Chapter 1

Question 1

Explain why pure risk is insurable but speculative risk is not

Answer 1

If the risk is speculative, there is a chance of loss and there is a chance of profit due to there being a chance of profit the risk is uninsurable. Insurance is concerned only with purest a situation involving a chance of loss, or no loss but no chance of gain

Question 2

List three types of insurable risks

Answer 2

1. Personal risks
2. Property risks
3. Liability risks

Question 3

Under personal risks what risks encompass the chance of loss arising from a person’s own bodily injury, loss of life, or loss of income?

Answer 3

1. Death
2. Physical disability resulting from accident or sickness
3. Old age
4. Unemployment

Question 4

Property risks encompass the chance of loss arising from the destruction of or damage to property what two types of losses are these?

Answer 4

1. Direct losses are those involving damage to destruction of the property insured
2. Indirect losses occur because of direct losses

Question 5

Liability risks encompass the chance of loss arising from an individual’s obligation to pay damages because of injury or death of another or damage to another’s property. This obligation would be based primarily on the individual’s negligence acts in relation to?

Answer 5

1. His or her conduct
2. The operation of automobiles, aircraft, boats, snowmobiles, trains, trucks, and so on
3. The ownership or occupancy or both of property
4. The manufacturer of products
5. The rendering of professional services

Question 6

List the three classes of insurance and explain each one

Answer 6

1. Personal lines - the insurance relating to individuals in their private capacity. Including are the home and its contents, automobiles, seasonal dwellings, boats, jewelry, first, vacation travel insurance, major medical and surgery cost, and so on. Some insurers and insurance agents and brokers May split this into two departments if warranted by volume: personal automobile and personal property
2. Commercial Lines - the insurance relating to commercial operations, such as stores, professional offices, trucking operations, construction vehicles and contractors, and many other similar businesses
3. Special risks - the insurance related to Marine exposures, aviation, and high risk industrial operations

Question 7

Define intermediary

Answer 7

The agent/broker negotiating insurance or reinsurance contracts for another.

Any party representing another party, in negotiation with a third party

Question 8

Define agent

Answer 8

A person licensed an authorized or employed to act on behalf of another

Question 9

Define broker

Answer 9

A licensed independent person or firm who acts on behalf of an insured in placing business with insurance companies

Question 10

Define independent agency system

Answer 10

A system of marketing insurance through independent contractors who sell insurance on a commission or fee basis with one or more insurers

Question 11

Define independent brokerage system

Answer 11

A system in which Independent Insurance professionals licensed as insurance brokers, are contracted to sell insurance on behalf of an insurer or multiple insurers

Question 12

Define exclusive agency system

Answer 12

A system of marketing insurance through licensed agents who represent only one company or group of companies under similar management

Question 13

Define direct writer

Answer 13

Insurance company selling directly to the public and not through independent agents or brokers

Question 14

Define independent agent

Answer 14

An agent who contracts with two or more insurance companies to sell their insurance policies to the public

Question 15

Define exclusive agent

Answer 15

An agent who represents and sells for only one company

Question 16

Define general agent

Answer 16

One who is appointed by a company in a specific territory. He or she is usually given an exclusive territory and may appoint sub agents in that territory

Question 17

Define managing general agent

Answer 17

An independent business operation given authority by a number of insurance companies to solicit business on behalf of such companies. Responsibilities include recruiting, training, and supervising agents

Question 18

Define wholesale broker

Answer 18

A broker who acts as an intermediary between a retail agent or broker and an insurer, often professor specialized expertise in a particular line of coverage

Question 19

Define non-standard risks

Answer 19

Reasons that are risk may be difficult to place. It could be that the client has a poor loss history, causing regular markets to be reluctant to Grant coverage. Or the risks, by their very nature, could be hard to place in regular markets.

Question 20

Advantages and disadvantages of The brokerage Channel

Answer 20

The main advantage of using a broker is that the broker has access to the number of insurers and can do the shopping for the clients. Clients only have to contact one broker rather than seeking quotes from different insurers on their own. Brokers insurance market knowledge and expertise helps clients determine which insurer can best provide for the client’s needs. Frequently, they also know which companies will accept or reject the presented risk without having to do in-depth research on clients behalf also, they can offer clients lost control and loss prevention advice to minimize the risks clients face and reduce Insurance costs

Disadvantages:
The disadvantages include the potential delays and timely renewals caused by waiting for information to come from the insurer. Depending on the size of the brokerage and the number of clients it has, there could be a lack of market canvassing on behalf of the clients. Initially, a client may be placed with the best insurance company for the client but then, through either time constraints or management decisions, the broker may not seek other options for the client’s current and future needs

Question 21

Advantages and disadvantages of the agency Channel

Answer 21

Advantages/ disadvantages:
One of the benefits to clients is that they know which insurance company they are dealing with and they understand that the agency deals with only that insurance company. Agency staff is not challenged to keep a number of companies underwriting rules up to date as their only the one company’s rules. This advantage can also be seen as a disadvantage or restriction. Being contracted with only one Insurance company, agency staff usually do not have the opportunity to search outside the offerings of that company or market the insurance elsewhere

Question 22

Call center or online Channel advantages and disadvantages

Answer 22

The benefits to using the call center or online channels are that clients have more autonomy, have contact with the company at the preferred time when they are ready to deal with their insurance, and take control of their personal insurance situation. Clients are not restricted to traditional office hours only or to taking time away from their lives to book an appointment to sit with an insurance professional.

The main disadvantage of using call centers or online services is that, if clients are not very knowledgeable about insurance or it’s intricacies, they may make a decision that could negatively affect them in the future. Another challenge is that clients do not know whom they’re going to be in contact with; they cannot call back and request the same representative each time.

Question 23

Define uberrimae fidei

Answer 23

This means utmost good faith in Latin

Illegal principal calling for the highest standards of integrity on the part of the insured and insurer. The basis of all insurance and reinsurance contract. Both parties to the contract are bound to exercise good faith and do so by full disclosure of all information material to the proposed contract

Question 24

Define duty of care and list precedent setting case

Answer 24

Duty of care - the obligation that a person has to exercise reasonable care with respect to the interest of others, including protecting them from harm

The current duty of care owned by agents and brokers is based on the precedent setting case, finds flowers Ltd. et al. V general accident assurance Co. Of Canada et al.

In this case, it was held the agents and brokers have a strategic duty to provide clients not only with information about available coverage but also with advice about forms of coverage required to meet their needs. It was found that the agent failed in an Express duty to inform the insured that he did not have certain coverage as a result, the insurance was was left without proper coverage for a shed that subsequently collapsed.

Question 25

Define material fact

Answer 25

A fact that would affect a contract of insurance enough to influence and ensure or his decision regarding whether to accept or reject the risk or the premium to be set. Material facts must be disclosed by an applicant if asked about

Question 26

What are the agents and brokers responsibility to their inters? List five responsibilities

Answer 26

1. Act within the terms of the contract
2. Follow instructions as to types of business that may be written
3. Collect premiums and hold these amounts in trust until they are remitted to the insurer remitted premiums collected within a specific time limit
4. Advise the insurer of the business written or submitted applications promptly. Disclose any relevant material fact to the insurer, even if it will make placing the risk difficult
5. Advise the insurer promptly of all claims notified to the agent or broker

Question 27

Brokers and agents responsibilities to the client

Answer 27

1. Have a reputation and dependable source of insurance advice. Spend time with clients to clarify what the policy does and does not cover. Suggest alternative coverages to better protect the insured, where applicable. Explain the process of obtaining insurance and of claims adjustment.
2. Have access to adequate capacity and range of coverages
3. Use accurate and adequate accounting and office methods
4. Assist clients with claims by explaining the claim process and keeping clients informed of the status of their claims, where applicable
5. Handle complaints appropriately
6. Answer any client queries

Question 28

What are the four main points to consider with the regulation of intermediaries?

Answer 28

1. Qualification
2. Licensing
3. Operation requirements
4. Renewal of license

Question 29

What are the 2 minimum qualifications to satisfactorily pass an examination?

Answer 29

1. Knowledge of the insurance business

2. Government regulations for insurance intermediaries

Question 30

Licensing

Answer 30

All provinces and territories require individuals to have a license to operate as insurance intermediaries. And some provinces and territories, are restricted license may be obtained, which allows the holder to transact business only in certain classes or types of insurance. Licensing is under the jurisdiction of the government insurance regulator in some provinces and territories. And others, agents are licensed directly by government regulators, will brokers are self-regulated, overseen by a regulatory organization made up of brokers.

Some provinces and territories offer restricted licenses that allow the holder to transact business in only certain classes or types of insurance, and there’s offer a graduated licensing system. And graduated licensing systems, the first level permits the license to work under the supervision of a more experienced individual and to handle only certain types of insurance.

Question 31

What are the penalties for operating as an agent or broker without a license?

Answer 31

The penalties for operating as an agent or broker without a license can be severe and can apply to the individual, the agency or brokerage, and the insurance company. For example, an insurer that compensates an unauthorized insurance agent or broker can be fined - fines tend to start at $2,000 but can quickly escalate to much greater amounts. If the agent are broker is found guilty of operating without a license, the individual is subject to fines, levies for the cost of the investigation to uncover the facts and extent of the unlicensed agents actions, and, and extreme cases, a suspension of the individuals right to operate as an insurance intermediary or to run an agency or brokerage for a period of years

Question 32

Insurance cancels her by laws that expand on the provincial mandated standards of ethical behavior list four of these codes

Answer 32

1. To act in a competent, trust worthy fashion, or misrepresentation
2. Not to be swayed by remunerative gain
3. Not to take advantage of a client’s lack of knowledge or inexperience
4. Told information in strict confidence

Question 33

Renewal of license

Answer 33

Some Canadian jurisdictions require Insurance intermediators to renew their license each year, while others require renewal every two years. The intermediary must provide a return giving basic details about the operation. Some restrictions have mandatory continuing education requirements for a license renewal to insure that insurance education is a part of a yearly commitment of every in every insurance broker or agent.

In Saskatchewan reporting to their continuing education hours to the regulator, all intermediators must take an ethics course every 5 years

Question 34

Define errors and omissions insurance

Answer 34

An insurance form that protects the insured against liability for committing an error or omission in the performance of professional duties. Generally, such policies are designed to cover financial losses rather than liability for bodily injury or property damage

Question 35

How do brokers or engines defend against errors and omission claims

Answer 35

Documentation means always keeping a record detailing whom the intermediary talk to, the date the discussion took place, what was discussed, and any subsequent action taken. Whenever possible, brokers and agents should make notes during their conversations with clients sign and date paper notes.

If the record is made digitally, the computer system will record the date and time of the interaction automatically. Brokers and agents should communicate clearly to their clients what they will do on their behalf and provide insurers with prompt, complete information and instructions.

Question 36

Intermediary should always obtain signatures from all clients when they decline coverage. Some typical forms can include?

Answer 36

1. E-signatures on a digital communication
2. Auto signature a recording of a telephone call where the client makes his or her wishes known
3. Read recipient from a client for an email
4. Signature or initial on a coverage checklist or similar document

Question 37

What are some major causes of E&o claims and defenses for them

Answer 37

1. Provide cover for exposures - this could arise if a broker agent did not fully understand the nature of the risk. It can also rise when a client did not accept the enhanced coverage the intermediary suggested and, as a result, suffered in uninsured loss. Brokers and agents can reduce the possibility of inadequate coverage by probing or offering
2. Explain the effects of exclusions, exemptions, warranties, and restrictions - this can happen when the client has inaccurate preconceptions of the nature of the coverage offered or does not fully understand the effect of the proposed wordings. Brokers and agents must always highlight the existence and effects of the limitations in the policy wordings to clients and confirm the discussions in writing
3. Place cover at all - this can happen because the broker agent did not pursue placing coverage, wrongly advise the client that cover was not available, wrongly advised the client that cover was already in place, or lost the file. In all cases, reliable file management and consistent office procedures will alleviate most of the potential for this type of E&O claim
4. provide correct cover - the client requested one form, but the broker agent arranged another. This can happen because the broker agent did not understand the client’s request or requested the incorrect coverage, or the insurer issued the policy and correctly. Brokers and agents can largely eliminate this type of E&O claim by taking care when transcribing requests for coverage and always confirming that the policy documents issued match the coverage requested
5. Provide cover in Time Dash somewhere between accepting the application from the client and binding the requested coverage, a loss occurs. The broker reagent can minimize the chance of this happening by forwarding all applications promptly to the insurer, preferably on the same business day.

Question 38

Define claim

Answer 38

The assertion of a demand made by one party against another for indemnity her personal injury or property damage rising out of the negligence or a contractual right

Question 39

What are four standards of ethical behavior for an agent or broker?

Answer 39

1. Comply with the provisions of the various Insurance Acts
2. Act in a competent, trustworthy fashion, avoiding fraud, deceit, or misrepresentation
3. Pay insurers the premiums collected as stipulated in the broker agreement
4. Comply with the legislation relating to unlicensed insurers, a place in insurance with them.

Question 40

Brokers and agents have the duty to clients

Answer 40

1. To provide the coverage best suited to the client’s needs
2. Not to be swayed by remunerative gain
3. Not to take advantage of clients lack of knowledge or inexperience
4. To hold information in strict confidence
5. To completely perform services undertaken, which requires them to be well educated and indicates the need for continuing education.

Question 41

Brokers and agents have the duty to insurers to

Answer 41

1. Be honest and trustworthy
2. Stay within the terms of the broker agreement
3. Disclose all relevant facts to the insurer, particularly any deemed to be material fact even if it will make placing the risk difficult