MASTER OF BUSINESS

ADMINISTRATION

Intake 01, Ho Chi Minh City

Subject code: MGT503

Subject name: BUSUNESS ETHICS

Assignment No: 01

Student Name: NGUYEN HUY DUY KHANH

Student ID No.: E1500219

I would like to confirm that I have known and understood the examination regulations

of the University of HELP and I hereby undertake this exercise was done honestly and in

accordance with the regulations set out.

Date of Submission:

Signature

Note:

The teacher will not give marks for the assignment without signature.

The student will get mark 0 if violation of the above commitment

STUDENT NAME : NGUYỄN HUY DUY KHANH

INTAKE : 01

SUBJECT : BUSUNESS ETHICS

SUBJECT ID : E1500219

VIETNAMESE LECTURER : DƯƠNG DIỄM CHÂU

ASSIGNMENT No : 01

WORD LIMIT : 5,000

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ASSIGNMENT 1

Question 1

INTRODUCTION

Trevino and Nelson (2010) said that harassment (sexual or otherwise) is considered to be

a form of discrimination. It is therefore an ethical issue because it unfairly focuses job

satisfaction, advancement, or retention on a factor other than the employee’s ability to do the job.

Most instances of sexual harassment have nothing to do with romance and everything to do with

power and fairness. As women began to enter the workforce in great numbers in the 1970s and

1980s, and as social and business mores began to change, sexual harassment became an issue in

the workplace. Forty years later, it is still an issue and many companies have paid huge fines in

sexual harassment lawsuits. As a result, the EEOC now requires all organizations with more than

15 employees to have a sexual harassment policy and to train employees in these issues. Another

result was a growing apprehension by employees, especially men, toward workers of the

opposite sex. Sometimes the line between friendly and offensive is blurry. Trevino and Nelson

(2010). Therefore, I can confirm that the scenario in question 1 is the situation relating to the

issue of sexual harassment in the workplace, this is a matter relating to ethics. Within the scope

of this essay will raise awareness to the issue of sexual harassment in the workplace.

BODY

Fitzgerald, Louise F. American Psychologist (Oct 1993), Sexual harassment has been a

fixture of the workplace since women first began to work outside the home. Although true

epidemiological studies do not exist, large-scale surveys of working women suggest that

approximately 1 of every 2 women will be harassed at some point during their academic or

working lives. The data indicate that harassment is degrading, frightening, and sometimes

physically violent; frequently extends over a considerable period of time; and can result in

profound job-related, psychological, and health-related consequences.

In this case, Trevino and Nelson (2010), Harassment (sexual or otherwise) is considered

to be a form of discrimination. It is therefore an ethical issue because it unfairly focuses job

satisfaction, advancement, or retention on a factor other than the employee’s ability to do the job.

Most instances of sexual harassment have nothing to do with romance and everything to do with

power and fairness. You suspect the motive of person who is complaining about harassment to

you, so we must understand the seriousness of sexual harassment in the workplace. As review

article of Page, Thomas E and Pina, Afroditi at Elsevier Ltd Publisher (2015), Sexual harassment

is recognized as a widespread form of aggressive behavior with severe consequences for victims

and organizations. Yet, contemporary research and theory focusing on the motives and cognition

of sexual harassment perpetrators continues to be sparse and underdeveloped. This review

examines the motivations that underlie sexual harassment and the self-exonerating cognitions

and behavioral techniques employed by perpetrators of sexual harassment. In this paper, we

emphasize the need to understand the cognitive processes that disinhibit motivated individuals to

sexually harass. Utilizing social cognitive theory as a foundation, we propose that cognitive

mechanisms of moral disengagement are likely to have an important etiological role in the

facilitation and reinforcement of sexually harassing behavior. A preliminary conceptual

framework is presented, suggesting novel ways in which each of the various moral

disengagement mechanisms may contribute to sexual harassment perpetration.

Trevino and Nelson (2010), Victims of sexual harassment can file under Title VII of the

Civil Rights Act of 1964 with the EEOC, or they can bring suit under tort or contract law. An

employer can be held liable for an employee’s sexual harassment activities if the employer had

knowledge of the conduct and did nothing to correct it. As a result, most companies take a sexual

harassment charge very seriously.

Responsible companies will launch an immediate investigation if someone is accused of

sexually harassing another employee. If this is a first-time event and the incident that prompted it

is not determined to be lewd or violent—think of the scenario featuring Joanne, discussed

earlier—the employee may be warned, disciplined, or transferred to another area. (However, in

some major companies a firsttime offense is enough to get someone fired.) If the behavior is

judged to be lewd or forceful, or if there’s evidence that the employee has demonstrated a pattern

of behavior, the employee will most likelybe fired—and often very quickly. (One corporation

was able to conduct an investigation, find evidence of a pattern, and terminate the harasser in less

than 48 hours.) If the accused is found innocent, or if it’s determined that a misunderstanding

exists between the two parties, the accused and the accuser will probably be counseled by human

resources professionals. If necessary, one of the parties may be transferred to another area. The

manager of a sexual harasser can expect a lot of questions. If the manager was aware of

harassment and did nothing about it, he or she should be prepared for disciplinary action,

particularly if a lawsuit results.

Trevino and Nelson (2010), Gather the Facts: The philosophical approaches don’t tell us

explicitly to gather the facts. But they seem to assume that we’ll complete this important step.

You might be surprised at how many people jump to solutions without having the facts. Ask

yourself, ‘‘How did the situation occur? Are there historical facts that I should know? Are there

facts concerning the current situation that I should know?’’. The sexual harassment will be

extremely psychologically stressful when confronted daily to harass individuals. The

psychological stress will make them difficult to work effectively, quality. This was not the

resignation or pressing can make them become more mistakes or act disruptive outburst. At

another point, an individual sexual harassment workplace will enjoy in a state of humiliation,

defensively. The defense is not against individuals but also harassed individuals with similar or

same situation ... This creates psychological pressure, panic or opposition defense.

Louise F. Fitzgerald, Michele J. Gelfand & Fritz Drasgow (1995), This article describes a

program of research designed to yield a conceptually grounded, psychometrically sound

instrument for assessing the incidence and prevalence of sexual harassment in the workplace.

Following the specification of a theoretical framework that is consistent with both legal

guidelines and psychological research, we review the development and evaluation of a three-

dimensional model of sexual harassment (gender harassment, unwanted sexual attention, and

sexual coercion). Based on this model, we describe the development of a revised version of the

Sexual Experiences Questionnaire (SEQ; Fitzgerald et al., 1988). Following extensive pilot

work, the instrument was field tested in a large regulated utility. Data from 448 employed

women (professional, technical, clerical and blue collar workers) support the reliability of the

scales, and confirmatory factor analysis in this new sample confirms the stability and

generalizability of the theoretical model. Following a brief review of validity data recently

reported in the literature, implications for further measurement improvements are discussed.

Trevino and Nelson (2010), Define the Ethical Issues: Many of us have knee-jerk

responses to ethical dilemmas. We jump to a solution without really thinking through the ethical

issues and the reasons for our response. For example, in the layoff case, one person might say,

‘‘Oh, that’s easy; promise keeping is the ethical issue. Pat has to keep her promise to her boss

and protect her job.’’ Another person might say that honesty is the key ethical issue: ‘‘Pat just

has to tell the truth to her friend.’’Don’t jump to solutions without first identifying the ethical

issues or points of values conflict in the dilemma. Also recognize that the toughest situations

usually involve multiple ethical issues that go back to the philosophical approaches we just

discussed.

"Predators" in the workplace

According to a recent survey by the University of Tokyo, 59% of women surveyed said

that having endured questions about age, blooper comments or crude words about sex from your

boss or male colleagues. Statistics from the Ministry of Health, Labour and Welfare of Japan

also showed that the number of cases dealing with "predators" in the workplace increased by

35% in 2008, typically the Director of the Institute for Non-Japan He Kesayoshi Miyashita, 55,

was fired for "harassing" a female employee. As an advice to many cases of sexual harassment

workplace place, Dr. Kikuchi Seiichi psychology from the University of Tokyo said, this is an

issue for many people upset and underground phenomenon tends increase. Dr. Kikuchi,

consequences and after each "collision" is often very heavy. Victims feel trampled honor, guilt,

fear of people around gossip, distrust in people and health decline. Female employees of media

companies Kagaya in Kochi confided: "Mr. boss that the company's deputy director of children.

He is about 40 years old. He sought to talk, invited to eat and drink, and said that if you want to

get a promotion at work, the right "way" he ... He pretended to accidentally but without really

him intentionally. Every time put any clothes for me, he held my hand always. Instead he picked

things I take, then he tries to touch her hand back. I feel extremely suppressed, just gong to

continue to work ". Faced with this alarming situation, the Japanese Ministry of Human

Resources issued charter quick practice on combating and preventing sexual harassment in the

workplace. Accordingly, all public buildings must have clear guidelines on the prevention,

reporting and handling of cases of harassment.

Jeong-Yeon Lee, Sharon Gibson Heilmann, Janet P. Near (2004), Earlier research on

whistle-blowing in organizations has usually investigated whistle-blowing about wrongdoing of

various types, with the possibility that results are influenced by the great variety of types of

wrongdoing reported by whistle-blowers. Earlier research on sexual harassment has focused

primarily on antecedents of the event and outcomes for the individual only, rather than

organizational consequences. In this study we attempted to examine both questions: is sexual

harassment different from other forms of organizational wrongdoing in its consequences for

whistle-blowers and their organizations, and does examination of the sequential process of

whistle-blowing about sexual harassment provide a fuller understanding of consequences as well

as antecedents for whistle-blowing generally? Results of LISREL modeling of questionnaire data

collected in 1994 from some 13,000 US government employees were similar to findings from

earlier studies of organizational wrongdoing and whistle-blowing, where the nature of the

wrongdoing included issues in addition to sexual harassment.

Cain Accuser Gives Details

The Herman Cain harassment story just moved into X­rated territory. A woman named

Sharon Bialek, flanked by attorney Gloria Allred, said at a news conference Monday that the

presidential candidate reached under her skirt and tried to push her head toward his crotch in a

parked car in 1997. Bialek is a former staffer of the National Restaurant Association who says

she was seeking to regain her job. The Cain campaign immediately issued a statement declaring

that “Mr. Cain has never harassed anyone” and dismissing what it called “bogus attacks.” Bialek

said she told two other people, one of them her boyfriend at the time, about the alleged groping,

so corroborating witnesses could emerge. Allred says she has two such affidavits. The spectacle,

carried by CNN, adds what the weeklong media coverage has been conspicuously lacking: an

accuser with a name and face, and a specific account of what Cain is alleged to have done. And

Bialek’s account, if it is to be believed, goes far beyond remarks that some of the unnamed

accusers have said made them uncomfortable, charging Cain with unwanted physical contact.

According to Bialek, the two were having dinner when Cain informed her that he had upgraded

her hotel room to what she described as a “palatial suite.” When she mentioned her boyfriend

and said she wanted “my job back,” Cain said he would “look into that,” Bialik said. While

driving back from dinner, Cain said he would show her the restaurant association’s offices and

parked down the block. Then, according to Bialek, he slid his hand “under my skirt and reached

for my genitals. He also grabbed my head and brought it toward his crotch.” When she protested,

mentioning her boyfriend, Bialek says Cain replied: “You want a job, right?” But then, she

added, “I asked him to stop, and he did.” Bialek said she never filed any kind of complaint but

wants the former pizza executive to acknowledge what he did: “Mr. Cain, I implore you—make

this right.” The news conference followed the first sign that the controversy is beginning to chip

away at Cain’s standing in the polls. A Reuters/Ipsos survey found his favorability rating among

Republicans slipping from 66 percent a week earlier to 57 percent. And a majority, 53 percent,

believe the harassment allegations are true. In an NBC/Wall Street Journal poll out Monday,

negative impressions of Cain among Republicans doubled, from 18 to 35 percent. At the same

time, 54 percent of those responding said they aren’t concerned about voting for Cain despite the

allegations.

CONCLUSION

Within the scope of this essay, we realize it is a case of sexual harassment occur in the

workplace. There is much research to recognize this situation as there are many ways to find

motivation but the costs of action sexual harassment in the workplace is very large. Legal costs,

costs of compensation for damage to the sexual harassment is only superficial, while still

severely affecting the efficiency, capacity to work, the revenue of the company ... (EEOC).

Therefore, a problem arises of how to all employees adhere to the ethical principles at

workplace, knowing right and wrong behavior and avoid violating behavior. This is an issue that

needs further research.

REFERENCES

1. Linda Klebe Trevino, Katherine A. Nelson (2010). Chapter 4. Managing Business Ethics, fifth

edition, John Wiley & Sons, 119.

2. Fitzgerald, Louise F. American Psychologist (Oct 1993), Sexual harassment: Violence against

women in the workplace, Vol 48(10), 1070-1076, viewed 09 Aug 2015,

http://psycnet.apa.org/psycinfo/1994-11711-001

3. Page, Thomas E and Pina, Afroditi, University of Kent, United Kingdom (2015), In Aggression

and Violent Behavior March-April 2015 21:73-84, Elsevier Ltd, viewed 26 Aug 2015,

http://ezproxy.help.edu.my:2076/eds/detail/detail?sid=40b979a8-41be-43a0-996e-

6bdc88a80957%40sessionmgr110&vid=0&hid=119&bdata=JnNpdGU9ZWRzLWxpdmU%3d#

AN=S1359178915000051&db=edselp

4. Louise F. Fitzgerald, Michele J. Gelfand & Fritz Drasgow (1995), Measuring Sexual Harassment:

Theoretical and Psychometric Advances, Basic and Applied Social Psychology, Volume 17, Issue

4, 1995, viewed 26 Aug 2015,

http://www.tandfonline.com/doi/abs/10.1207/s15324834basp1704_2#.VeXMcPmqqko

5. Jeong-Yeon Lee, Sharon Gibson Heilmann, Janet P. Near (2004), Blowing the Whistle on Sexual

Harassment: Test of a Model of Predictors and Outcomes, Human Relations. Mar2004, Vol. 57

Issue 3, p297-322. 26p, Kelley School of Business at Indiana University, viewed 26 Aug 2015,

http://hum.sagepub.com/content/57/3/297.short

6. Howard Kurtz, Article 11 Jul 2011, The Daily Beast, viewed 26 Aug 2015,

http://www.thedailybeast.com/articles/2011/11/07/herman­cain­accuser­presidential­candidate­gr

abbed­her­in­car.html

7. http://www.nguoivietkharkov.com/index.php?option=com_content&view=article&id=2116:quayr

oiu&catid=39:tin-quoc-te&Itemid=504

Question 2

INTRODUCTION

As an insurance broker, Ashton & Ashton (A&A) seeks to obtain the best available

insurance coverage for its clients. For this service, A&A charges clients a commission, which is

a percentage of the amount of the premium, and the firm also receives a contingency payment

from the insurance providers based on the volume of business. One of A&A’s clients is a

museum, which has a very tight operating budget. For many years, Haverford Insurance

Company had offered the best policy for the museum and paid A&A an above average

commission. The museum would be best served by continuing with Haverford, but another

company, named Reliable, submits an unsolicited “low ball” bid that the museum might choose

if it is presented to them. Further, taking the above discussion into consideration this particular

attempts highlight if A&A should present the bid to the museum and allow the client to make

the choice, or should the firm present only the bids that would serve the client well?

Complicating the decision is the fact that A&A would also benefit if the museum were to

continue with Haverford, thus creating a potential conflict of interest.

Question A: Should A&A present the Reliable bid to the museum, knowing that the

museum might be forced by financial pressure to accept it?

In any case A&A holds the obligation to offer museum most appropriate bid and options.

Even though, the museum might be forced by financial pressure to accept the bid of Reliable, it

should be fully informed by A&A about all the available options. For many years, Haverford

Insurance Company had offered the best policy for the museum and paid A&A an above

average commission. The museum would be best served by continuing with Haverford, but

another company, named Reliable, submits an unsolicited “low ball” bid that the museum

might choose if it is presented to them. Complicating the decision is the fact that A&A would

also benefit if the museum were to continue with Haverford, thus creating a potential conflict

of interest. Taking into consideration the fact that the foremost obligation of A&A is towards

its clients, it should present Reliable bid to the museum rather than ignoring it as the benefits of

A&A would also be negatively impacted if the bid is chosen by the museum.

There is no doubt in the fact that being an agent of the museum, A&A is obligated to act

in the museum’s best interest. Insurance broker holds the ethical responsibility and a professional

obligation to perform in the best interests of the clients that to without considering the age,

gender, physical ability, sexual orientation or disability, religion, culture, race, beliefs, financial

means, political affiliation or nationality (Vaughan and Therese, 1999). This responsibility takes

in support for clients, both like a group and like individuals. At times, this responsibility might

conflict with other ethical, legal and/or professional duties of broker, building social, ethical and

professional quandaries for the broker.

Moving ahead, possible clashes with the broker’s responsibility of backing on part of

his/her client might occur in several contexts:

Conflict amid the responsibility of confidentiality and advocacy – Just as physician,

insurance broker is morally and frequently legally obliged to preserving in confidence a

client’s personal information and any information provided to the broker during his/her

professional duties (Vaughan and Therese, 1999). This might conflict with the broker’s

obligation to support and protect clients where the client might be unable of doing it

themselves.

Conflict amid best interest of the client and employer or insurer dictates - Frequently

there prevails possibility for conflict amid a broker’s duty for acting in the best interest

of his/her client, and the dictates of the insurance entity, whose decisions might be built

through administrative or economic forces unconnected with the client.

Conflict amid the best interest of the client and community – Even though the primary

obligation of the broker is to his/her client, the broker might, during particular situations,

hold responsibilities towards the client and the community. This might come up in

situations of conflict amid the patient as well as his/her family or in case of restricted

resources.

Conflict amid the wishes of the client and the professional decision or moral standards of

the broker - Clients are supposed to be the most appropriate arbiters of their unsurpassed

interests as well as, in general, a broker should support for and agree to the desires of

his/her client (Vaughan and Therese, 1999). Nevertheless, during particular cases these

wishes might be contrary to the broker’s professional decision or personal standards.

As a result, the duty of confidentiality needs to be supreme apart from in situations where

the broker is ethically or legally obliged to unveil such information for protecting the well-being

of the individual client, third parties or community. In these situations, the broker needs to make

a rational effort for notifying the client about the obligation to infringe privacy, and explaining

the reasons for performing so, till this is obviously inexpedient A broker should infringe

confidentiality for protecting the individual client just during situations of minor or ineffectual

clients and just where substitute measures aren’t presented (Vaughan and Therese, 1999). In all

other situations, confidentiality might be violated just with the particular accord of the client or

his/her lawful representative or where essential for the client. Whenever privacy needs to be

violated, it should be performed just to the level needed and just to the applicable authority or

party.

During all situations where a broker’s obligation towards his/her client conflicts with

employer’s or insurer’s administrative dictates, a broker needs to strive to alter the judgment of

employing/insuring entity. His/her eventual obligation needs to be towards the client. Moreover,

mechanisms must be in place for protecting brokers who intend to challenge decisions and

resolving disagreements amid insurance companies and brokers with respect to resource

allocation. The insurance broker needs to alert about and take into consideration the economic

as well as other forces prior to forming a decision related to insurance. Nevertheless, a broker

holds an obligation for advocating on behalf of his/her client for accessing the best accessible

option. In all situations of disagreement amid a broker’s obligation towards the individual client

and towards the society, the obligation towards the client should normally take priority.

Competent clients hold the right for determining, based upon their requirements, values

and likings, what makes for them the unsurpassed service within any particular situation. Till

the time it’s an emergency case, brokers shouldn’t be needed to take part in any procedures,

which conflict with their individual standards or professional judgment. During such non-

emergency situations, the broker should clarify to the client his/her incapability of carrying out

the client’s wishes, and the client should be referred to some other broker, if needed.

Question B As an agent of the museum, A&A is obligated to act in the museum’s best

interest. What specifically does this obligation entail? Hint: compare the role of an

insurance broker with the roles of physicians and lawyers, who are also obligated to act in

the best interest of a patient or a client.

There is no doubt in the fact that being an agent of the museum, A&A is obligated to act

in the museum’s best interest. The obligations of insurance broker can be compared with the

roles of the physicians and lawyers. Medical practitioners hold the ethical responsibility and a

professional obligation to perform in the best interests of the patients that to without considering

the age, gender, physical ability, sexual orientation or disability, religion, culture, race, beliefs,

financial means, political affiliation or nationality (Vaughan and Therese, 1999). This

responsibility takes in support for patients, both like a group (like support for public health

concerns) and like individuals. Same is applicable in case of the insurance broker. At times, this

responsibility might conflict with other ethical, legal and/or professional duties of physician,

building social, ethical and professional quandaries for the physician.

Moving ahead, possible clashes with the broker’s responsibility of backing on part of

his/her client might occur in several contexts:

Conflict amid the responsibility of confidentiality and advocacy – Just as physician,

insurance broker is morally and frequently legally obliged to preserving in confidence a

client’s personal information and any information provided to the broker during his/her

professional duties (Vaughan and Therese, 1999). This might conflict with the broker’s

obligation to support and protect clients where the client might be unable of doing it

themselves.

Conflict amid best interest of the client and employer or insurer dictates - Frequently

there prevails possibility for conflict amid a broker’s duty for acting in the best interest

of his/her client, and the dictates of the insurance entity, whose decisions might be built

through administrative or economic forces unconnected with the client.

Conflict amid the best interest of the client and community – Even though the primary

obligation of the broker is to his/her client, the broker might, during particular situations,

hold responsibilities towards the client and the community. This might come up in

situations of conflict amid the patient as well as his/her family or in case of restricted

resources.

Conflict amid the wishes of the client and the professional decision or moral standards of

the broker - Clients are supposed to be the most appropriate arbiters of their unsurpassed

interests as well as, in general, a broker should support for and agree to the desires of

his/her client (Vaughan and Therese, 1999). Nevertheless, during particular cases these

wishes might be contrary to the broker’s professional decision or personal standards.

The duty of confidentiality needs to be supreme apart from in situations where the

broker is ethically or legally obliged to unveil such information for protecting the well-being of

the individual client, third parties or community. In these situations, the broker needs to make a

rational effort for notifying the client about the obligation to infringe privacy, and explaining the

reasons for performing so, till this is obviously inexpedient A broker should infringe

confidentiality for protecting the individual client just during situations of minor or ineffectual

clients and just where substitute measures aren’t presented (Vaughan and Therese, 1999). In all

other situations, confidentiality might be violated just with the particular accord of the client or

his/her lawful representative or where essential for the client. Whenever privacy needs to be

violated, it should be performed just to the level needed and just to the applicable authority or

party.

During all situations where a broker’s obligation towards his/her client conflicts with

employer’s or insurer’s administrative dictates, a broker needs to strive to alter the judgment of

employing/insuring entity. His/her eventual obligation needs to be towards the client. Moreover,

mechanisms must be in place for protecting brokers who intend to challenge decisions and

resolving disagreements amid insurance companies and brokers with respect to resource

allocation. The insurance broker needs to alert about and take into consideration the economic

as well as other forces prior to forming a decision related to insurance. Nevertheless, a broker

holds an obligation for advocating on behalf of his/her client for accessing the best accessible

option. In all situations of disagreement amid a broker’s obligation towards the individual client

and towards the society, the obligation towards the client should normally take priority.

Competent clients hold the right for determining, based upon their requirements, values and

likings, what makes for them the unsurpassed service within any particular situation (Vaughan

and Therese, 1999). Till the time it’s an emergency case, brokers shouldn’t be needed to take

part in any procedures, which conflict with their individual standards or professional judgment.

During such non-emergency situations, the broker should clarify to the client his/her

incapability of carrying out the client’s wishes, and the client should be referred to some other

broker, if needed.

Question C: Does the compensation system for insurance brokers create the right

incentives? Should the system be changed? Discuss.

The commission is basically a proportion of the premium charged on the insured for a

particular policy. The commission amount depends upon the kind of insurance product, risk

cataloguing, manufacturer size, region where the risk is situated, or provisions offered to the

policyholder. Along with base commissions, manufacturers also might be eligible to receiving

"contingent" compensation equivalent to a proportion of premium a producer has placed with us

for a specific type of insurance. Compensation plans for manufacturers take in, however aren’t

restricted to, direct as well as contingent commission income. Additionally, insurers provide

agents (captive and independent) direct commissions, which signify a proportion of the

premiums provided by the customer. Direct commissions differ by type and line of business and

also through distribution network. Percentage of direct commission is normally greater for

autonomous agents as compared to captive agents. For direct reaction systems, sales people are

compensated grounded upon a salary model. Brokers obtain commission income and also, they

could be compensated through fees which are shelled out directly through the customer.

Contingent commissions signify a provisional profit-sharing arrangement amid the sales

company as well as the insurer, and are enclosed in great detail in the below sections.

Moving ahead, in deciding whether the utilization of contingent commission

compensation planning is suitable, it’s useful for considering the range and role of provisions

that the manufacturer offers. Such services differ grounded upon the intricacy of the specific

insurance product and value offered by the agent in assisting to trim down ambiguity, for the

customer and insurer that the agent signifies. According to Regan (2005), services offered by

autonomous brokers and agents frequently take in Client risk assessment, shopping for suitable

coverage, policy issuance and administration, premium gathering, and assertions administration.

Additionally, autonomous agents normally hold authority for binding the insurer to coverage

deprived of the insurer’s preceding consent. In simple terms, the agent could obligate the insurer

for coverage that implies that the agent is quite alert about whether a specific risk would satisfy

the underwriting needs of insurer with which the company is positioned. Such knowledge could

be of substantial advantage to the customer. Brokers normally don’t hold binding right.

The producer performs an important part during the underwriting procedure. Rejda

(2003) mirrors this information at the time when he refers to agents as being “foremost

underwriters.” Such role through the producer or agent is frequently known as “field

underwriting.” Moreover, contingent commissions as well as other profit-sharing commissions

could be practical means for insurers for encouraging producers to ensure lucrative business.

For the reason that the producer frequently is the only person within the insurance underwriting

procedure that holds straight link with the insured, this function could be principally vital.

Aligning incentives as well as appropriately compensating the producer for satisfying this

function reinforces the suitable use of the underwriting procedure.

Moving ahead, insurance is considered as being an intangible item and as a result,

doesn’t exist till a policy is offered. Mirroring upon the significance of the sales function to the

insurer, a chief source of compensation for agents as well as brokers in insurance is commission

given as a proportion of premium sold or produced. Moreover, an insurer holds an incentive for

better aligning the preferences of manufacturer with its individual interests for the reason that

the producer is engaged in the sphere underwriting procedure. This is frequently done by using

several contingent payments.

Mirroring upon the insurer’s wish for better aligning the interests of the producer with its

own, contingent payments done for producers under contingency commission contracts rely on

several forces, like business volume, new business developed, present business retained, as well

as loss experience of business positioned with an insurance carrier (Vaughan and Therese,

1999). Over the period of last few years insurers have trimmed down their payment ratios on

average. Even though, the net commission element has been decreased over this time also, the

majority of the decrease has occurred in the set of incomes for underwriting staff. This mirrors

additional mechanisation of the underwriting procedure, but is also constant with insurers

relying more greatly upon their agency factor for assessment as well as business “field”

underwriting.

Contingent commissions might be offered to an agency by an insurer which has fulfilled

profitability, and in several situations, growth needs and retention. Although, contingent

commissions hold traits alike volume discounts provided in usual sales, the profit-sharing

pattern of contingences makes them diverse. Moreover, in theory, contingent commissions must

assist in aligning the financial rewards of the agencies and insurer through offering

supplemental pay to the producer grounded in huge fraction on effectiveness of business

written. According to Wade (2005), insurers made use of contingent commissions during the

period of 1960s at the time when insurers decreased direct commissions subsequent to a period

of extreme losses, and utilized such commission arrangements for providing agents the potential

for supplement income in case if they met profitability as well as volume objectives.

Starting during the closing stages of 1970s, brokers started requesting contingent

commissions from huge insurers and this lay the basis for the reputational and legal issues that

several of the huge brokers have faced. For the reason that brokers signify the purchaser in

insurance transaction and normally get fee pay from the purchaser contingent commissions might

result in a misalignment of rewards since the broker holds authority of account and is being

remunerated through both groups. Contingent commission income, like a source of income to

autonomous units, is neither considerable nor unimportant. Contingent/bonus like a proportion of

the stream of agency revenue differs by company size. For companies with revenues below

500,000 dollars, contingent commissions as well as bonuses signify 5.4% of revenue. For bigger

companies (e.g., companies having revenues more than 2.5m dollars), contingent commissions

are around 8% of revenue (Vaughan and Therese, 1999).

REFERENCES

1. Regan, L. (1997) Vertical Integration in the Property-Liability Insurance Industry: A

Transaction Cost Approach, Journal of Risk and Insurance, Vol. 64, pp. 41-62.

2. Rejda, G. E. (2003) Principles of Risk Management and Insurance (8th

ed.), Addison-

Wesley

3. Vaughan, E. J. and Therese, V. (1999) Fundamentals of Risk and Insurance (8th

ed.),

Wiley

4. Wade, R. (2005) A Brief History of Contingent Commission Agreements, KPMG’s

Insurance Insider