medical practice because of what one respondent to ACPE's recent poll of physician leaders summarized as the "inherent conflict of interest" between the physician's role as trusted healer and the physician's role as breadwinner--earning a living from the medical knowledge and ministrations applied Case studies: the legal implications for health care's bad business practices Bad, or unethical,...

Words: 4237 - Pages: 17

Premium Essay

Evaluation of Business Code of Ethics

...Evaluation of Business Code of Ethics This paper is discussing the business code ethics of Famers Insurance Company. Farmers Insurance Company first established a reputation in the Insurance industry in 1928 and was founded by two men that shared commonalities of wanting to provide valuable insurance services at an affordable price to consumers. The mission statement that Farmers cherishes states today, “We will achieve market leadership by driving innovation and operational excellence to provide the best value and experience for every customer we are privileged to serve” (Foremost Insurance, 2012). Currently, Farmers Insurance reigns as an industry leader standing as the country’s third- largest insurer of homeowners and car insurance and offers lots of other different insurance and financial services (Farmers, 2012). Abiding by a code of ethics was of great importance to co-founders Jack Tyler and Thomas Leavey. In the insurance industry, most concerns that policyholders express are, “Will I Be Covered” and “Will I Be Compensated Fairly”. Ideally, Farmers Insurance found dedication in following a set of core values that parent company Zurich established for agents, brokers, investors, and employees to abide by that would allow business operations to flourish and remain stable in even the most uncertain times. Farmers Insurance focuses on several core components that represent ethical democracy; honesty, customer centricity, creating sustainable value,......

Words: 1178 - Pages: 5