Insurance Companies: Conflict of Interest Shareholder Wealth vs. Insured

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Insurance Companies: Conflict of Interest Shareholder Wealth vs. Insured Submitted by Anita Carrel Abstract The debate continues in the insurance industry between the shareholder value and maximization perspective and the stakeholder, or insured, perspective. What should be more important to an insurance company? Some people think that the stakeholder interest should be more important than shareholder wealth maximization, but others argue that shareholder wealth maximization should be of most concern. As a company that is in business do earn a profit, the insurance company has to look at what is in the best interest of its shareholder. The stakeholders of that insurance company have ‘contracted’ through a policy to be protected by the insurance company and want their best interests to be of primary concern to the insurance company. So, it is with this conflict that insurance companies have to decide where their loyalty lies in all aspects of policy administration. Introduction First, it is necessary to understand some definitions of shareholder, stakeholder and the theory of conflict between the two. A shareholder is any person, company or other institution that owns at least one share of a company’s stock. Shareholders are a company's owners. They have the potential to profit if the company does well, but that comes with the potential to lose if the company does poorly. A shareholder may also be referred to as a "stockholder". (Investopedia, 2014). A stakeholder is someone that has an interest in an enterprise or project. The primary stakeholders in a typical corporation are its investors, employees, customers and suppliers. However, modern theory goes beyond this conventional notion to embrace additional stakeholders such as the community, government and trade associations. (Investopedia, 2014). A theory surrounding the shareholder and
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