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What Is the Doctrine of Utmost Good Faith in Insurance?
Daniel Liberto is a journalist with over 10 years of experience working with publications such as the Financial Times, The Independent, and Investors Chronicle.
Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.
What Is the Doctrine Of Utmost Good Faith?
The doctrine of utmost good faith, also known by its Latin name uberrimae fidei , is a minimum standard, legally obliging all parties entering a contract to act honestly and not mislead or withhold critical information from one another. It applies to many everyday financial transactions and is one of the most fundamental doctrines in insurance law.
- The doctrine of utmost good faith is a principle used in insurance contracts, legally obliging all parties to act honestly and not mislead or withhold critical information from one another.
- Insurance agents must reveal critical details about the contract and its terms, while applicants are required to provide honest answers to all the questions fielded to them.
- Violations of the doctrine of good faith can result in contracts being voided and sometimes even legal action.
How the Doctrine Of Utmost Good Faith Works
The doctrine of utmost good faith requires all parties to reveal any information that could feasibly influence their decision to enter into a contract with one another. In the case of the insurance market, that means that the agent must reveal critical details about the contract and its terms.
Applicants, meanwhile, are legally obliged to present all material facts, as they are known, including precise details on whatever needs to be insured and if they have been refused insurance coverage in the past. This information is used by insurers to decide whether to insure the applicant and how much to charge for a policy.
The doctrine of utmost good faith provides general assurance that the parties involved in a transaction are truthful and acting ethically. Ethical transactions include assuring all relevant information is available to both parties during negotiations or when amounts are determined.
Repercussions for Violations of Good Faith
Depending on the nature of the transaction, violations of the doctrine of good faith can result in a variety of consequences. Most commonly, a contract created with inaccurate information from intentional misinformation or fraudulent concealment may cause the contract to become voidable .
Further, in the case of the provision of goods or services before the information is discovered or disclosed, the misinformed party may enforce legal action. Legal action can include the right to recoup costs associated with the fulfillment of the contract that could be deemed fraudulent.
Example of the Doctrine of Utmost Good Faith
An applicant for a life insurance policy will be asked to provide information about their health and family history. Based on these responses, the insurer will decide whether to insure the applicant and what premium to charge.
Usually, applicants are asked to sign a declaration at the end of the application form, stating that the given answers to the questions and other personal statements are true and complete.
Concealing facts, such as for instance a smoking habit, is deemed a material misrepresentation that can lead the insurer to void the contract. If the insurer had known that the applicant smoked, the premium would likely have been significantly higher.
The Doctrine of Utmost Good Faith vs. Caveat Emptor
Unlike insurance contracts, most commercial agreements do not subscribe to the doctrine of utmost good faith. Instead, many are subject to caveat emptor , or "buyer beware."
This principle of contract law places the onus on the buyer to perform due diligence before making a purchase. In other words, a seller need only disclose information requested by the buyer.
Outside of the insurance market, individuals exercise good faith while completing various financial transactions. This includes businesses or individuals seeking finance from banks , or financial institutions providing fee estimates.
Often, estimates provided by individual service providers, such as plumbers and electricians, are made in good faith. Good faith estimates suggest the service provider is confident in the cost estimate based on the known factors surrounding the transaction.
In this context, it is not legally binding as not all variables are known. Specific issues may not be discoverable by either party until work has begun.
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Please note you do not have access to teaching notes, a study of insurance contracts within the legal context of a small island influenced by the commonwealth, the european union and the mediterranean: the case of utmost good faith and insurable interest.
Insurance and Risk Management for Disruptions in Social, Economic and Environmental Systems: Decision and Control Allocations within New Domains of Risk
ISBN : 978-1-80117-140-3 , eISBN : 978-1-80117-139-7
Publication date: 24 January 2022
Insurance in Malta has been very largely influenced by English practice and law. The influence of the English market insurance practice and law not only shaped the Maltese market but practically that of all common law jurisdictions in former members of the British empire. Since the London insurance market continues to be a very dominant force globally until today, the connection has undoubtedly served Malta well.
The origins of UK insurance principles of utmost good faith and insurable interest under contract law, date back to times which were very different from today and the need to revise the laws has now been felt in the UK as well as in other jurisdictions which were influenced by its law and practice. In Malta, minimal legislative intervention and the Maltese courts were and continue to be mostly guided by English case law, some of which has now been superseded by the updated statute law which was recently introduced in the UK by virtue of the Consumer Insurance (Disclosure and Representations) Act (2012) and Insurance Act (2015).
We herein lay out a case study of the development of utmost good faith and insurable interest in insurance contracts within the Maltese legal context, based on empirical literature findings and semi-structured interviews together with several legal experts who are specialized in the field and experienced insurance professionals.
- Utmost good faith
- Insurable interest
- Insurance contract
- Small Island
Mizzi, R. , Farrugia, A. and Grima, S. (2022), "A Study of Insurance Contracts Within the Legal Context of a Small Island Influenced by the Commonwealth, the European Union and the Mediterranean: The Case of Utmost Good Faith and Insurable Interest", Grima, S. , Özen, E. and Gonzi, R.E.D. (Ed.) Insurance and Risk Management for Disruptions in Social, Economic and Environmental Systems: Decision and Control Allocations within New Domains of Risk ( Emerald Studies in Finance, Insurance, and Risk Management ), Emerald Publishing Limited, Leeds, pp. 39-65. https://doi.org/10.1108/978-1-80117-139-720211003
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Doctrine of Utmost Good Faith - Explained
What is the Doctrine of Utmost Good Faith?
Written by Jason Gordon
Updated at April 4th, 2023
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What is the Doctrine Of Utmost Good Faith?
The doctrine of the utmost good faith, known in latin as "uberrimae fides", is a legal doctrine stating that parties in a contract must act honestly without withholding information or misleading each other. This doctrine is the minimum standard that parties must adhere to in a contractual agreement and it is applied to all phases of human activities. The Doctrine of Utmost Good Faith is observed in transactions in insurance, financial markets, real estate, and other businesses.
Back To : COMMERCIAL LAW: CONTRACTS, PAYMENTS, SECURITY INTERESTS, & BANKRUPTCY
How the Doctrine Of Utmost Good Faith Applies in Insurance Contracts
In an ordinary commercial contract, the doctrine of utmost good faith mandates parties to bargain fairly and honestly without misleading one another. This doctrine serves as the basis of trust in a contractual agreement, where both parties believe that the transaction is truthful and ethical. In the insurance, this doctrine of utmost good faith is a law that mandates the insurer and the insured to disclose all the facts needed in a policy. The doctrine bars any the parties from withholding any information that is essential to the contract. While the insured must provide all details including health history and other contingencies, the insurer must disclose all the details of the policy, including the terms and conditions. This doctrine first originated in the case between Carter and Boehm, before it was developed in common law and subsequently added in the Marine Insurance Act 1906.
What happens if you violate the Doctrine of Utmost Good Faith?
Violations of the doctrine of good faith in a contract often has legal consequences depending upon the nature or degree of the violation. The injured party can take legal actions against the other party that provides inaccurate information. This can lead to contract damages. Also, the contract is voidable by the injured party. The same conduct may constitute criminal fraud.
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TALK TO THE EXPERTS
What is Utmost Good Faith in insurance?
There are a few core principles of insurance that every insurer and insurance company must adhere to. Any violation of these core principles can lead to the termination of the insurance contract. Let us talk about one of the most important principles of insurance , the principle of utmost good faith.
What is utmost good faith in insurance?
The principle of utmost good faith states that both the insurer and the insured must be transparent with each other, and must reveal all pertinent and valid information to each other before the inception of the policy agreement.
The complete truth must be revealed about the subject matter of insurance and the conditions surrounding it. For instance, if you buy a life insurance policy, it is your duty to disclose all correct and relevant details pertaining to your health to the insurance company. Details such as any pre-existing conditions, medical history, etc must be truthfully mentioned to the insurer.
Intentional withholding of relevant details is considered a strong breach of utmost good faith and can lead to the termination of the policy agreement. Also, it is equally important that the policyholder is well aware of the insurance cover that they are buying. The insurance company also be equally truthful about the policy they are selling to the insured.
Characteristics of utmost good faith in insurance
The insured and insurer are legally bound to make full and truthful disclosure about the insurance contract. This responsibility applies to all kinds of insurance.
How breach of utmost good faith occurs
Breach of utmost good faith in life insurance.
Section 45 of the insurance Act 1938 states that If the insurance company finds out that the policyholder has misrepresented relevant details or provided false disclosure of facts, the insurer can deem the policy null and void. This can only be done within 2 years of the inception of the policy.
Breach of utmost good faith in Life insurance with an example
Mr. Manilal bought a life insurance policy for himself. Mr. Manilal is a heavy smoker and he has not disclosed this fact to the insurance company, and within 2 years Mr. Manilal is diagnosed with lung cancer and passes away. In this case, the insurance company can reject the claim on the ground of non-disclosure or misrepresentation of facts. This would be a breach of utmost good faith.
Breach of utmost good faith in health insurance with an example
Let us assume, Mrs. Sushiladevi bought a health insurance policy for herself. Mrs. Sushiladevi deliberately chooses to withhold her diabetic status from her insurance company to reduce the premium sum.
Let us now assume that Mrs. Sushiladevi gets admitted into the hospital due to complications caused by high blood pressure and sugar. The insurance company may choose to reject her claim on the ground of non-disclosure of facts, as her medical reports would indicate that she was already a diabetic and blood pressure patient before buying the policy.
Breach of utmost good faith in motor insurance
The principle of utmost good faith not only applies to life or health insurance, but all types of insurance agreements, including motor insurance.
Let us assume that Mr. Joy bought a motor insurance policy. In order to pay less premium, Mr. Joy deliberately hid the information that his car had an externally fitted CNG kit. Let’s further assume that Mr. Joy’s car caught fire due to some complications in the CNG kit. The insurance company will reject Mr. Joy’s claim on the ground of non-disclosure of material facts. This would also lead to termination of the policy by breach of utmost good faith.
What is proximate cause in insurance? (With Examples)
Principles of Life Insurance
Principles of Marine Insurance
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Doctrine of Utmost Good Faith
The doctrine of utmost good faith, also known by its Latin name uberrimae fides, is a legal doctrine of contracts that requires contracting parties to act honestly and not mislead or withhold information essential to the contract from one another. This doctrine applies to most contract types, including contracts of insurance. A person must, therefore, always be honest and accurate in the information they give to the insurance company. The insurance company also has a responsibility to act with good faith in all its dealings with the insured. 1
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- Principle Of Utmost Good Faith
Utmost Good Faith
Utmost good faith or the Principle of Utmost Good Faith is one of the most fundamental laws that are applicable in insurance. It is also known as ubberimae fidei in Latin.
The principle of utmost good faith states that the insurer and insured both must be transparent and disclose all the essential information required before signing up for an insurance policy.
It states that both the parties must disclose all the material facts before subscribing to the policy. Material facts are those facts which increase the risk factor associated with the insurance policy.
The insurer needs to disclose all the investment strategies and the insured needs to disclose any medical history, existing health conditions, or any kind of habits like drug abuse, alcoholism or smoking.
It can happen that in situations of misrepresentation of facts by either the insurer or the insured, the terms of contract will be violated and the policy becomes void.
The presence of a medical record will lead to higher premium or overall rejection of the policy. Similarly, the insurer has to inform the insured about the exclusions present in the policy.
This concludes our article on the topic of Principle of Utmost Good Faith, which is an important topic in Business Studies for Commerce students. For more such interesting articles, stay tuned to BYJU’S.
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- utmost good faith
a principle used in insurance contracts, legally obliging all parties to reveal to the others any information that might influence the others' decision to enter into the contract : Also called: uberrima fides
Words Nearby utmost good faith
- uti possidetis
Collins English Dictionary - Complete & Unabridged 2012 Digital Edition © William Collins Sons & Co. Ltd. 1979, 1986 © HarperCollins Publishers 1998, 2000, 2003, 2005, 2006, 2007, 2009, 2012
How to use utmost good faith in a sentence
You know that he has observed them all with the utmost good faith .
You know that he has observed 101 them all with the utmost good faith .
More Than A Game
Business With Blain: Utmost good faith
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A case of show trials and sanctions has left more questions than answers..
There is no doubt that Everton had been flying rather too close to the sun in recent years — not only with their financial performance, but on the pitch, too.
They have seriously underperformed from a sporting perspective, with close brushes with relegation in two consecutive seasons.
These two problems were intimately linked. Everton had essentially been under special measures for two years with the Premier League closely monitoring their proximity to the maximum aggregate allowable losses of £105million under their Profitability and Sustainability Rules (PSR).
In efforts to avoid a sanction for breaching the rules, Everton cut costs dramatically throughout the club; on the sporting side, they have hardly spent on players — especially when taking net spend into account — and only kept their head above water with the sale of valued assets such as Brazil striker Richarlison.
Their efforts were not enough. In March, Everton were referred to an Independent Commission (IC) by the Premier League for allegedly breaching the PSR. It seemed like it had been a long time coming.
Announcing they would not comment further on the matter until the Commission had published its judgement, the Premier League publicly went quiet. In the background, the wheels were turning, with the process building up to the late October hearing, with the Commission taking evidence from both the club (the defence) and the League (the prosecutor).
The politics of this process swiftly became apparent, as leaks were made to selected journalists, suggesting the Premier League had demanded a 12-point deduction should Everton be found guilty.
The legacy media speculated over what sort of sanction Everton would suffer, with opinions varying from a fine through to a points deduction, with the smart money leaning towards the former, due to the extraordinary circumstances surrounding Everton’s alleged breach.
During the reporting period (2018-2022): Everton had started to build — and to date, self-fund — their new £760m stadium at Bramley Moore Dock. The COVID-19 pandemic resulted in a huge loss in revenue. Russia’s invasion of Ukraine resulted in Everton severing ties with key sponsors — namely those owned by Alisher Usmanov.
Meanwhile, after a very poor start to the season, Everton had started to perform more effectively on the field under manager Sean Dyche.
After winning at Crystal Palace, they went into the November international break in top-six form, and with eight points separating them from the relegation places, were looking upwards for the first time in years.
But on November 17th, the Commission published its decision in a 41-page report, and while the 12-point deduction those aforementioned leaks had disclosed as a possibility did not come to fruition, it wasn’t much better for Evertonians.
The Commission had concluded that for such a serious breach (a £19.5m loss over the reporting period), Everton would face an immediate 10-point deduction that would see them plumate from 14th to 19th, on the same points as bottom club Burnley.
Additionally, the Premier League published a second report from the Chair of the IC that documented a meeting that took place in early May 2023, with five clubs being denied the right to be involved in the process, but granted permission to make a financial claim should Everton be found guilty.
Those five clubs — Leeds United, Nottingham Forest, Southampton, Leicester City and Burnley — now have 28 days to inform the Commission of their intention to pursue compensation.
More than a Game (MTAG) understands that Nottingham Forest and Southampton are unlikely to make a claim, though the legacy media has reported that Leicester, Leeds and Burnely are weighing up their options.
Despite this, MTAG sources all suggest that Burnley are getting ‘cold feet’ and may also drop out due to the low likelihood of any claim being successful. There has also been a suggestion that Leeds may have a case for compensation but only for a lost merit payment of around £2m, and Leicester are expected to face significant challenges in proving their loss and therefore justifying their alleged £100m claim.
Questions are being asked of the decision — not just by Evertonians — but by fans of other clubs and all too critically, the legacy media across broadcast and print generally supporting Everton’s view that the sanction applied, which is the largest in Premier League history, is both unjust and disproportionate.
Everton agreed during the hearing that they had exceeded the allowed losses but disputed the total. The judgment of the Commission, under the leadership of David Philips KC, has come under scrutiny, with much of Everton’s mitigation arguments having being dismissed in favour of the Premier League’s view.
Everton CEO Colin Chong confirmed the club’s intention to appeal and described the penalty as ”disproportionate and wholly unjust”, with that appeal expected to be formalised in the coming days. The appeal is expected to be heard before the end of the season.
Contained in the judgement is a claim that Everton did not act with utmost good faith, a requirement of all members of the Premier League, and a point that has been interpreted by some as Everton told lies and cheated — allegations that have hit hard on a club who felt they had worked closely with the Premier League over a number of years to try and get their house in order.
While Everton cannot be considered wholly innocent, and it could be said their defence in certain aspects was relatively weak, there has been questionable behaviour from the League, too. Where did the leaks back in October, over the 12-point deduction, come from? If they emerged from the Premier League’s side, is this satisfying the standards of utmost good faith the League expects of others?
Furthermore, the Premier League, through a witness statement from their CEO Richard Masters, sought to influence the Commission by offering a formula for calculating a points deduction; a formula that had apparently been designed as recently as August 2023, which was agreed on by the Premier League board but never by the clubs (the shareholders).
While the Commission robustly rejected this suggestion, and with the rebuttal drawing an apology by way of a clarification from Masters, it is worth noting that the sanction handed down by the Commission is the same that Masters’ formula would have produced.
So, what happens next, and will Everton do better in appeal than they did in the first trial?
One would expect so — experts suggest that they are unlikely to suffer an increase in their points deduction but stand a solid chance of having it reduced.
By how much though, if at all, is a matter of opinion, especially as the Commission chose not to explain how they came to their penalty. However, with the members of the Appeals Commission likely to be completely different from the original panel, like the vagaries of a subjected VAR decision, it’s quite possible that they will look at the evidence differently.
The Commission seemed to lean quite heavily on an EFL case involving Sheffield Wednesday, which established a view that a financial breach inferred a sporting advantage, and therefore must require a sporting sanction (i.e. a points deduction).
Sheffield Wednesday, and with less mitigation benefits than Everton, successfully appealed their sanction down to a six-point deduction.
Everton will surely seek to improve the presentation of their case and to expose more clearly the flaws in the League’s case, and possibly their behaviour, to set aside the totality of the sporting sanction, but one suspects that, if like Sheffield Wednesday, they managed to reduce the points deduction by half, they would be satisfied.
So, it’s all to play for and with a home game against Manchester United this coming Sunday Everton fans have mobilised quickly and effectively.
They have raised over £40,000 in a matter of days and therefore have the funds and the plans in place to make their views of the Premier League very clear to a worldwide audience.
It is likely to be uncomfortable viewing for the Premier League’s hierarchy, and they may very well reflect that they would have been better served by acting in the utmost good faith, and remember that the sanction punishes the fans and the communities they live in, to a degree that is totally unacceptable and will never be repeated by the forthcoming Independent Regulator for English Football.
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The Assureds Duty Of Utmost Good Faith
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Harvard Business Case Studies Solutions – Assignment Help
In most courses studied at Harvard Business schools, students are provided with a case study. Major HBR cases concerns on a whole industry, a whole organization or some part of organization; profitable or non-profitable organizations. Student’s role is to analyze the case and diagnose the situation, identify the problem and then give appropriate recommendations and steps to be taken.
To make a detailed case analysis, student should follow these steps:
STEP 1: Reading Up Harvard Case Study Method Guide:
Case study method guide is provided to students which determine the aspects of problem needed to be considered while analyzing a case study. It is very important to have a thorough reading and understanding of guidelines provided. However, poor guide reading will lead to misunderstanding of case and failure of analyses. It is recommended to read guidelines before and after reading the case to understand what is asked and how the questions are to be answered. Therefore, in-depth understanding f case guidelines is very important.
Harvard Case Study Solutions
STEP 2: Reading The Harvard The Assureds Duty Of Utmost Good Faith Case Study:
To have a complete understanding of the case, one should focus on case reading. It is said that case should be read two times. Initially, fast reading without taking notes and underlines should be done. Initial reading is to get a rough idea of what information is provided for the analyses. Then, a very careful reading should be done at second time reading of the case. This time, highlighting the important point and mark the necessary information provided in the case. In addition, the quantitative data in case, and its relations with other quantitative or qualitative variables should be given more importance. Also, manipulating different data and combining with other information available will give a new insight. However, all of the information provided is not reliable and relevant.
When having a fast reading, following points should be noted:
- Nature of organization
- Nature if industry in which organization operates.
- External environment that is effecting organization
- Problems being faced by management
- Identification of communication strategies.
- Any relevant strategy that can be added.
- Control and out-of-control situations.
When reading the case for second time, following points should be considered:
- Decisions needed to be made and the responsible Person to make decision.
- Objectives of the organization and key players in this case.
- The compatibility of objectives. if not, their reconciliations and necessary redefinition.
- Sources and constraints of organization from meeting its objectives.
After reading the case and guidelines thoroughly, reader should go forward and start the analyses of the case.
STEP 3: Doing The Case Analysis Of The Assureds Duty Of Utmost Good Faith:
To make an appropriate case analyses, firstly, reader should mark the important problems that are happening in the organization. There may be multiple problems that can be faced by any organization. Secondly, after identifying problems in the company, identify the most concerned and important problem that needed to be focused.
Firstly, the introduction is written. After having a clear idea of what is defined in the case, we deliver it to the reader. It is better to start the introduction from any historical or social context. The challenging diagnosis for The Assureds Duty Of Utmost Good Faith and the management of information is needed to be provided. However, introduction should not be longer than 6-7 lines in a paragraph. As the most important objective is to convey the most important message for to the reader.
After introduction, problem statement is defined. In the problem statement, the company’s most important problem and constraints to solve these problems should be define clearly. However, the problem should be concisely define in no more than a paragraph. After defining the problems and constraints, analysis of the case study is begin.
STEP 4: SWOT Analysis of the The Assureds Duty Of Utmost Good Faith HBR Case Solution:
SWOT analysis helps the business to identify its strengths and weaknesses, as well as understanding of opportunity that can be availed and the threat that the company is facing. SWOT for The Assureds Duty Of Utmost Good Faith is a powerful tool of analysis as it provide a thought to uncover and exploit the opportunities that can be used to increase and enhance company’s operations. In addition, it also identifies the weaknesses of the organization that will help to be eliminated and manage the threats that would catch the attention of the management.
This strategy helps the company to make any strategy that would differentiate the company from competitors, so that the organization can compete successfully in the industry. The strengths and weaknesses are obtained from internal organization. Whereas, the opportunities and threats are generally related from external environment of organization. Moreover, it is also called Internal-External Analysis.
In the strengths, management should identify the following points exists in the organization:
- Advantages of the organization
- Activities of the company better than competitors.
- Unique resources and low cost resources company have.
- Activities and resources market sees as the company’s strength.
- Unique selling proposition of the company.
- Improvement that could be done.
- Activities that can be avoided for The Assureds Duty Of Utmost Good Faith.
- Activities that can be determined as your weakness in the market.
- Factors that can reduce the sales.
- Competitor’s activities that can be seen as your weakness.
- Good opportunities that can be spotted.
- Interesting trends of industry.
- Change in technology and market strategies
- Government policy changes that is related to the company’s field
- Changes in social patterns and lifestyles.
- Local events.
Following points can be identified as a threat to company:
- Company’s facing obstacles.
- Activities of competitors.
- Product and services quality standards
- Threat from changing technologies
- Financial/cash flow problems
- Weakness that threaten the business.
Following points should be considered when applying SWOT to the analysis:
- Precise and verifiable phrases should be sued.
- Prioritize the points under each head, so that management can identify which step has to be taken first.
- Apply the analyses at proposed level. Clear yourself first that on what basis you have to apply SWOT matrix.
- Make sure that points identified should carry itself with strategy formulation process.
- Use particular terms (like USP, Core Competencies Analyses etc.) to get a comprehensive picture of analyses.
STEP 5: PESTEL/ PEST Analysis of The Assureds Duty Of Utmost Good Faith Case Solution:
Pest analyses is a widely used tool to analyze the Political, Economic, Socio-cultural, Technological, Environmental and legal situations which can provide great and new opportunities to the company as well as these factors can also threat the company, to be dangerous in future.
Pest analysis is very important and informative. It is used for the purpose of identifying business opportunities and advance threat warning. Moreover, it also helps to the extent to which change is useful for the company and also guide the direction for the change. In addition, it also helps to avoid activities and actions that will be harmful for the company in future, including projects and strategies.
To analyze the business objective and its opportunities and threats, following steps should be followed:
- Brainstorm and assumption the changes that should be made to organization. Answer the necessary questions that are related to specific needs of organization
- Analyze the opportunities that would be happen due to the change.
- Analyze the threats and issues that would be caused due to change.
- Next political elections and changes that will happen in the country due to these elections
- Strong and powerful political person, his point of view on business policies and their effect on the organization.
- Strength of property rights and law rules. And its ratio with corruption and organized crimes. Changes in these situation and its effects.
- Change in Legislation and taxation effects on the company
- Trend of regulations and deregulations. Effects of change in business regulations
- Timescale of legislative change.
- Other political factors likely to change for The Assureds Duty Of Utmost Good Faith.
- Position and current economy trend i.e. growing, stagnant or declining.
- Exchange rates fluctuations and its relation with company.
- Change in Level of customer’s disposable income and its effect.
- Fluctuation in unemployment rate and its effect on hiring of skilled employees
- Access to credit and loans. And its effects on company
- Effect of globalization on economic environment
- Considerations on other economic factors
- Change in population growth rate and age factors, and its impacts on organization.
- Effect on organization due to Change in attitudes and generational shifts.
- Standards of health, education and social mobility levels. Its changes and effects on company.
case study solutions
- Social attitudes and social trends, change in socio culture an dits effects.
- Religious believers and life styles and its effects on organization
- Other socio culture factors and its impacts.
- Any new technology that company is using
- Any new technology in market that could affect the work, organization or industry
- Access of competitors to the new technologies and its impact on their product development/better services.
- Research areas of government and education institutes in which the company can make any efforts
- Changes in infra-structure and its effects on work flow
- Existing technology that can facilitate the company
- Other technological factors and their impacts on company and industry
These headings and analyses would help the company to consider these factors and make a “big picture” of company’s characteristics. This will help the manager to take the decision and drawing conclusion about the forces that would create a big impact on company and its resources.
STEP 6: Porter’s Five Forces/ Strategic Analysis Of The The Assureds Duty Of Utmost Good Faith Case Study:
To analyze the structure of a company and its corporate strategy, Porter’s five forces model is used. In this model, five forces have been identified which play an important part in shaping the market and industry. These forces are used to measure competition intensity and profitability of an industry and market.
porter’s five forces model
These forces refers to micro environment and the company ability to serve its customers and make a profit. These five forces includes three forces from horizontal competition and two forces from vertical competition. The five forces are discussed below:
- THREAT OF NEW ENTRANTS: as the industry have high profits, many new entrants will try to enter into the market. However, the new entrants will eventually cause decrease in overall industry profits. Therefore, it is necessary to block the new entrants in the industry. following factors is describing the level of threat to new entrants:
- Barriers to entry that includes copy rights and patents.
- High capital requirement
- Government restricted policies
- Switching cost
- Access to suppliers and distributions
- Customer loyalty to established brands.
- THREAT OF SUBSTITUTES: this describes the threat to company. If the goods and services are not up to the standard, consumers can use substitutes and alternatives that do not need any extra effort and do not make a major difference. For example, using Aquafina in substitution of tap water, Pepsi in alternative of Coca Cola. The potential factors that made customer shift to substitutes are as follows:
- Price performance of substitute
- Switching costs of buyer
- Products substitute available in the market
- Reduction of quality
- Close substitution are available
- DEGREE OF INDUSTRY RIVALRY: the lesser money and resources are required to enter into any industry, the higher there will be new competitors and be an effective competitor. It will also weaken the company’s position. Following are the potential factors that will influence the company’s competition:
- Competitive advantage
- Continuous innovation
- Sustainable position in competitive advantage
- Level of advertising
- Competitive strategy
- BARGAINING POWER OF BUYERS: it deals with the ability of customers to take down the prices. It mainly consists the importance of a customer and the level of cost if a customer will switch from one product to another. The buyer power is high if there are too many alternatives available. And the buyer power is low if there are lesser options of alternatives and switching. Following factors will influence the buying power of customers:
- Bargaining leverage
- Switching cost of a buyer
- Buyer price sensitivity
- Competitive advantage of company’s product
- BARGAINING POWER OF SUPPLIERS: this refers to the supplier’s ability of increasing and decreasing prices. If there are few alternatives o supplier available, this will threat the company and it would have to purchase its raw material in supplier’s terms. However, if there are many suppliers alternative, suppliers have low bargaining power and company do not have to face high switching cost. The potential factors that effects bargaining power of suppliers are the following:
- Input differentiation
- Impact of cost on differentiation
- Strength of distribution centers
- Input substitute’s availability.
STEP 7: Generating Alternatives For The Assureds Duty Of Utmost Good Faith Case Solution:
After completing the analyses of the company, its opportunities and threats, it is important to generate a solution of the problem and the alternatives a company can apply in order to solve its problems. To generate the alternative of problem, following things must to be kept in mind:
- Realistic solution should be identified that can be operated in the company, with all its constraints and opportunities.
- as the problem and its solution cannot occur at the same time, it should be described as mutually exclusive
- it is not possible for a company to not to take any action, therefore, the alternative of doing nothing is not viable.
- Student should provide more than one decent solution. Providing two undesirable alternatives to make the other one attractive is not acceptable.
Once the alternatives have been generated, student should evaluate the options and select the appropriate and viable solution for the company.
STEP 8: Selection Of Alternatives For The Assureds Duty Of Utmost Good Faith Case Solution:
It is very important to select the alternatives and then evaluate the best one as the company have limited choices and constraints. Therefore to select the best alternative, there are many factors that is needed to be kept in mind. The criteria’s on which business decisions are to be selected areas under:
- Improve profitability
- Increase sales, market shares, return on investments
- Customer satisfaction
- Brand image
- Corporate mission, vision and strategy
- Resources and capabilities
Alternatives should be measures that which alternative will perform better than other one and the valid reasons. In addition, alternatives should be related to the problem statements and issues described in the case study.
STEP 9: Evaluation Of Alternatives For The Assureds Duty Of Utmost Good Faith Case Solution:
If the selected alternative is fulfilling the above criteria, the decision should be taken straightforwardly. Best alternative should be selected must be the best when evaluating it on the decision criteria. Another method used to evaluate the alternatives are the list of pros and cons of each alternative and one who has more pros than cons and can be workable under organizational constraints.
STEP 10: Recommendations For The Assureds Duty Of Utmost Good Faith Case Study (Solution):
There should be only one recommendation to enhance the company’s operations and its growth or solving its problems. The decision that is being taken should be justified and viable for solving the problems.