The Main Reason For Hih Insurance Limited Collapsing

1608 words - 6 pages

There are few surprises when it comes to insurance, but when they do come they nearly always bring bad news. Such was the demise of HIH Insurance Limited (HIH): both a surprise (to many) and very bad news for many policyholders. This was the largest failure in Australian business history. Royal commission was appointed investigate re-issue of HIH Insurance collapsed with debt estimated $5.3 billion Australian dollars. ) The reasons behind the corporate collapses were bad management, stratetgic team was fail, failed to recognise accounting abnormalities, management’s self interest, and failed to recognised business risk. The collapse of the insurance giant HIH in Australia has been mechanism for considerable changes in financial report auditing. Many of these changes focus on the presence and extent of the auditor independence. A major issue of the Auditor independence is the treats to independence are usually restrained and difficult to measure.

one of the reason that lead most corporate to failure was bad management. As the board of directors were the people who made the final decision. They only relied on the report and the assessment from the audits. the HIH system was serving self interest. The board of directors only liked to hear and read the good news therefore The management team normally was "often flying blind" they only reported the good news to the board .There was a filter information before reporting to Board of Directors and worse they would only report bad news if they could not be avoided (Gavin Nicholson ,2008) to the board of Directors. Most of the board of directors were incompetence to their jobs. some of them relied on Slee's reviews. They could have tried to understand the situation and ruled by charisma instead of fear to their management teams who was afraid of losing their jobs every time they wanted to reported something. Board of director just let slee to finalized everything and made his own decision. According to( commonwealth of Asutralia, 2003) The Executive Payne, Sturesteps and Wein relied to Anderson and slee worked instead of been repsonsible for their obligation for HIH. While Cassidy and Foreda were aware of financial risk of HIH, they have informed Slee but they did not share the information with Board of Directors as they filter the information.

The strategic team was fail to foreseen the long term strategy for the company but only focused on opportiniscally. The decision to re-enter the US market when they made a big loss and they could have withdraw earlier many years ago but they did not do it. The decision to purchase FAI in order to expand into the UK market and the Allianz joint venture. While FAI has so many financial problems that lead HIH's downfall's (David Elias,2003). Ray Williams was obsessed to acquire FAI at all cost and failed to analysed FAI's situation. As they have a bad management team and a fail operational risk they failed to analysed FAI' s financial situation and Ray...

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