Multiple Choice - Ins. Institute Flashcards
What is NOT an advantage of incorporating a business’s operations?
a. The assets of the owner are separated from the assets of the business.
b. The business cannot be held responsible for the actions of the owner.
c. The business does not dissolve when there is a shareholder death or retirement.
d. The business can raise money by soliciting investors.
Feedback
The advantages of incorporation include limited liability, continuity, increased ability to raise capital, liquidity, taxation, increased options for shareholder reward, and an increased knowledge pool.
The correct answer is: B. The business cannot be held responsible for the actions of the owner.
Which statement most accurately describes the difference between a general and a limited partner?
a. Limited partners only work at the business on a part-time basis; general partners have full-time involvement.
B .General partners invest only money in the business; limited partners invest both money and time.
c. General partners are involved in the day-to-day operations of the business; limited partners only contribute resources.
d. Limited partners are subject to a flat tax on their investment; general partners are taxed at the personal tax rate.
Feedback
A limited or silent partner contributes cash or assets to the business but is not part of the day-to-day operations. A general partner is involved in the business operations.
The correct answer is: C. General partners are involved in the day-to-day operations of the business; limited partners only contribute resources.
Which statement correctly describes the step licensing process?
a. Every year the agent is licensed, fewer continuing education hours are required.
b. Customer service authority is usually restricted for licensees in beginner levels.
c. The sponsoring insurance company must qualify all agents in the brokerage.
d. All levels of licensing must be completed in order to act as an agent in a brokerage.
Feedback
Where step licensing is employed, generally, passing the initial or entry level examination qualifies the individual as the most junior grade of licence holder, and permits him or her to function as an insurance broker (subject to restrictions) under the supervision of more experienced and more highly qualified brokers.
The correct answer is: B. Customer service authority is usually restricted for licensees in beginner levels.
What is NOT a function of an insurance regulator?
a. Penalizing agents that violate the Insurance Act by imposing a fine
b. Approving courses for continuing education requirements
c. Assisting an insurance consumer in filing an E&O claim against a broker
d. Investigating a theft of premium complaint against an agent
Feedback
Regulators are concerned about consumer protection and provide a framework for professional and ethical behaviour within the Insurance Act and their codes of conduct. If there are no violations of the Act, the regulator will not get involved in contractual disputes involving coverage or premium payments.
The correct answer is: C. Assisting an insurance consumer in filing an E&O claim against a broker
A homeowners insurance client decides to open a construction company. The client has a relationship with the customer service representative (CSR) at the brokerage and wants the CSR to make the insurance arrangements for the business. The CSR has no experience in commercial insurance but would like to be promoted into a commercial role in the future. How should the CSR best handle this call?
a. Take information from the client and promise to get back to them with a quote once the insurer has provided it
b. Tell the client they have no experience in commercial insurance but will pass a message to another broker in the office to call the client back
c. Take this as a training opportunity for their licence and send an application form to the client for completion
d. Let the client know that coverage can be arranged, but the insurance company will have to be consulted first
Feedback
An insurance broker’s duty to exercise reasonable care is judged based on what a prudent person with similar training would do in the same circumstances. Broker management should ensure that all clients receive the same high standard of care regardless of the expertise of the broker handling the client’s affairs. A professional has an obligation to refer clients to specialists when appropriate.
The correct answer is: B. Tell the client they have no experience in commercial insurance but will pass a message to another broker in the office to call the client back
A transportation client discloses they are planning to move a few loads of jet fuel next week: a major change in operations, as they usually only haul water. The broker knows that the insurer will not offer coverage for dangerous goods hauling, as a similar submission was declined last week. What should the broker do?
a. Take advantage of the 30-day binding authority in which the client will complete the fuel move
b. Tell the client not to take on these loads until the broker has had time to make coverage arrangements with an insurer
c. Send an email to the insurer requesting the change in operations, knowing that based on the underwriter’s current response time it will be a couple of weeks before there is an answer
d. Advise the client that information on this change will be passed on to the insurance company but “forget” to do so
Feedback
It is the agent’s duty to obey the lawful instructions of the principal. The agent is responsible for providing the principal with all information that materially affects the principal’s interests. This includes working within binding authority and advising an insurer immediately upon becoming aware of material changes that affect its contracts.
The correct answer is: B. Tell the client not to take on these loads until the broker has had time to make coverage arrangements with an insurer
Why is it important to clearly define the ownership of the client files in the agency contract?
a. The commission earning potential of client files or “goodwill” is the true value of most brokerages.
b. If a client suffers an uninsured loss, the owner of the file will be responsible for the errors and omissions claim.
c. When a client neglects to pay the policy, the file owner might incur a red flag.
d. If the brokerage wants to borrow money to expand, it requires the insurer’s permission.
Ownership of expirations is an essential factor in determining the value of a brokerage.
The correct answer is: A. The commission earning potential of client files or “goodwill” is the true value of most brokerages.
A brokerage has been having an incredible year. The business development representative of the sponsoring insurer is very positive, mentioning that the loss ratio and all other indicators show the brokerage as being well on its way to earning a large commission profit cheque. All the brokerage needs to do is put another $20,000 on the books before year-end. New business has been slow, but if a renewal is remarketed from the present carrier, the volume target will not be a problem. What is the most ethical course of action?
a. Provided the coverage and pricing are similar, the brokerage should remarket the client to earn the bonus.
b. The brokerage can recommend changing insurance carriers to the client, but only if it is in the client’s best interest.
c. There is no harm in changing insurance carriers provided the client is unaware of the reason for the change.
d. In business, the correct course of action is to maximize profit for the company owners and shareholders; therefore, the client file should be remarketed.
Feedback
Brokers are ethically required to treat the best interests of their clients as paramount at all times. Thus, the interests of the client always supersede the broker’s interest in any bonus commission to be earned.
The correct answer is: B. The brokerage can recommend changing insurance carriers to the client, but only if it is in the client’s best interest.
What is an example of ratification?
a. An insurance company issues a policy exactly as requested by the broker.
b. An insurance company agrees to issue a new policy for a gravel truck even though the broker did not have authority to bind the coverage.
c. An insurance company declines an application for a homeowner who has had three claims because the broker did not have binding authority.
d. An insurance company receives an application from an insurance broker’s office after a claim has been reported.
Ratification is a form of authority that a principal has the option of granting. If the principal ratifies (that is, agrees to) the agent’s act, the principal is bound by the original contract.
The correct answer is: B. An insurance company agrees to issue a new policy for a gravel truck even though the broker did not have authority to bind the coverage.
Abacus Agencies has been selling Cypress Mutual’s insurance policies under a brokerage contract for over 20 years. Abacus includes Cypress Mutual’s logo in its weekly advertisement in the local paper. The brokerage contract does not give Abacus permission to use the Cypress logo in advertisements, but Cypress representatives have seen some of the advertisements when visiting the office. What type of authority is Cypress relying on?
a. Express
b. Implied
c. Ratified
d. Contractual
Feedback
Implied authority is authority that, although no proof exists of its having actually been given, may be inferred from the conduct of the principal or from the written authority of the principal.
The correct answer is: B. Implied
Which statement best describes the principles of a code of ethics?
a. They advocate for brokers’ remuneration when negotiating with insurers.
b. They restrain the quantity of information provided to uninformed underwriters.
c. They are the written form of minimum standards of behaviour expected of industry members.
d. They are most effective when they allow brokers freedom of choice in their interactions with clients and insurers.
Feedback
Insurance industry regulators and/or professional associations establish codes of ethics as the written form of minimum standards of behaviour expected of industry members.
The correct answer is: C. They are the written form of minimum standards of behaviour expected of industry members.
Under the law of agency and utmost good faith, what do brokers have a duty to provide insurers with?
a. All information material to the underwriting of the risk
b. The information obtained from the application only
c. As little information as possible to get approval
d. All information and details about the risk
Feedback
Under the law of agency and utmost good faith, brokers have a duty to provide insurers with all information that is material to the underwriting of the risk.
The correct answer is: A. All information material to the underwriting of the risk
When do clerical errors that lead to professional liability claims often happen?
a. Inputting written applications into company portals
b. Clients changing their mind about purchasing the insurance
c. Calling about outstanding payments
d. Filling out an application by hand
Feedback
Clerical errors and misunderstandings often happen when inputting written applications into company portals or into the broker management system, especially if the person who took the application is not the same person doing the data entry. One way to alleviate these errors is to reduce the number of times information is collected and entered, when possible, to key the information directly into the management system, and to port the information using integrators so re-keying is not needed.
The correct answer is: A. Inputting written applications into company portals
To avoid E&O claims, what should a broker do when they decide not to renew an account?
a. Advise the insurer to lapse the policy 15 days in advance
b. Provide the client written notice of unequivocal intention not to renew
c. Provide the company written notice of unequivocal intention not to renew
d. Ensure the lapse is recorded in the brokerage management system
Feedback
When the broker decides not to renew an account, it is wise to provide written notice of unequivocal intention not to renew, even where there is no formal requirement to do. The notice should be delivered with sufficient time for the client to place the coverage elsewhere.
The correct answer is: B. Provide the client written notice of unequivocal intention not to renew
When brokers insure exposures outside the scope of their authority, what have the courts typically held?
a. The broker is liable for the client’s loss and related expenses incurred by the insurer.
b. The insurer is liable for the client’s loss and related expenses incurred by the broker.
c. The broker can tell clients that the insurer should have paid them.
d. The insurer must accommodate the broker’s action.
Feedback
When a broker insures an exposure outside the scope of their authority, courts have typically held the broker liable for the client’s loss and related expenses incurred by the insurer because, had the broker followed the insurer’s underwriting guidelines, the insurance policy would not have been issued.
The correct answer is: A. The broker is liable for the client’s loss and related expenses incurred by the insurer.
Why should caution be used when placing business outside a broker’s regular contracted markets?
a. The principal is not liable to third parties for acts of the unauthorized sub-agent.
b. The sub-broker might charge an overly large premium.
c. The principal is liable to third parties for acts of the unauthorized sub-agent.
d. The sub-broker might charge too small a premium.
Feedback
When a sub-agent is employed without authority from the insurer (principal), no agency relationship exists between them. The principal is not liable to third parties for acts of the unauthorized sub-agent, and the unauthorized sub-agent owes no duties to the principal.
The correct answer is: A. The principal is not liable to third parties for acts of the unauthorized sub-agent.
What are document retention timelines generally guided by?
a. Prescription periods and Canada’s Anti-Spam Legislation
b. The seven-year rule
c. Policy expiry dates and PIPEDA requirements
d. Prescription periods and PIPEDA requirements
Feedback
For the purpose of defending any future E&O claims that may occur, the brokerage should retain all files documenting the brokerage’s interactions with, and on behalf of, its clients. Generally, insurance professionals are guided by the prescription periods applicable to the various classes of insurance and the requirements of PIPEDA or other provincial and territorial privacy laws regarding collection, use, retention, and disclosure of personal information.
The correct answer is: D. Prescription periods and PIPEDA requirements
What is a best practice for management when handling E&O claims?
a. Have each person involved secure files relevant to the incident and refuse the client’s lawyer unless a subpoena is issued
b. Have each person involved prepare a statement and share it with staff so everyone is on the same page
c. Hold a meeting immediately with all staff to review the incident in detail
d. Hold on to documents and writs unless requested by the E&O broker
Feedback
All employees should be made aware that they may discuss an E&O incident only with those parties assigned by the E&O insurer. They may not discuss the incident with the client, the client’s lawyer, or any other party. Brokerage files are private and confidential, and not be turned over to the client’s lawyer unless a subpoena is issued.
The correct answer is: A. Have each person involved secure files relevant to the incident and refuse the client’s lawyer unless a subpoena is issued
Professional liability policies are designed to insure a broker’s legal liability for claims resulting from what?
a. Negligent acts, errors, or omissions and vicarious liability
b. Negligent acts only
c. Errors and omissions
d. Negligent acts, errors, or omissions
Feedback
Professional liability policies are designed to insure a broker’s legal liability for claims resulting from negligent acts, errors, or omissions. They also cover the broker’s vicarious liability.
The correct answer is: A. Negligent acts, errors, or omissions and vicarious liability
On what basis are most professional liability policies written?
a. Occurrence basis, responding to claims resulting from an incident that occurs during the policy term
b. Accident basis, responding to physical losses that are accidental in nature only
c. Claims-made basis, responding to claims reported during the policy period
d. Both claims-made and occurrence basis
Feedback
Most policies are written on a claims-made basis, responding to claims reported during the policy period.
The correct answer is: C. Claims-made basis, responding to claims reported during the policy period
Brooklyn Insurance Brokers is designing this year’s action plan to support the direction laid out in the business plan. Which statement does NOT belong in an action plan?
a. Review monthly cancellations to identify areas for improvement in retaining business.
b. Increase awareness of insurance company products and services to increase opportunities to cross-sell and upsell coverage and additional lines of business to existing customers.
c. Increase broker sales by 25 percent within a 24-month period by investing in individual broker education and training.
d. Identify monoline accounts that producers can pursue on the renewal of a client’s policy to aim to secure a second line of business.
Feedback
The action plan provides the finer, more specific details necessary to achieving the strategic and business plans. It applies to the brokerage’s future in the short term, typically over no more than one year. It breaks down the actions required to meet the company’s goals into specific initiatives, stating who is responsible for each and the date by which the work must be completed.
The correct answer is: C. Increase broker sales by 25 percent within a 24-month period by investing in individual broker education and training.
Which aspect of the management planning process does the following statement describe? “A great deal of thought must go into making decisions on new technologies. New technologies have various capabilities that could significantly impact a brokerage’s business. Planning how much to invest and when is the best time to do it are important management decisions.”
a. Planning
b. Organizing
c. Directing
d. Controlling
Feedback
Directing is a term used to describe how an organization involves, acquires, and uses physical resources and how it employs people. It entails determining what physical assets the company needs, who can assist it, and how the assets and people will be organized.
The correct answer is: C. Directing
What is considered benchmarking?
a. Analyzing data to determine if there are areas the brokerage has not considered
b. Competing with other local and online brokerages, direct writers, and fintechs
c. Analyzing data collected from competitors on the business volume handled by each customer service representative against data from the brokerage
d. Reviewing current market conditions to gauge insurers’ appetite for new business
Feedback
Benchmarking, an important aspect of analyzing internal and external factors, measures various aspects of one business against another. It involves gathering data relevant to the brokerage’s operation and measuring it to view patterns, capabilities, efficiencies, and any other conclusions the information can support.
The correct answer is: C. Analyzing data collected from competitors on the business volume handled by each customer service representative against data from the brokerage
Which statement best describes mission statements and/or vision statements?
A mission statement specifically describes the customers’ needs and how to satisfy those needs.
b. A vision statement describes the final result of the mission statement.
c. A mission statement should focus on the results needed to be successful with insurance providers.
d. A vision statement should set targets out of reach to motivate staff to boost their productivity.
Feedback
A brokerage’s vision statement is derived from its mission statement. The vision statement is a description in words of what the final goal will look like. It is intended to inspire and motivate people to work together to achieve the desired outcome.
The correct answer is: B. A vision statement describes the final result of the mission statement.
What can management do to acquire and evaluate data for strategic planning?
a. Complete a PAST analysis and a SWAT analysis
b. Complete a PEST analysis and a SWOT analysis
c. Complete a SWAT analysis only
d. Complete a PEST analysis only
Feedback
Strategic planning for an organization requires a lot of data as well as the ability to analyze that data and extract meaningful information. To accomplish this, management will typically conduct both a PEST analysis and a SWOT analysis.
The correct answer is:B. Complete a PEST analysis and a SWOT analysis
What is NOT true of the function organizational structure?
a. Utilizes the skills and strengths of the entire staff team
b. Organizes various activities carried out throughout the course of business, according to the office hierarchy
c. Clarifies the reporting structure through divided authority
d. Organizes people based on knowledge and skills rather than on assigned responsibilities and functions
Feedback
In contrast to line and staff structures, process management organizes people based on their knowledge and skills rather than on their assigned responsibilities and functions.
The correct answer is: D. Organizes people based on knowledge and skills rather than on assigned responsibilities and functions
What scenario uses a process management organizational structure?
a. Lindsay Insurance Brokers is a small brokerage whose owner acts as principal and broker. A receptionist handles administrative tasks.
b. Sydney Insurance Brokers has split its business into the following teams: service, sales, and support. Team members report to a manager, who reports to the owner.
c. Four Isle Insurance Brokers is using a pyramidal form of organization. Employees can expect their responsibility, accountability, and remuneration to increase as they attain higher positions within the organization. Staff report to their immediate department manager or supervisor.
d. Rough River Insurance Brokers focuses on the skills and strengths of individual employees and matches those with job roles. Employees report to the principal broker.
Feedback
Process management places people with different skills in teams that work simultaneously on a specific project. While members of the team may report directly to their own department managers, the flow of work within the team is coordinated by the team leader.
The correct answer is: B. Sydney Insurance Brokers has split its business into the following teams: service, sales, and support. Team members report to a manager, who reports to the owner.
What is a benefit of working as part of a team in a process management structured organization?
a. Individuals learn skills outside their specialty from each other, enabling them to fill in for each other when necessary.
b. Team members have less pride in their work and resent performance objectives.
c. The environment fosters creativity and allows employees to compete for internal positions.
d. Rewards based on individual success encourage healthy competition between team members.
Feedback
The benefits are that the team environment fosters creativity, and encourages and empowers individuals to take the initiative in preventing issues or solving problems; team members have a sense of ownership, take greater pride in their work, and strive to meet performance objectives; team members learn skills outside their specialty from each other, enabling them to fill in for each other when necessary; and rewards can be team focused and promote cooperation among employees.
The correct answer is: A. Individuals learn skills outside their specialty from each other, enabling them to fill in for each other when necessary.
What should clients be clearly advised of on the brokerage’s website or as an automated email response, or both?
a. The brokerage does not communicate changes to client policies by email.
b. Requests for coverage changes or additions made via email must be confirmed by a member of the brokerage staff for the change to be effective.
c. Any requests will match the date and time received by the brokerage’s email server.
d. The brokerage does not communicate by email.
Feedback
Because email is not always reliable, clients should be clearly advised (by a notice on the brokerage’s website or an automated email response, or both) that requests for coverage changes or additions made via email must be confirmed by a member of the brokerage staff for the change to be effective.
The correct answer is: B. Requests for coverage changes or additions made via email must be confirmed by a member of the brokerage staff for the change to be effective.
Which is a step in contingency planning?
a. Identifying critical assumptions about the past
b. Establishing the probability of each critical assertion
c. Ranking critical assumptions in order of probability
d. Setting triggers to activate the strategic operation
Feedback
Contingency planning involves identifying critical assumptions about the future; establishing the probability of each critical assumption; ranking critical assumptions in order of probability; devising an action plan to take advantage of future opportunities or to combat potential threats; setting triggers to activate the action plan; and specifying alternative response options.
The correct answer is: C. Ranking critical assumptions in order of probability
What statements are used to report a company’s key financial information?
a. Balance sheet, trial balance, statement of cash flows
b. Trial balance, income statement, statement of changes in shareholders’ equity
c. Income statement, balance sheet, statement of cash flows
d. Balance sheet, income statement, trial balance
Feedback
Typical financial statements are the balance sheet, income statement, statement of changes in shareholders’ equity, and statement of cash flows.
The correct answer is: C. Income statement, balance sheet, statement of cash flows
What is an expense ratio?
a. Total brokerage expenses divided by gross premiums written
b. Gross premiums written divided by total brokerage expenses
c. Net premiums written divided by total brokerage expenses
d. Total brokerage expenses divided by gross premiums written
Feedback
An expense ratio may also be calculated by dividing total brokerage expenses by gross premiums written.
The correct answer is: D. Total brokerage expenses divided by gross premiums written
What is the formula for the account lapse ratio?
a. Total number of accounts to renew divided by the total accounts premium
b. Total number of accounts lapsed divided by the total number of accounts to renew
c. Total account premium divided by the total number of accounts to renew
d. Total number of accounts to renew divided by the total number of accounts lapsed
Feedback
The account lapse ratio is calculated by dividing the number of accounts lapsed by the number of accounts to renew.
The correct answer is: Total number of accounts lapsed divided by the total number of accounts to renew
How is the earned loss ratio calculated?
a. Total incurred losses divided by total written premiums
b. Total written premiums divided by total incurred losses
c. Total incurred losses divided by earned written premiums
d. Earned written premiums divided by total incurred losses
Feedback
Earned loss ratio is calculated by dividing total incurred losses by earned written premiums.
The correct answer is: Total incurred losses divided by earned written premiums
What are three methods of budgeting?
a. Baseline, zero-based, performance-based
b. Zero-based, performance-based, ratio-based
c. Baseline, ratio-based, performance-based
d. Performance-based, zero-based, ratio-based
Feedback
Various methods can be used to prepare a budget. The three methods discussed here are baseline budgeting, zero-based budgeting, and performance-based budgeting.
The correct answer is: Baseline, zero-based, performance-based
What can a brokerage meet by having a sufficient cash flow?
a. Current accounts payable obligations
b. Shareholder dividend obligations
c. Current accounts receivable obligations
d. Current liability obligations
Feedback
Sufficient cash flow enables a brokerage to meet current accounts payable obligations, including payroll, tax remittances, rents or leases, bills for continuing services such as electricity, and, crucially, the remittance of insurers’ portions of premiums within the time period stipulated by the agency contract.
The correct answer is: Current accounts payable obligations
What does the direct approach of expense reduction assess?
a. Increase in sales required to generate same level of profit
b. Increase in profit required to generate same level of revenue
c. Decrease in expenses required to generate the same level of profit
d. Decrease in expenses required to generate the same level of revenue
Feedback
The direct approach assesses the impact of expense reduction in terms of the increase in sales that would be needed to generate the same level of profit.
The correct answer is: Increase in sales required to generate same level of profit
Which statement correctly describes apportioning costs using the direct method?
a. Overhead costs for head office are proportionately applied to revenue departments.
b. Overhead costs for head office are evenly applied to revenue departments.
c. Overhead costs for each supporting service are proportionately applied to revenue departments.
d. Overhead costs for each supporting service are evenly applied to revenue departments.
Feedback
One of the simplest methods of apportioning costs is the direct method, in which the overhead costs for each of the supporting services are proportionately applied to the units producing revenue.
The correct answer is: Overhead costs for each supporting service are proportionately applied to revenue departments.
Which statement applies to an example of an accounts receivable policy?
a. All producers must adhere to a consistent policy.
b. Renewal notices will be sent to problem accounts 60 days in advance.
c. Producers will be personally responsible for any exceptions made to the policy.
d. Policy cancellation is necessary on all accounts not paid by the renewal date.
Feedback
An example of an accounts receivable policy is that producers will be personally responsible for any exceptions made to the policy.
The correct answer is: Producers will be personally responsible for any exceptions made to the policy.
What are three collection methods used by brokerages?
a. Broker bill, direct bill, premium financing company
b. Broker bill, direct bill, electronic funds transfer (EFT)
c. Direct bill, premium financing company, electronic funds transfer (EFT)
d. Broker bill, premium financing company, electronic funds transfer (EFT)
Feedback
Premium collection methods include brokerage staff collecting the premiums, direct billing by insurers, and premium financing.
The correct answer is: Broker bill, direct bill, premium financing company
Why does human resources management analyze each job function?
a. To assess the individual performance requirements
b. To determine the number of employees required
c. To understand the employees’ expectations
d. To meet annual budget constraints
Feedback
Management analyzes each job function to identify what should be accomplished, and then assesses the individual performance requirements applicable to each function.
The correct answer is: To assess the individual performance requirements
What is NOT an advantage of separating the sales and service functions from the production functions?
a. Freeing producers to devote their energy to generating new business
b. Avoiding duplication of effort
c. Reducing interactions with customers and underwriters
d. Raising awareness of the extent of staff responsibilities
Feedback
Separating the sales and service functions from the production functions frees producers to devote their energies exclusively to generating new business; eliminates or reduces duplication of effort; and makes staff members aware of the extent of their responsibilities.
The correct answer is: Reducing interactions with customers and underwriters
What best describes a formal team?
a. A section created within a structure to pursue specified goals
b. All the people who are working to achieve the same outcome
c. All the people within an office who report to the same person
d. A section created to deal with a particular situation
Feedback
A formal team is a department or section created within a recognized structure to pursue specified goals.
The correct answer is: A section created within a structure to pursue specified goals
What are core characteristics?
a. Traits that are part of an individual’s personality makeup or learned very early in life
b. Traits that are usually learned over time, acquired as an adult
c. Skills that are rooted in technology
d. Vocational skills that are learned through on-the-job training
Feedback
Core characteristics are those traits that are part of an individual’s personality makeup or learned very early in life.
The correct answer is: Traits that are part of an individual’s personality makeup or learned very early in life
Which statement best describes an employment contract?
a. It is a formal agreement that clearly outlines the working relationship between the brokerage and the employee.
b. It is an overview of the start date and salary in a contract between the brokerage and the employee.
c. It is a formal agreement that addresses the council licensing requirements.
d. It is a document that lists the skills and core characteristics required for the role.
Feedback
Employment contracts are formal agreements that clearly outline the working relationship between the brokerage and the employee.
The correct answer is: It is a formal agreement that clearly outlines the working relationship between the brokerage and the employee.
What does a non-solicitation clause require a producer to refrain soliciting from the brokerage?
a. Clients for a reasonable period after the producer leaves or is terminated from the brokerage
b. Clients or other employees for a reasonable period after the producer leaves or is terminated from the brokerage
c. Other employees for a reasonable period after the producer leaves or is terminated from the brokerage
d. Clients or other employees for as long as the employee works as a licensed insurance broker after leaving or being terminated from the brokerage
Feedback
A non-solicitation clause requires a producer to refrain from soliciting clients or other employees of the brokerage for a reasonable period after the producer leaves or is terminated from the brokerage.
The correct answer is: Clients or other employees for a reasonable period after the producer leaves or is terminated from the brokerage
Which statement best describes equity theory?
a. If employees believe their rewards to be the same as those of others who have performed at the same level, they will decrease their quality or quantity of work.
b. If employees believe their rewards to be less than those of others who have performed at the same level, they will increase their quality or quantity of work to prove their worth.
c. If employees believe their rewards to be more than those of others who have performed at the same level, they will decrease their quality or quantity of work as they feel they don’t have to work as hard.
d. If employees believe their rewards to be less than those of others who have performed at the same level, they will decrease their quality or quantity of work.
Feedback
Equity theory states that if employees believe their rewards to be less than those of others who have performed at the same level, they will decrease their quality or quantity of work to compensate for the difference.
The correct answer is: If employees believe their rewards to be less than those of others who have performed at the same level, they will decrease their quality or quantity of work.
What is an effective way to deal with change?
a. Try to avoid change and keep the status quo
b. Dictate to staff what the change is and how it is to be handled
c. Stay abreast of developments in the industry through industry publications
d. Discourage staff from bringing new ideas forward to keep changes to a minimum
Feedback
Practices that can assist with change include staying abreast of developments in the industry through industry publications and discussions with peers and insurers.
The correct answer is: Stay abreast of developments in the industry through industry publications
How can delegating work assist in goal attainment?
a. It moves work to the correct team so staff can focus on their assigned priority tasks.
b. It lets staff move work they do not enjoy to others, so they have fun things to do.
c. It lets staff get everything off their plate so they can focus on work that supports their appraisal goals only.
d. It allows for staff to move work to other departments, so they have less to do.
Feedback
Learning to delegate can assist employees in goal completion. There are times when staff are not meeting their targets and the reasons why are not clear. Delegation of work to more appropriate people or departments is one possible solution to bottlenecks in workflow.
The correct answer is: It moves work to the correct team so staff can focus on their assigned priority tasks.
When is cross-training most effective for the employee?
a. When they are given a regular opportunity to work in the role in which they are cross-trained
b. When they are shown how to do a variety of positions so they can fill in wherever help is needed
c. When they are given a workflow document to show what the position entails
d. When they are trained by someone in the cross-trained department
Feedback
Cross-training is most effective if the employee is given a regular opportunity to work in the role in which they are cross-trained.
The correct answer is: When they are given a regular opportunity to work in the role in which they are cross-trained
What does a brokerage most want a broker management system to do?
a. Report on the activities of the brokerage’s employees
b. Report on the activities of the brokerage’s insurers
c. Meet all the needs of an organization
d. Meet all the needs of the business strategy
Feedback
Choosing a broker management system (BMS) that can meet all the needs of an organization is ideal for optimal management of a brokerage.
The correct answer is: Meet all the needs of an organization
What is the most significant advantage of creating templates and prewritten, pre-approved client documentation?
a. They are a source of training material for an organization.
b. They are an asset that requires a lot of time and upkeep to ensure relevance.
c. They are a time savings resource.
d. They are an errors and omissions prevention method.
Feedback
Creating templates and prewritten, pre-approved client documentation can be a significant E&O prevention method.
The correct answer is: They are an errors and omissions prevention method.
Ideally, what will a well-designed website make existing clients and new prospects knowledgeable about?
a. The content of the website
b. The process and effect of insurance
c. What companies the brokerage represents
d. Who the brokerage is and what it can do for customers
Feedback
Ideally, a well-designed website will make existing clients and new prospects aware of the brokerage and what it can do for them.
The correct answer is: Who the brokerage is and what it can do for customers
What helps a brokerage determine the success of its advertising?
a. The client relationship management system
b. Online data metrics
c. Web traffic
d. The broker management system
Feedback
Online data metrics help a brokerage determine how successful its advertising is.
The correct answer is: Online data metrics
Having established a short list of computer systems or broker management systems based on management’s critical requirements, what does the IT team review each for?
a. Costs and cost-benefit analysis
b. Compatibility, including data conversion and merging capabilities
c. How the systems will affect brokerage commissions and contingent profits
d. The characteristics of the specific systems
Feedback
Having established a short list of computer systems or broker management systems based on management’s critical requirements, the IT team reviews each for compatibility with the brokerage’s existing systems.
The correct answer is: Compatibility, including data conversion and merging capabilities
What usually enhances employees’ acceptance of new technology?
a. Proper training in its use
b. Information on typical glitches and how to correct them
c. Empowerment to use the technology they are most comfortable with
d. Training on how to easily retrieve and convert data files from the existing system
Feedback
Employees’ acceptance of new technology is usually enhanced when they are properly trained in its use.
The correct answer is: Proper training in its use
What happens in a phishing attack?
a. Attackers commit a form of online fraud by deceiving victims into divulging confidential information using email or websites that seem to be legitimate.
b. Information is scrambled so that it is unreadable unless a specific password or key is known.
c. Attackers send identical email messages to millions of recipients on their mailing lists.
d. Hackers set up a program to flood the company’s website with messages, making it impossible for the victim’s legitimate customers to access it.
Feedback
Phishing is a form of online fraud that deceives victims into divulging confidential information using email or websites that seem to be legitimate.
The correct answer is: Attackers commit a form of online fraud by deceiving victims into divulging confidential information using email or websites that seem to be legitimate.
What is the best way to prepare staff for a cyber attack?
a. Ensure all hardware and software used to access client data is secure
b. Educate all users in protecting the brokerage’s electronic systems and data
c. Have a written policy on cyber security
d. Control access to certain websites inside the organization
Feedback
Institute a security awareness and training program for all employees. Staff may be the last line of defence against an attack, and security training and auditing may be the difference between another happy, productive day and a security breach.
The correct answer is: Educate all users in protecting the brokerage’s electronic systems and data
What does the disaster planning process for computer technology start with?
a. Assessing the physical network and security
b. Running anti-virus and malware protection on all hardware and software
c. Purchasing cyber risk insurance
d. Identifying all loss or damage exposures arising from a security breach
Feedback
The disaster planning process for computer technology starts with assessing the physical network and security before developing a disaster recovery plan.
The correct answer is: Assessing the physical network and security
What is blockchain?
a. A computer network system that allows for the rapid execution of claims
b. A technology platform that enables distributed ledger technology (DLT)
c. A self-executing contract
d. The chain of command
Feedback
Blockchain is a technology platform that enables distributed ledger technology (DLT). The distributed ledger contains transactions that record and track the transfer of assets between two or more parties.
The correct answer is: A technology platform that enables distributed ledger technology (DLT)
What approach to marketing is most effective?
a. Designing a product that meets customers’ needs
b. Selling customers a product they might otherwise not purchase
c. Designing a product that looks good
d. Designing a product that is free of defects
Feedback
A brokerage that markets itself and its products effectively will focus on understanding its markets’ needs, designing a product that meets those needs, and promoting the product to its customers.
The correct answer is: Designing a product that meets customers’ needs
What is NOT one of the three steps in devising the marketing plan?
a. Assessing the current situation
b. Selecting a target market
c. Studying and monitoring the strategy’s financial and resource implications
d. Forming a strategy for the coming year
Feedback
Devising a marketing plan consists of three steps: assessing the current situation, forming a strategy for the coming year, and studying and monitoring the strategy’s financial and resource implications.
The correct answer is: Selecting a target market
What is the purpose of the Five Forces analysis?
a. It helps a company understand customers and convince them to buy a product or service.
b. It shows trends in customer buying habits.
c. It provides a framework to model forces influencing an industry.
d. It demonstrates how market forces have changed over long periods.
Feedback
Michael Porter’s Five Forces analysis provides a framework to model forces influencing an industry.
The correct answer is: It provides a framework to model forces influencing an industry.
What is the first stage of the market research process?
a. List the research objectives
b. Collect the data and compile it
c. Determine which sources are available and establish a research approach
d. Identify the problem or issue and the questions to be answered
Feedback
The first stage of the market research process is to identify the problem or issue and the questions to be answered. For example, “When should a new package be introduced?”
The correct answer is: Identify the problem or issue and the questions to be answered
Why does the brokerage concentrate its marketing efforts on selected target markets?
a. To ensure that it does not spread its resources too thin
b. To maximize sales in a transitioning market
c. To support target market research when the brokerage is losing market share
d. To position itself competitively against indirect competition
Feedback
By concentrating its marketing efforts on selected target markets, the brokerage ensures that it does not spread its resources too thin.
The correct answer is: To ensure that it does not spread its resources too thin
What best describes a marketing plan?
a. A method to identify the market segments within the overall market that offer the best opportunities for growth and profitability
b. An analysis of opportunities and threats over the next year and the tools the brokerage has to address them
c. A list of steps for communicating with customers
d. A plan to keep the company name in the spotlight, attract good employees and executives, earn the respect of investors, and reinforce public interest in the firm and its products
Feedback
A marketing plan is an analysis of the opportunities and threats that the brokerage will face over the next year and the tools the brokerage has for addressing them.
The correct answer is: An analysis of opportunities and threats over the next year and the tools the brokerage has to address them
Why is marketing research conducted again after completing a promotion plan?
a. Because marketing research companies usually offer lower rates to existing customers
b. To determine if the message is reaching and having the desired effect on the correct group of consumers
c. Because marketing research is more effective each subsequent time it is delivered
d. To determine the firm’s market share in a particular niche
Feedback
Usually marketing research is completed again following a promotion plan to determine if the message is reaching, and having the desired effect on, the correct group of consumers.
The correct answer is: To determine if the message is reaching and having the desired effect on the correct group of consumers
Which statement correctly describes advertising?
a. Advertising is always the most effective means of communicating with customers.
b. Advertising involves a company paying a third party to spread a message to potential customers.
c. Advertising is a personal method of communicating.
d. Advertising communications are customized to each customer rather than to a segment.
Feedback
Advertising involves the brokerage paying a third party to spread a particular message to potential customers.
The correct answer is: Advertising involves a company paying a third party to spread a message to potential customers.
What is NOT the purpose or intended benefit of a well-constructed marketing plan?
a. To set financial controls
b. To understand market conditions and provide information to support market segmentation
c. To form contingency plans to respond to unforeseen developments
d. To take action on threats or opportunities
Feedback
A well-constructed marketing plan sets financial controls and forms at least one contingency plan to respond to unforeseen developments and take action on threats or opportunities that materialize while the marketing initiative is unfolding.
The correct answer is: To understand market conditions and provide information to support market segmentation
In the case study, what factor is revealed through Bayou Canada Limited’s Four Cs analysis?
a. Bayou’s producers and servicing brokers are highly competent.
b. The Canadian economy is healthy, and consumers can afford insurance.
c. Bayou’s customers want to interface with the brokerage in person, over the phone, or by email.
d. Bayou’s competitors consistently undercut the brokerage on price.
Feedback
The Four Cs analysis determines that Bayou’s competitors consistently undercut the brokerage on price. Price is often the deciding factor when Bayou loses clients.
The correct answer is: Bayou’s competitors consistently undercut the brokerage on price.
Why is it beneficial for a brokerage to assess the financial strength and stability of a new insurer prior to entering a relationship?
a. Clients might request this information from the brokerage
b. As a professional brokerage, it is important to request this type of information
c. It is a way to validate the insurer’s reputation
d. To give clients confidence that their claims will be paid
Feedback
Making sure that the insurers a brokerage deals with are solvent and financially stable is essential to maintaining clients’ confidence. Clients expect their legitimate claims to be paid and the premiums they have paid in advance to be safeguarded.
The correct answer is: To give clients confidence that their claims will be paid
What must an insurer do to create a stable and profitable broker-insurer relationship?
a. Pay contingent profits commissions to the brokerage promptly and at least on a quarterly basis
b. Offer online quoting and support use of the brokerage-designed insurance portal
c. Not own a direct writing insurance company
d. Want to write the type of business that the brokerage’s clientele needs
Feedback
Compatibility between the insurance needs of a brokerage’s clientele and the type of business an insurer wants to write is essential to establishing a stable, profitable relationship.
The correct answer is: Want to write the type of business that the brokerage’s clientele needs
What is considered a measure of an insurer’s policyholder services?
a. How quickly it pays claims
b. How much profit it makes for the brokerage
c. How quickly it issues endorsements
d. How inexpensive its premiums are for the policyholder
Feedback
Policyholder services include all non-claims services that an insurer provides to both brokers and clients.
The correct answer is: How quickly it issues endorsements
What is NOT an indicator to insurance companies of the type of business a brokerage is focused on writing?
a. The current type and mix of business
b. The brokerage’s staff’s expertise
c. The lines of the brokerage’s business that incur the highest losses
d. The brokerage’s current state and future plans
Feedback
Analysis of the current type and mix of business, the brokerage’s staff’s expertise, and its current state and future plans will show what type of business the brokerage is focused on writing.
The correct answer is: The lines of the brokerage’s business that incur the highest losses
What is an indicator to insurance companies that the brokerage has the talent needed to perform the tasks involved in selecting, underwriting, and servicing the portfolio?
a. Producers have high salaries.
b. Producers have long tenure.
c. Producers have excellent technical knowledge and customer service skills.
d. Producers have excellent hardware and software knowledge.
Feedback
If the brokerage attracts employees who have the technical knowledge and customer service skills needed to develop business, and who can explain why that insurer’s product is the best for the client, an opportunity exists for a mutual advantage.
The correct answer is: Producers have excellent technical knowledge and customer service skills.
Whose risks do pure captive agents insure?
a. Any company that meets the captive’s underwriting criteria
b. Companies that have registered with the pool
c. All companies that pay the rental fee
d. The owner or affiliated companies
Feedback
Pure captive agents are set up by and insure only the risks of the owner or affiliated companies.
The correct answer is: The owner or affiliated companies
What ensures that organizations that join a reciprocal insurance exchange receive the benefit of returned premium?
a. Achieving excellent group loss ratios
b. Achieving high gross premiums and reserves
c. Insuring risks with low individual exposures
d. Insuring a larger number of independent participating companies
Feedback
Organizations joining an insurance reciprocal can receive a benefit of returned premium if the loss ratios in the group are excellent.
The correct answer is: Achieving excellent group loss ratios
When does a brokerage require the services of another broker to place insurance?
a. The risk is too complex for the markets that the retail broker has access to.
b. The risk is located in a province or territory in which the retail broker’s staff are licensed to sell insurance.
c. The risk is a subsidiary company of another risk for which the retail broker already places insurance.
d. The risk is in an industry that the retail brokerage’s staff are knowledgeable about.
Feedback
A brokerage can require the services of another broker to place insurance because of the type or size of risk to be insured or the location(s) where the client is operating, or for licensing reasons.
The correct answer is: The risk is too complex for the markets that the retail broker has access to.
Why is a sub-brokered business characterized by a lack of control of the account?
a. Wholesale brokers are more concerned with increasing sales volumes than improving client service.
b. Sub-brokers that engage wholesalers are usually not knowledgeable about the industries they service.
c. Neither the retail broker nor the wholesale broker communicates with both the insurer and insured.
d. Sub-brokered business receives lower commissions from the insurer, which forces the brokers to operate on lower margins.
Feedback
Sub-brokering can involve a lack of control of the account because the sub-broker deals exclusively with the client and the placing broker deals exclusively with the insurer.
The correct answer is: Neither the retail broker nor the wholesale broker communicates with both the insurer and insured.
Why do many insurers refuse to deal with business they know has been sub-brokered?
a. Lack of control due to the extra layer between the insurer and the client
b. Two brokers require the insurer to cede higher commission than one
c. Sub-brokered business has greater business acquisition costs
d. Sub-brokered business is more complicated
Feedback
Many insurers refuse to deal with business they know has been sub-brokered because of the extra layer between insurer and client and the subsequent lack of control.
The correct answer is: Lack of control due to the extra layer between the insurer and the client
What process is a sales manager generally NOT involved in?
a. Developing revenue projections for the department
b. Scheduling new product information seminars for sales staff
c. Negotiating the office lease with the brokerage’s landlord
d. Reviewing renewal and new business reports to monitor progress toward goals
Feedback
Though each brokerage has its own unique job descriptions, the sales manager actively participates in the management process by providing input into the brokerage’s strategic planning process, preparing plans to achieve senior management’s sales goals, and evaluating the actual sales results. The sales manager (leader) is a gatekeeper who manages the department’s (or team’s) resources: the people, marketing funds, presentation materials costs, and web-based expenses.
The correct answer is: Negotiating the office lease with the brokerage’s landlord
The regional sales director notices a substantial difference between the results of two very similar branches within the territory. When the budget was developed with the two branch managers, the Maple Street branch manager set specific sales targets for each producer, while the Riverview manager based projections on the number of policies the producers said they could sell each week. Riverview consistently sold more policies than Maple Street, even though it had similar budgets and staff numbers. What is the most likely explanation for these results?
a. Managers are not on the front line and do not understand challenges faced by producers.
b. Producers are not privy to the commitments that managers have made to head office.
c. Managers must control producers because, left unsupervised, producers do not achieve goals.
d. Producers who set their own goals will likely be more committed to achieving those goals.
Feedback
Because the producer-driven system increases the individual producer’s control and independence, it can create a more motivated sales force.
The correct answer is: Producers who set their own goals will likely be more committed to achieving those goals.
Cornershop Insurance Brokerage has just been asked to suspend new applications with A-One Insurers until A-One can review Cornershop’s financial results with senior management. A new business report generated from Cornershop’s broker management system shows that Cornershop has been sending most of its new automobile insurance applicants to A-One and has exceeded the written premium volume commitment. Before meeting with A-One, what should Cornershop do?
a. Determine which producer is sending the most applications
b. Ask the brokers in the office to develop a list of complaints to counter with in the meeting
c. Determine the number of applications, broken down by premium and coverage type
d. Make a list of all new business produced by the office, sorted by insurance company
Feedback
Sales managers must pay careful attention to insurer production reports. Often, volume or business type commitments have been made to insurance companies. With some types of coverage being unprofitable, such as automobile insurance, failing to sell the products needed to comply with the production agreements could jeopardize the brokerage’s contracts.
The correct answer is: Determine the number of applications, broken down by premium and coverage type
Why is it important for a brokerage to keep track of the amount of time and money spent to service an account?
a. To maintain operational costs because employee salaries are usually one of a brokerage’s highest costs
b. Brokerages are paid by commission, not fees, and low premiums generate low revenues
c. To maintain profitability, the costs involved in servicing an account should not exceed the income generated from the account
d. If too much time is spent on an account, it should be cancelled
Feedback
The more time a staff member spends on providing service, the less money a brokerage makes. If the service costs are higher than the revenues generated for any individual account or class of accounts, the sales manager may consider reducing the services provided.
The correct answer is: To maintain profitability, the costs involved in servicing an account should not exceed the income generated from the account
The commercial sales team in a brokerage’s north office has been exceeding its projected sales goals, whereas the south office has not been able to meet its targets. The offices’ managers have different styles. What is the likely cause of the difference in the two offices’ ability to meet the targets?
a. The north office manager monitors the producers more closely, while the south office manager gives them more autonomy.
b. When budgeting, the south office manager determines the targets for each producer, whereas the north office manager asks the producers to project their sales for the year.
c. As a new business incentive, the north office’s manager requires each producer to document the source of new business and send thank-you notes to referring clients.
d. The south office’s manager requires each producer to cold call a minimum number of prospects each week.
Feedback
Producers are more responsive to objectives that have been jointly derived between the producer and the manager, rather than imposed on the producer by management.
The correct answer is: When budgeting, the south office manager determines the targets for each producer, whereas the north office manager asks the producers to project their sales for the year.
Offside Brokerage is operating under a hiring and overtime freeze, but there has been a major automobile insurance rate increase. The phones have been ringing non-stop and email inboxes are overflowing. The team is having trouble keeping up and has asked the manager for guidance on the best way to prioritize incoming quote requests and pricing questions. What should the sales manager recommend?
a. Call the prospects first before they call other brokers. Existing clients will wait longer for return calls since it is easier to stay with a brokerage than to move.
b. Call existing clients first to discuss rate increases before they call another brokerage to get the answers they want.
c. Call prospects that have been referred by existing clients first as those prospects are prequalified as clients.
d. Always return calls in the order in which they were received as this is the most equitable method.
Feedback
The quality of service clients receive (or believe themselves to be receiving) has a direct effect on the retention of accounts. A brokerage’s ability to retain business depends on the quality of the service it provides and how well it meets individual clients’ service expectations.
The correct answer is: Call existing clients first to discuss rate increases before they call another brokerage to get the answers they want.
When a new prospect is referred to the brokerage, the sales manager requires the broker to make a note on the referring client’s file. What is the reason for collecting this information?
a. The sales manager wants to keep track of clients who provide referrals to send them a portion of the commission.
b. The sales department is trying to determine whether an advertising program is effective.
c. The sales manager wants to ensure that clients who refer other prospects are not overlooked in the key account planning process.
d. The sales department has to keep track of referrals for producer reward programs.
Feedback
Brokers need to keep track of those who refer accounts to the brokerage and make sure they receive VIP service and an appropriate thank-you for every referral.
The correct answer is: The sales manager wants to ensure that clients who refer other prospects are not overlooked in the key account planning process.
The sales manager has instructed the sales team to solicit a company that generates substantial commission, but the brokerage cannot provide all the coverage the company needs. Some of the producers feel they should focus their time on accounts where the brokerage can meet all of the prospect’s insurance needs. What statement best reflects the producers’ position?
a. The producers know that this segment of industry has had poor loss experiences over the past couple of years and they are having more difficulty placing coverage.
b. If the competing broker has not written the entire account, it probably doesn’t want to.
c. The key account development plan identifies ways of writing the entire account, even if the brokerage can’t match the coverage.
d. When a brokerage only has part of a client’s insurance program, the policy will always be at risk of being lost to the broker that has the other lines of coverage.
Feedback
The process of key account development encompasses retaining existing accounts and acquiring new ones. If the account is with the brokerage at present, the insurance provided is assessed to determine if the client is, or may be, placing some of its insurance coverage elsewhere. If this is the case, a strategy can be devised to become the client’s sole broker.
The correct answer is: When a brokerage only has part of a client’s insurance program, the policy will always be at risk of being lost to the broker that has the other lines of coverage.
Since licensing regulators test new agents for knowledge, why would a brokerage have an experienced producer provide mentorship for new producers?
a. It is an E&O insurance requirement for most brokerages.
b. The experienced broker can familiarize the new broker with the specific file to develop a brokerage succession plan.
c. The brokerage doesn’t need to provide a mentor, since the prospect is better served by a new producer with current knowledge.
d. An experienced mentor can monitor the new producer’s actions and provide guidance as needed.
Feedback
Simply putting a new producer to work and expecting sales to be made at once is unlikely to have the desired results. Having an experienced producer as a mentor can help a new producer build up confidence and competence.
The correct answer is: An experienced mentor can monitor the new producer’s actions and provide guidance as needed.
Standard workflows used by customer service representatives and sales agents can help prevent and defend against errors and omissions claims. What client transaction would be documented to monitor the success of marketing activities?
a. A client calls into the office to ask whether they have coverage for a rental car.
b. A client refers their sister for a policy and the sister calls for a quote.
c. A client responds to an email sent to all condominium owners about a new coverage.
d. A client declines sewer backup coverage for a recently acquired rental property.
Feedback
Most BMSs include the ability to document client and prospect contact activities. The information collected can also be used to measure productivity, business acquisition, and retention.
The correct answer is: A client responds to an email sent to all condominium owners about a new coverage.
What does an organization do in the business evolution stage of consolidation?
a. It considers its gains, losses, and further development while strengthening its present position.
b. It realizes it is in decline and that sales production is slow, reduced, or non-existent.
c. It diversifies by way of new or modified products, or by acquisition of one or more other entities.
d. It assigns a limited number of people to individual tasks and roles.
Feedback
Consolidation is the period during which the organization considers its gains, losses, and further development while strengthening its present position.
The correct answer is: It considers its gains, losses, and further development while strengthening its present position.
What are the main stages in the evolution of a business?
a. Start-up, business overview, strategic planning and implementation, followed by plateau, review of strategic planning, and implementation of revised strategic plan
b. Start-up, development, and consolidation, followed by plateau, expansion, sale, or decline
c. Start-up, development, and workflow management, followed by sales, retention, and review
d. Start-up, business review, SWOT and PEST analysis, strategic planning and implementation, monitoring sales and retention, continual review
Feedback
The main stages in the evolution of a business are start-up, development, and consolidation, followed by plateau, expansion, sale, or decline.
The correct answer is: Start-up, development, and consolidation, followed by plateau, expansion, sale, or decline
Regarding staffing, what factor is critical to maintain a profitable business?
a. How effective the business’s marketing strategy is
b. How committed the business is to environmental initiatives to maintain its public image
c. How efficiently people are managed and how well the staff deals with the workflow
d. How much capital is invested in hardware and software
Feedback
How efficiently people are managed and how well the staff deals with the workflow is critical to maintaining a profitable business.
The correct answer is: How efficiently people are managed and how well the staff deals with the workflow
When is a brokerage in a stronger position to grow?
a. It maintains relationships with several insurance carriers and distributes business among them.
b. It has tenured employees and low employee turnover
c. It focuses on building a strong relationship with its most profitable insurance carrier. .
d. It works in a niche market.
Feedback
A brokerage is in a stronger position to grow when it maintains relationships with several insurance carriers and distributes business among them.
The correct answer is: It maintains relationships with several insurance carriers and distributes business among them.
What are sales staff required to state under PIPEDA?
a. How the client’s personal information will be used
b. That the client’s personal information will be accessible to anyone who needs it
c. How the client does not have the right to review the information
d. That the client can only withdraw consent at certain points in the policy term
Feedback
Under PIPEDA, salespeople are required to state why they want the information and how it will be used (such as to provide a complete insurance package for the client).
The correct answer is: How the client’s personal information will be used
What are challenges of mergers or acquisitions?
a. Competitors, customer loyalty, increased contingent profit commission
b. Geography, convenience, customer loyalty
c. Ongoing debt, merging systems, competition
d. Insurer contracts, staff defection, culture clash
Feedback
A major challenge of mergers and acquisitions is client retention and the possible loss of client loyalty. Other challenges include clients who do not want to deal with the purchasing brokerage due to geographic preferences and convenience.
The correct answer is: Geography, convenience, customer loyalty
What does the ease or difficulty of integrating two or more merged firms depend on?
a. Financial resources and geographic differences
b. Organizational size and operating cultures
c. Retaining key employees and successful system integration
d. Due diligence and communication to all stakeholders
Feedback
The ease or difficulty of integrating two or more merged companies depends on the size of each entity and their respective operating cultures.
The correct answer is: Organizational size and operating cultures
Having carried out a due diligence review and established the value of the target business, what is the buyer management’s next step?
a. Arrange financing
b. Consult legal and human resource professionals
c. Consider coverage and differences in E&O policies
d. Determine the organizational shape and operational structure
Feedback
Having carried out a due diligence review and established the value of the target business, the buyer management’s next step is to determine the organizational shape and operational structure.
The correct answer is: Determine the organizational shape and operational structure
Which statement best describes a joint venture?
a. It is affiliated with a franchisor to which it pays a percentage of its revenues in return for various services.
b. It is a group of independent brokers or brokerages who agree to share certain expenses, to make unified volume commitments to their insurers, and to conduct their financial affairs in an agreed-upon manner.
c. It is a mutually advantageous partnership between a small brokerage and a larger one, enabling the larger brokerage to acquire new business relatively easily and giving the smaller brokerage increased market access.
d. It is a marketing organization established to give participating firms the image and resources of national- or international-strength organizations.
Feedback
A joint venture is a mutually advantageous partnership between a small brokerage and a larger one, enabling the larger brokerage to acquire new business relatively easily as a share of the smaller brokerage’s existing book of business, and giving the smaller brokerage increased access to markets and services.
The correct answer is: It is a mutually advantageous partnership between a small brokerage and a larger one, enabling the larger brokerage to acquire new business relatively easily and giving the smaller brokerage increased market access.
What do formal affiliations generally involve?
a. Some type of contractual relationship and/or obligation
b. Consideration exchanged between the parties
c. Common interests between members but no formal contract or consideration is required
d. Minimum capital investment
Feedback
Formal affiliations generally involve some type of contractual relationship and/or obligation.
The correct answer is: Some type of contractual relationship and/or obligation
What business factors are associated with continuity planning?
a. Technology planning and infrastructure, organizational structure, and employee benefits
b. Capital gains taxes and exemptions, organizational budgets, and working capital expenses
c. Ownership, senior management, and key producers
d. Earning value method, mergers or acquisitions, and cyber attacks
Feedback
Continuity planning is an ongoing process that responds to any change that may disrupt the business. This can deal with ownership, senior management, key producers, systems disruptions (including phones and computers), cyber attacks, and the health and safety of employees.
The correct answer is: Ownership, senior management, and key producers
In the context of continuity planning, what is considered during a financial analysis of the organization?
a. Systems disruptions (including phones and computers), cyber attacks, and the health and safety of employees
b. Capital gains and losses, capital expenditures, and capital exemptions
c. Budgeting needs, capital expenses, capital gains and employee benefits
d. Current financial situation, brokerage fair market value, and capital gains tax impacts
Feedback
Issues to consider when analyzing the financial state in the context of continuity planning for the organization include the current financial situation, the fair market value of the brokerage and the adjusted cost base of shares in the company, and how the capital gains tax that will eventually arise on the owner’s death will affect the brokerage financially.
The correct answer is: Current financial situation, brokerage fair market value, and capital gains tax impacts
What would be the biggest concern of a brokerage losing its only licensed broker?
a. Recruitment of an appropriately licensed individual within 30 days
b. The brokerage losing its licence, rendering it unable to operate
c. A formal audit being completed by the regulator
d. Loss of insurer partnerships
Feedback
This loss could result in the brokerage losing its licence, rendering it unable to operate.
The correct answer is: The brokerage losing its licence, rendering it unable to operate
Under the terms of some errors and omissions insurance policies, what does the insurer require from the brokerage?
a. Names and contact information for all individuals participating in the creation of the succession plan
b. Confirmation from the regulator that all employees are complying with provincial or territorial regulations
c. Notice of any change in the brokerage’s ability to meet licensing requirements
d. Details of future succession planning for an owner/CEO of the business
Feedback
Under the terms of some errors and omissions insurance policies, the insurer requires notice of any change in the brokerage’s ability to meet licensing requirements. Since errors and omissions insurance is a licensing requirement in many jurisdictions, lack of coverage can lead to the brokerage being unable to operate as well.
The correct answer is: Notice of any change in the brokerage’s ability to meet licensing requirements
What does a right of first refusal give the preferred buyer?
a. The option of purchasing the business in the future by matching any other bids
b. The right to turn down potential purchasers of the business
c. The opportunity to purchase the business at a better rate than another potential purchaser
d. The right to block the sale of the organization
Feedback
A right of first refusal agreement gives the party to the agreement (in this case, the owner’s preferred buyer) the option of purchasing the business in the future by matching any other bids.
The correct answer is: The option of purchasing the business in the future by matching any other bids
What do the terms and conditions of the buy/sell agreement set out?
a. Remaining owners, or the company itself, will buy out the interests of an owner who dies, becomes disabled in a life-altering way, or leaves the company.
b. Shareholders may buy additional shares in the business or sell their shares.
c. The organization may be bought or sold.
d. The organization will conduct itself while in a transition of purchase or sale.
Feedback
The buy/sell agreement sets out the terms and conditions under which the remaining owners, or the company itself, will buy out the interests of an owner who dies, becomes disabled in a life-altering way, or leaves the company.
The correct answer is: Remaining owners, or the company itself, will buy out the interests of an owner who dies, becomes disabled in a life-altering way, or leaves the company.
What is the most important thing a brokerage owner can do to minimize the financial effects of key people’s illness or death on the brokerage?
a. Create a solid succession plan for the organization
b. Develop and implement a business continuity plan with key managers/owners
c. Purchase life and critical illness insurance for key people in the organization
d. Ensure that all key individuals have understudies who also know how to do their jobs
Feedback
By purchasing life and critical illness insurance for key people in the organization, brokerage owners can minimize the financial effects on the business of key people’s death or incapacity.
The correct answer is: Purchase life and critical illness insurance for key people in the organization
What does management typically consider when planning for business interruption?
a. Emergency teams, alternative premises, and insurance policies
b. Public relations and communications, insurance companies, and system security
c. Insurance policies, organizational structure, and testing and review of the plan
d. Alternative premises, succession planning, and public relations and communications
Feedback
Typically, management takes five key areas into account: emergency teams, alternative premises, public relations and communications, insurance policies, and testing and review of the plan.
The correct answer is: Emergency teams, alternative premises, and insurance policies
What is one of the most important parts of business continuity planning?
a. Having prepared communications for customers, staff, and other stakeholders
b. Having a detailed financial strategy in place
c. Having a prepared employee hiring and termination manual
d. Having regular meetings to update the company’s vision and mission statement
Feedback
One of the most important things is prepared communications for customers, staff, and other stakeholders, indicating that the situation is under control.
The correct answer is: Having prepared communications for customers, staff, and other stakeholders
What document takes tax planning, dividing future obligations of the company, reinvesting earnings into the business, handling dissension among shareholders, and valuing shares into consideration?
a. Strategic plan agreement
b. Succession agreement
c. Business plan agreement
d. Shareholders’ agreement
Feedback
A revised shareholders’ agreement is completed, with considerations made for tax planning, dividing future obligations of the company, reinvesting earnings into the business, handling dissension among shareholders, and valuing shares.
The correct answer is: Shareholders’ agreement
