Ethics

In the underwriting of insurance policies, some amount of discrimination is:

Legitimate discrimination must occur in underwriting of an insurance policy. For instance, two individuals of the same race and sex may present very different risks to an insurer and will be charged different rates based on credible supporting information. Unfair discrimination exists when two people of equal risk are charged different rates or provided different services and benefits solely because of a difference in race, religion, national origin, or where they live. Unfair discrimination is illegal. The correct answer is: Present in many cases, because of differing levels of risk

Making a misleading statement to induce a person to lapse, surrender, or convert an insurance policy is known as:

It is illegal to knowingly make misleading statements or comparisons regarding the terms, conditions, benefits, or advantages of any policy to induce any person to lapse, forfeit, surrender, exchange, convert, or otherwise dispose of an insurance policy. This unfair trade practice is called twisting. The correct answer is: Twisting

Leo, a producer, sat down with a prospective client to discuss a long-term care policy. He used a computer program to outline and emphasize his remarks. The visual presentation contained the principal benefits of the policy he was trying to sell. Although he mentioned that it also had, the usual, conditions, he did not include those in his visual presentation or specify what they were. The producer was engaging in:

Statements are deemed to be misrepresentations if, when taken in the context of the whole presentation, they may tend to mislead or deceive a person. By detailing only the benefits, the producer was not giving a fair representation of the policy. The correct answer is: Misrepresentation

An example of an unfair claim settlement practice would include:

Trying to discourage a claimant from arbitrating a claim by implying that arbitration might result in an award lower than the amount offered is an unfair claim settlement practice. The correct answer is: Advising a claimant of the possibility that, should the claimant reject a settlement offer, an arbitration award might be less than the offer

Defamation occurs when:

Defamation occurs when an individual or entity makes false, deliberately malicious and derogatory statements about an insurer's financial condition that are calculated to injure the insurer's business. The individual literally _de fames_ the insurer _ i.e., robs the insurer of its fame or reputation. The correct answer is: An individual or entity makes false, derogatory statements about an insurer's financial condition that are calculated to injure the insurer's business

The practice of using misrepresentation to induce a policyholder to replace a policy issued by the insurer the producer represents is called:

When a producer misrepresents a policy from the company he or she represents in order to induce a policyholder to replace it with another policy issued by the insurer, the producer has engaged in churning. He or she has recirculated funds and policies within their own company, generally in order to secure a first-year commission. The correct answer is: Churning

Presented with a completed claim form, an insurer wrote to the insured claimant requesting a preliminary claim report from the physician. Upon receipt of that report, the insurer required the subsequent submission of a proof-of-loss form. Was this insurer acting within its legal and ethical rights?

The two forms provide substantially the same information. Most likely, therefore, the request is simply an effort on the part of the insurer to delay settling a legitimate claim in a prompt, fair, and equitable manner to effect prompt, fair, and equitable. This delaying action is identified as illegal in most state codes. The correct answer is: No, the two forms provide the same information. This is a delaying action and thus illegal.

Circulation of a maliciously critical statement about any insurer's financial condition to injure the insurer is called:

It is illegal to make an oral or written statement that is false or maliciously critical regarding an insurer's financial condition to injure the insurer or any person engaged in the insurance business. This unfair trade practice is called defamation. The correct answer is: Defamation

Which of the following is NOT considered to be an unfair claims settlement practice?

It is not illegal to be involved in a replacement transaction. However, the agent must adhere to certain rules and regulations to ensure that the replacement policy will benefit the insured and is not redundant. The correct answer is: Replacing one insurance policy with another

Which of the following is considered an unfair claims practice?

Splitting a commission, convincing a policyholder to lapse or surrender an existing policy so the agent may sell another policy; making statements that are false, maliciously critical, or calculated to injure a competing producer are all unfair marketing practices. Failing to acknowledge coverage within a reasonable time after receiving proof of loss is an unfair claims practice. The correct answer is: Failing to affirm or deny coverage within a reasonable time after receiving proof of loss

It is illegal to do any of the following, EXCEPT:

It is not considered to be a rebate or unfair discrimination to readjust premium rates retroactively for group insurance policies based on considerations of loss or expense. This is not based on prejudice, but fair business practices. The correct answer is: To readjust premium rates, made retroactive for the policy year, for group insurance policies based on loss or expense

In a conversation with an older family friend, an insurance agent, Sly, inquired with what company she had a Medicare supplement policy. When she told him, the agent was silent. Concerned by his silence, the woman asked if the company was a reliable company. The producer asked, "Have you received any financial statements regarding their solvency?" This producer was:

The agent was engaging in defamation. The agent did not have to state literally that the company was possibly weak, which was implied within the context of the conversation. The correct answer is: Engaging in defamation

All of the following acts are considered unfair trade practices, EXCEPT:

Replacement is not, in itself, an illegal practice. It occurs when a new life insurance policy is written to take the place of an existing policy. It can rise to the level of twisting if a producer or insurer induces an insured through misrepresentation to lapse or surrender a policy in order to buy a similar policy from the selling producer or insurer. The correct answer is: Replacement

All of the following, if performed frequently enough to indicate a general business practice, are unfair claims settlement practices, EXCEPT:

Requiring submission of preliminary claim report or a formal proof of loss before paying a claim is standard practice and not an unfair claim practice. Delaying the investigation or payment of a claim by requiring an insured, claimant, or the physician of either to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information; The correct answer is: Requiring submission of preliminary claim report or a formal proof of loss before paying a claim.

The Unfair Trade Practices Act is divided into which two parts?

The Unfair Trade Practices Act is divided into two parts: Unfair Marketing practices and Unfair Claims practices. The correct answer is: Unfair Marketing practices and Unfair Claims practices.

A local insurance company has worked closely with an area real estate firm in writing mortgage insurance as well as other insurances such as health and accident policies to newcomers in a small university town. Recently one of the town's oldest and most reliable banks has become cautious about making mortgage loans, and both the realtors and the insurance company have lost business as a result. They agree to change their own accounts to a newer bank with a more liberal lending policy and to encourage their clients to follow their course. Since it is a small town with a sizable number of newcomers who visit the real estate firm for rentals or home purchases, their combined action is likely to affect the older, more conservative lender. The practice in which they are engaging is:

In joining with the real estate firm to boycott the older bank, refusing to recommend it to its clients or to associate with it in business dealings, the insurance company is seeking to diminish its financial power. The insurer is engaged in an illegal activity. The correct answer is: Boycott

In discussing a potentially lucrative group policy with a business owner who had purchased a business and just moved into the community, an established producer jokingly remarked, "Well, would it sweeten the pot if I could assure you membership in the country club?"The producer added, "I'm on the membership committee and while we're not accepting new application right now, I'm sure something could be worked out." These remarks constituted:

While it is possible a little intimidation was intended in the producer's mention of serving on the membership committee of the closed club, it is clearer the producer is engaging in rebating. The producer is offering something that can have significant value to a new member of the business community (club membership) as a bonus for the purchase of a policy. The offer to, sweeten the pot, was clear and the context of the following conversation made it unmistakable rebating. Obviously the producer did not intend to include that service in the insurance contract. Any inducement in the sale of insurance that is not specified in the insurance contract itself is a rebate. The correct answer is: Rebating

Don, an insurance agent, told a member of his church who had recently experienced several personal and financial losses that he could see that she got a more favorable rate on her insurance policies than her health and general circumstances would warrant. The woman had been his kindergarten teacher and was a pillar in the community's life. He wanted to help her. Which of the following is FALSE?

Obviously, the agent is compassionate. He is also engaged in unfair discrimination because he is offering special rates to one member of a general class of assureds. In making this offer he is also breaking the law, which expressly forbids unfair discrimination. No insurance producer may unfairly discriminate between individuals of the same class and equal expectation of life in the rates charged for the policy or between individuals of the same class and of the same hazard in the amount of premium rates, in any manner whatsoever. What he is NOT doing was twisting, which involves a misrepresentation of facts (twisting of reality) in order to secure a sale. The correct answer is: The agent was engaging in twisting.

What consequences does an insurer's or producer's use of unfair marketing or unfair claims habits have for the company or agent?

The State Commissioner of Insurance can issue a cease and desist order, requiring company and agent to correct their actions immediately. Should they defy this order, they can be fined substantially and denied the right to practice in a state. The correct answer is: The State Commissioner of Insurance can issue a cease and desist order.