Essays on The Collapse of HIH Insurance Case Study

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The paper 'The Collapse of HIH Insurance" is a good example of a management case study. Management communication plays an integral in any organization. In effect, communicating effectively often makes a big difference between achievement and failure thus managers and workers need to create efficient channels of communication. Moreover, management communication is a vital deliverable for every prosperous company or project as cooperation and working together entails communicating. Every client expects to experience good communication when interacting with company representatives or managers. The management works hand in hand with communication as one has to send and receive information in order for a business to run smoothly.

Even the best-managed projects or organizations will often be perceived as a failure if the management does not communicate adequately to their stakeholders. As such, this paper seeks to analyze the failure of HIH insurance, in relation to various management communication concepts that were ignored prior to its demise. In addition, the paper will analyze how the company handled the issue before it escalated. The company background According to Tomlinson and Tilley (2011), HIH insurance company was established in 1968 by Michael Payne and Ray Williams.

Before its demise, the HIH insurance was considered the second leading insurance firm in Australia. Originally, the company was known as “ MW Payne Underwriting Agency Pty Ltd, ” having been named after the two founders. Further research indicates that in 1971, the British company CE health PLC acquired the company and later renamed it “ HIH. ” In one of the Australian Broadcasting Corporation’ s program, Kerry O’ Brien gathered that the company was involved in various insurance segments before its collapse (Abc. net. au, 2011).

Furthermore, the report established that the insurance segment included commercial insurance, worker’ s compensation, property, private and public liability as well as industrial insurance. The Australian Broadcasting Corporation (ABC News) also gathered that the company’ s continuous success led to the opening of branches globally. Accordingly, the company managed to expand in both the U. S and U. K markets. In 1989, CE Health PLC transferred some of its operations to CE Health International Holding Ltd as it retained ninety percent of the company’ s equity (Clarke et al. , 2007). Twelve years later, the CE Health International Holdings had immensely grown that its shares were floated on the Australian Stock Exchange.

In 1996, HIH acquired CIC insurance as well as Utilities Insurance thus making the Company to expand rapidly. Later in 1997, the company became Australia’ s biggest underwriter of Bank Insurance Model (BIM) right after it had obtained the Colonial Mutual General Insurance (Buchanan Bonnie, 2003). The HIH Insurance Crisis Prior to its downfall, the company was captured in the news headlines when it blacklisted a stockbroking analyst who had disputed the company’ s assessment growth. The stock-broking analyst suspected some faultiness in the company’ s annual report, which depicted an unrealistic assessment growth.

However, the company’ s management withheld valuable information regarding their financial report and instead gave misleading financial analysis (Buchanan Bonnie, 2003). In other words, the management deceived the public as well as the employees regarding its performance in the stock market. In early January 1998, the company was lucky to win a $A 300M Any-and-All Bid for FAI Insurance. However, the company admitted that it had paid more than it had expected for the Bid as the real value for FAI was $A 100 million (Nail Lance, 2003).

In March, the same year, HIH recorded a thirty-nine percent fall in net profit equalling to $ 37.6 million, which the company blamed to damage claims. Furthermore, in July 1998 the company’ s routine external audit conducted by Arthur Anderson failed to raise an alarm over the worrying trend. Interestingly, regulators were disillusioned by the company’ s justification for the fall of net profits and accepted the company’ s declaration with $A938M in an asset. In October 1998, HIH sold part of its domestic personal lines of about $A 500M to an insurance giant in German known as Allianz.

Unbelievably, HIH shares tumbled to an all-time low level two days after the deal. Evidently, the company’ s performance deteriorated, which forced Ray Williams to resign as HIH managing director taking home a five million dollar severance agreement. In 2000, the company’ s deteriorating trend forced the Australian Securities and Investments Commission to consider it not solvent. These strings of events also made many shareholders quit the company thus obstructing the company’ s chances of reclaiming its past glory.

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Buchanan Bonnie, Arnold Tom, Nail Lance, (2003). “Beware the Ides of March: The Collapse of HIH Insurance”, in Batten J, A and Fetherston T. A. (eds.), Social Responsibility: Corporate Governance Issues, JAI, Sydney, pp.199-221.

Clarke Frank, Dean Graeme and Oliver Kyle, (2007). Corporate Collapse: Accounting, Regulatory and Ethical Failure, Revised Edition, Cambridge University Press.

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Westfield, M. (2000a, July 18). HIH hype can’t hide grim reality: Future of HIH is too grim to ignore. The Australian, p. 21.

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