nottheaverageactuary

Actuarial news and views from Cape Town and beyond

HIH Insurance fraud

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HIH was the second largest insurance company in Australia. The company collapsed in 2001 and several members of its management team were imprisoned for committing fraud.

The collapse left policyholders with no insurance cover and it sent the insurance industry into a crisis. The former chief executive admitted to misleading the shareholders by concealing the real financial position of the company and manipulating the accounts to shows profits which did not exist. The company entered the American and British markets without adequate provisions, the premiums they charged were insufficient and they failed to set the correct reserves to cover future claims. They tried to conceal this by using financial reinsurance contracts to turn losses into gains.

Bad decisions were made at senior level and the interests of all stakeholders were not taken into account. The former chief executive used to take company funds for his own personal use (he actually charged the company for his jelly beans!!!) and the whole management team lacked effective corporate governance principles.

Sources:

http://www.independent.co.uk/news/world/australasia/director-is-jailed-over-scandal-of-australian-enron-6148162.html

http://www.smh.com.au/articles/2003/03/14/1047583693489.html

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