Chapter 7 - Sales and Distribution of Insurance

Question 1

Agents and brokers looking to increase new business sales and grow their client portfolio would likely be most successful by focusing on which method of finding new clients?

a. Radio advertisement
b. Cold calling
c. Upselling
d. Referrals

Answer 1

d. Referrals

With referrals, there tends to be a higher success rate in writing the account, simply because the client has approached the intermediary, has received good reports about the intermediary’s service, and is therefore already interested in dealing with him or her.

Question 2

Identify which of the following statements is correct.

a. Policy premiums belong to the agent or broker, while the commission belongs to the insurer.
b. Policy premiums belong to the insurer, while the commission belongs to the agent or broker.
c. Policy premiums must be deposited in the operating account and the commission is deposited in the trust account.
d. Policy premiums and commissions are held in the operating account.

Answer 2

b. Policy premiums belong to the insurer, while the commission belongs to the agent or broker.

Brokers and agents must have two bank accounts for the business: an insurance trust account in which to deposit premiums collected and from which to pay insurers for policies issued, and an operating account, which is the general business account where commissions are deposited.
d. Policy premiums and commissions are held in the operating account.

Question 3

Selling a new line of coverage to an existing client is considered which of the following sales techniques?

a. Upselling
b. Referral
c. Cross-selling
d. Cold calling

Answer 3

a. Upselling

Upselling is enhancing the coverage of existing clients by selling them additional coverages.

Question 4

What are the two types of accounts that a broker must maintain?

a. Commission and operating
b. Trust and commission
c. Operating and trust
d. Commission and profit commission

Answer 4

c. Operating and trust

A trust account is an account managed by an individual or a corporation for the benefit of another, known as the beneficiary.

Question 5

What are the two types of contracts between an insurer and an intermediary?

a. Express contract and binding contract
b. Verbal contract and implied contract
c. Insurance contract and binding contract
d. Express contract and implied contract

Answer 5

d. Express contract and implied contract

The contract or agreement between an insurer and an intermediary may be express or implied.

Question 6

What is one of the duties of a general agent?

a. Settle claims on behalf of the insurer
b. Sell and underwrite risks for one insurance company only
c. Appoint other agents
d. Create insurance rates and calculate premiums to be charged for categories of risks

Answer 6

c. Appoint other agents

A general agent is appointed by a company in a specific, usually exclusive, territory and may appoint sub-agents in that territory.

Question 7

What kind of insurance salesperson sells policies on behalf of several insurers?

a. An adjuster
b. A broker
c. An underwriter
d. An employee of a direct writer

Answer 7

b. A broker

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

Question 8

Which of the following is true about agent and broker authority?

a. In an implied agency agreement, all terms have been specifically stated and agreed upon.
b. Binding authority is the capacity to confirm to applicants that all incurred losses will be covered.
c. Agents and brokers obtain their authority from the agreement entered into with their insurers.
d. Policy premiums belong to the agent or broker, while the commission belongs to the insurer.

Answer 8

c. Agents and brokers obtain their authority from the agreement entered into with their insurers.

Insurance agents’ and brokers’ responsibilities to their principals are usually stated in the agreement between the insurer and the agent or broker.

Question 9

Which of the following is when an agent or broker can accept a risk without first sending the application to the insurer for approval?
Select one:
a. Binding authority
b. Utmost good faith
c. Material change in risk
d. Confirmation ability

Answer 9

a. Binding authority

The binding authority of agents and brokers allows them to accept a risk without first sending the application to the insurer for approval.

Question 10

The insurance companies issues and services the policies directly to clients and bill and collect premiums through which of the following

a. direct writers
b. independent brokers
c. Lloyds market
d. exclusive agency company

Answer 10

a. direct writers

Direct writer deal directly with the public and typically have employees a producers

Question 11

The principle agent relationship places obligations on 3 of the following: what are they

Answer 11

* Agents and brokers to their principals
* Principals to their agents and brokers
* Agent and brokers to their clients.

Question 12

Similar to the common law rules on agency the rules for mandator and mandatary are set out in

a. The insurance act
b. The Civil Code of Quebec
c. Civil law
d. The law of agency

Answer 12

b. The Civil Code of Quebec

Question 13

Which of the following is a key focus of the Insurance Act’s regulation of insurance intermediaries?

a. Percentage of premium paid as broker commission
b. Licence renewal
c. Income tax paid by insurance agents
d. Limit of coverage for errors and omissions insurance

Answer 13

b. Licence renewal

Question 14

What are the 4 Insurance distribution and insurance intermediaries?

a. Independent Agency, Brokerage Agency, Exclusive agency system and Direct writers
b. Independent Brokers, Independent agency, exclusive agency system and direct writes
c. Brokerage system, exclusive agency system, direct writers and independent agency
d. Independent agency exclusive brokers, direct writers and brokerage system.

Answer 14

b. Independent Brokers, Independent agency, exclusive agency system, and direct writes

Question 15

How does an Independent Agency operate

Answer 15

They works on a commission or base salary plus commission and, they represent one or up to 3 insurers. They own the client list

Question 16

How does a Broker system operate?

Answer 16

They works on a commission or commission plus salary and they represent one or multiple insurers. Brokerage owns the client list

Question 17

How does a Exclusive agency system operate?

Answer 17

Represents one insurance company, they can work commission or base salary plus commission. Independent contractors. Insurer own the business written

Question 18

How does Direct Writers operate?

Answer 18

They works on a commission or base salary plus commission. they are employees of the insurance company. Insurer own the business written

Question 19

What is the difference between a Broker and an Agent?

Answer 19

A broker is an independent businessperson who may place business with a number of insurance companies.

Agent - represents only one company.

Both their job is to find what works best for the insured

Question 20

Describe the principal agent relationship

Answer 20

The principal agent relationship places obligations on agents and principals to each other and to third parties who enter into negotiations or form contracts with them.

We are asking for someone to act on our behalf of someone else. The broker acts on the behalf of the insured.

Question 21

In Quebec principal agents are referred to as what

a. Mandator and Mandatary
b. Managers and Mandatary
c. Managers and Mandator
c. Managers and agents

Answer 21

a. Mandator and Mandatary

Question 22

What are the two types of contracts

a. express and authority
b Implied and not applied
c. Implied and express
d. written and implied

Answer 22

c. Implied and express

Question 23

What are the two tpyes of contract agreement between an insurer and an intermediary ?

Answer 23

Express contract

Implied contract

Question 24

What are the main points to concider for Self regulation (RIBO)

Answer 24

Qualifications- Knowledge of the insurance business, government regulations for insurance intermediaries

Licensing- All provinces require individuals to have a license to operate, and require licensees to be supervised at the lower levels by more senior people

Operating requirements- must follow the requirements of provincial and territorial insurance acts and regulations in the operation of their business.

License renewal - Must renew their license in accordance with the requirements of their province Most are renewed yearly. Many provinces require continuing education hours

Question 25

Responsibility of the Broker

Answer 25

Follow binding authority- instruction on the type of business
Collect premiums and hold them in a trust
Remit premiums with in a specific time limit
Advise Insurer of business written or submit application promptly.
Advise insurer promptly of all claims

Question 26

General Agent

Answer 26

Typically only represents one company.
One who has authority to form a company

Employees are agents

Question 27

What is Law of agency

Answer 27

Law of agency applies when an agent is authorized to do something on behalf of a principal. The principal is the person or entity for who the agent or broker acts.

Question 28

In regards to Principal- Agent relationship, what are the two distinct legal systems in Canada

Answer 28

The Civil code of Quebec and the Common law that applies to the rest of Canada.

Question 29

Under Civil code of Quebec

Answer 29

contract = mandate

Question 30

What are the responsibilities that an agent or broker need to follow?

Answer 30

Act within the terms of their contract

Follow the instruction as to the type of business they may write

Collect premiums and hold these amounts in a trust account

Remit premiums collected within a specified time limit

Advise the insurer of the business witten promptly

Advise the insurer of any claims right away.

Question 31

What is an intermediary?

Answer 31

The agent/broker negotiating insurance or reinsurance contracts for another. Any party representing another party, in negotiation with a third party.

Question 32

What is the basic function of an Intermediary?

Answer 32

They are the physical link between the insurer and the consumer. Intermediaries help in identifying insurance needs, matching those needs with products available

Question 33

How does authority come about?

Answer 33

..Insurance agents and brokers obtain their authority from the agreement or contract entered into with the insurers. This arrangement is further influenced by provincial or territorial law as set out in the appropriate provincial or territorial insurance acts. It is also influenced by regulations administered by the provincial or territorial regulator, usually the superintendent of insurance.

Question 34

Two types of contracts

Answer 34

Express contract
Implied contract

An express contract
is one in which the terms of the arrangement have been specifically stated and agreed to by both parties either orally or in writing. A written agreement is obviously more desirable in that it avoids any misunderstanding as to the responsibilities and obligations of each party to the agreement.

An implied contract
is one in which the parties have acted in such a way that it is understood that a principal–agent relationship exists, even though there may have been no expressed statement by either. This is not the most desirable arrangement because it could result in disputes due to the lack of any specific terms.

Question 35

What are the responsibilities of agents and brokers ?

Answer 35

Act within the terms of their contract

Follow instructions as to types of business that may be written; for example, to write only the classes of risk acceptable to the insurer and not exceed the limits of coverage authorized

Collect premiums and hold these amounts in trust until they are remitted to the insurer

Remit premiums collected within a specified time limit

Advise the insurer of the business written or submit applications promptly

Advise the insurer promptly of all claims notified to the agent or broker

Question 36

What is a binding authority?

Answer 36

It is a very important element of what an agent or a broker is authorized to do for an insurer. It is the capacity to confirm to people who have submitted insurance applications that they have coverage against certain happenings or events that, if they occur, may cause financial loss. In other words, it gives intermediaries the authority to bind an insurer to a contract of insurance and to issue an interim receipt or binder. If a loss occurs before the actual policy is issued, but a binder has been issued, the loss is covered in the same manner as if the actual policy had already been issued.

Question 37

List 5 Facets of communication

Answer 37

Speak formal or informal
Making personal Conversations to build comfort
Matching/mirroring
Listening to what is being said
Interpreting how it is being said
Processing non-verbal cues
Questioning those parts that were difficult to understand
Confirming that what was absorbed was understood correctly

Question 38

Communication over the phone

Answer 38

Cultivate phone manners
Appropriate telephone etiquette
document discussions
Honor commitments
Leave professional phone messages.

Question 39

communication skills

Answer 39

Listen to what is being said
Interpreting what is being said
Processing no verbal cues
Questioning those parts that are difficult to understand

Question 40

Obligations Documentations

Answer 40

Keeping a written record of verbal communication, Who what when and where
Sequent action taken.
Use full names
File all correspondence
notes in files including emails.

Question 41

Obligations Selling

Answer 41

Referrals
Marking
Advertising and walk-ins
Cold calling
Tracking expiry dated
Upselling and cross selling

Question 42

MAIN AREAS OF REGULATIONS

Answer 42

Qualification
knowledge if the business of insurance
Government regulation for insurance intermediaries

Question 43

Licensing

Answer 43

individuals to have a license to perate as an insurance intermediary
restricted licenses
some provinces have self regulation

Question 44

Operating requirements

Answer 44

Once intermediaries receive a licence, they must follow the requirements of provincial and territorial insurance acts and regulations in the operation of their business.

Question 45

Renewal of licenses

Answer 45

credit hours - CE hours

Question 46

Describe the purpose of trust and operation accounts in the operation of an agency or a brokerage

Answer 46

Brokers must establish two bank accounts for business
Trust account and operation account.

Premiums belong to the insurer. When intermediaries collect the premiums, they must properly manage those funds as part of their duties.

Premiums are held in a trust account by the intermediary where they manage the funds. It is best practice to have two accounts
A Trust account to pay the insurer for the policy
An operating account for commissions will be used by the broker to cover expenses and profit. Generally paid as a percentage.

Question 47

List the means of developing a good rapport with clients

Answer 47

Listening to what is being said

Interpreting how it is being said

Processing non-verbal queues

Question those parts of the conversation that were difficult to understand

Confirming that what was absorbed was understood correctly

Question 48

commissions

Answer 48

the share of premium given to the broker or agent for having produced the business

Question 49

two types of commissions

Answer 49

Standard and Contingent