Fundamentals of Insurance A3

Which one of the following statements is true with regard to Internet distribution channels for selling insurance? A. "Franchise marketing" is also known as affinity marketing. B. The objective of group marketing is to sell insurance products and services over the Internet. C. Mass marketing plans offer insurers' policies to a small number of targeted individuals based upon their demographic characteristics D. The objective of insurance portals is to deliver leads to the firms whose products they offer through their sites.

D. The objective of insurance portals is to deliver leads to the firms whose products they offer through their sites.

The laws of agency impose all of the following specific duties on all agents, EXCEPT: A. Apparent authority B. Accounting C. Loyalty D. Relaying information

A. Apparent authority

Which one of the following distribution channels is also an efficient way to handle claim reporting and billing inquiries? A. Call centers B. Financial institutions C. Direct response D. Affinity marketing

A. Call centers

The laws of agency impose all of the following specific duties on all agents, EXCEPT: A. Knowledge B. Accounting C. Loyalty D. Relaying information

A. Knowledge

Offering a cash payment or something of value to an applicant as an inducement to buy or maintain insurance is called A. Rebating. B. Misrepresentation. C. Tie-in. D. Twisting.

A. Rebating.

Authority that the insurance company specifically grants to an agent is called A. Binding authority. B. Express authority. C. Implied authority. D. Apparent authority.

B. Express authority.

An independent agency A. Generally represents only one insurer. B. Has the right to switch a customer's coverage to another insurer. C. Represents customers rather than insurers and shops insurers to find the best coverage and value for its customers. D. Typically only handles commercial insurance accounts.

B. Has the right to switch a customer's coverage to another insurer

In which one of the following types of insurance marketing systems does the agency or agent usually own the expiration lists? A. Exclusive agency system B. Independent agency system C. Direct writing system D. Alternative distribution system

B. Independent agency system

Producers' licenses are generally issued for a term of A. Six months. B. One or two years. C. Five years. D. The life of the producer.

B. One or two years.

If a third party sues the agent in connection with activities performed on behalf of the principal, the principal must A. Reimburse the agent for any liability incurred, whether or not the agent was at fault. B. Reimburse the agent for any liability incurred, if the agent was not at fault. C. Bring a countersuit against the third party. D. Provide legal defense for the agent.

B. Reimburse the agent for any liability incurred, if the agent was not at fault.

When an insurer appoints an agent to act its behalf, the agent's scope of authority is spelled out in the A. Broker of record letter. B. Insurance contract. C. Agency contract. D. Letter of intent.

C. Agency contract.

The authority that the principal specifically grants to the agent is contained in the agency contract. This authority is known as A. Implied authority. B. Apparent authority. C. Express authority. D. Contractual authority.

C. Express authority

Unfair trade practices laws are A. Limited to the activities of insurance producers. B. Limited to the activities of claim representatives. C. State laws that specify certain prohibited business practices. D. National laws that do not vary by state.

C. State laws that specify certain prohibited business practices

It is an unfair trade practice for a lender to require that a borrower purchase insurance from the lender or from any insurance producer recommended by the lender. This unfair trade practice is called A. Misrepresentation. B. Twisting. C. Tie-in sale. D. Rebating.

C. Tie-in sale.

Independent agent networks are known as A. Direct writers. B. Agent clusters. C. Exclusive agents. D. Agent forces.

B. Agent clusters

In an insurance agency relationship, the agent's fundamental responsibility is to act for the benefit of the A. Insured. B. Insurer. C. Broker. D. Policyholder

B. Insurer

From an insured's point of view, relative to the concept of agency, little distinction exists between the A. Broker and the claimant. B. Insurance agent and the insurance department. C. Insurer and the insurance department. D. Insurance agent and the insurer.

D. Insurance agent and the insurer.

Among other things, a binder provides A. Applicable coverages and limits. B. Operations of the insured. C. Policy conditions and exclusions. D. Insured's financial profile.

A. Applicable coverages and limits.

All of the following are similarities between agents and brokers, EXCEPT: A. Both are legal representatives of insurers. B. Both collect premiums from insureds and remit to insurers. C. Both are intermediaries between insurers and insurance buyers. D. Both sell insurance appropriate to customers' insurance needs.

A. Both are legal representatives of insurers

Which one of the following statements is true concerning the use of the Internet to market insurance products? A. Consumers assume that insurance purchased over the Internet will be less expensive than the same product purchased from a producer. B. Consumers who use the Internet for insurance focus chiefly on service rather than price. C. Consumers' ability to access competitor information is reduced when insurers market products over the Internet. D. Insurers' costs for underwriting and claim processing services are increased by having an Internet presence.

A. Consumers assume that insurance purchased over the Internet will be less expensive than the same product purchased from a producer.

The independent agency and brokerage marketing system uses A. Managing general agents. B. Direct writer producers. C. Exclusive agents. D. Captive agents.

A. Managing general agents

Which one of the following functions is performed by virtually all insurance producers? A. Prospecting B. Policy issuance C. Underwriting D. Fee basis consulting

A. Prospecting

When an agency relationship is created between a principal and the agent, it requires a high degree of A. Trust. B. Patience. C. Oversight. D. Creativity.

A. Trust

Which one of the following statements is correct with respect to selecting a distribution channel? A. Customers are prepared to spend a reasonable amount of time and effort interacting with a distribution channel if that channel saves them money. B. The types of insurance products and services to be delivered by the insurer must fit the marketing channel selected. C. The majority of customers prefer to speak with a producer or service representative rather than access their account information online. D. The primary consideration is what approach will allow the insurer to operate efficiently.

B. The types of insurance products and services to be delivered by the insurer must fit the marketing channel selected.

Which one of the following statements is true regarding traditional marketing systems for insurance? A. The three traditional marketing systems are the independent agency system, the captive agency system, and the exclusive agency system. B. An insurer operating through a managing general agent can expect higher fixed costs. C. A principal characteristic that distinguishes one traditional marketing system from another is the ownership of policy expirations. D. A single producer cannot operate as both an agent and a broker in a given state.

C. A principal characteristic that distinguishes one traditional marketing system from another is the ownership of policy expirations.

Principals often authorize another party to act on their behalf. This relationship is called A. Broker. B. Fiduciary. C. Agency. D. Attorney in fact.

C. Agency

Managing general agencies A. Typically use the exclusive agency system. B. Typically use the direct response system. C. Commonly represent several insurers. D. Do not represent more than one insurer.

C. Commonly represent several insurers.

The principal method of determining a prospect's insurance needs is through A. Reviewing the prospect's current insurance policies. B. Determining how much the prospect is willing to pay for insurance coverage. C. Completing a risk management review for the prospect. D. Asking the prospect what coverage they would like to purchase.

C. Completing a risk management review for the prospect

Gulford Insurance Company (Gulford) is a direct writer of commercial insurance in Pennsylvania. The management team is frustrated by the continued lack of success in the more rural western part of the state. It is difficult to penetrate the market without a local presence, but the cost of assigning agents to this territory is not justified by the returns. Which one of the following distribution systems would best allow Gulford the local presence in a cost-effective manner? A. National brokers B. Surplus lines brokers C. Independent agents D. Exclusive agents

C. Independent agents

Because the agent represents the insurer, the law presumes that A. Agents are employees of the insurer. B. Knowledge acquired by the insurer is knowledge acquired by the agent. C. Knowledge acquired by the agent is knowledge acquired by the insurer. D. All communications between the agent and the insurer will be in writing.

C. Knowledge acquired by the agent is knowledge acquired by the insurer.

The most difficult time for an insurer to change distribution systems is when A. Expanding to a larger territory. B. Entering a new target market. C. Renewing an existing book of business. D. Launching a new insurance product.

C. Renewing an existing book of business.

A producer will generally review a company's loss run report while performing which one of the following functions? A. Claims handling B. Sales C. Risk management review D. Customer service

C. Risk management review

The selection of a distribution channel for an insurer's products and services depends, partly, on customer preferences. Which one of the following statements is true regarding customer preferences that should be considered when selecting a distribution channel? A. Speed is not an important consideration for customers. B. Customers are always willing to pay more for good service. C. The channel should be consistent with the customer's expectations for service. D. Customers value a challenging experience when conducting business with insurers.

C. The channel should be consistent with the customer's expectations for service.

The Wellborn agency represents only Coastal Insurance. Wellborn is an independent contractor but its contract with Coastal specifies that all insurance it sells will be placed with Coastal. Wellborn is operating under which one of the following marketing systems? A. The independent agency system B. The direct writer system C. The exclusive agency system D. The managing general agency system

C. The exclusive agency system

A business manufactures a product that is harmful to the public if used improperly. More than three licensed insurance companies have refused to provide commercial general liability coverage for the business. The producer should contact which one of the following to attempt to arrange coverage? A. A direct writer B. An independent agent C. A managing general agent D. A surplus lines broker

D. A surplus lines broker

Which one of the following statements is true concerning guidelines for insurers combining systems and distribution channels? A. Customers are receptive to receiving different messages across the different distribution channel B. Customers expect a different experience when interacting with an insurer's different distribution channels. C. Internal communication can differ across marketing systems and distribution channels. D. Different marketing systems can be used for different types of insurance based on which is most suitable.

D. Different marketing systems can be used for different types of insurance based on which is most suitable.

Rhonda is a personal lines insurance producer. Under the terms of her agency contracts, the insurers forward policies promptly to Rhonda's customers and send a premium invoice with the policy. Insureds are instructed to remit premium payments to their insurer. The insurers calculate Rhonda's commissions and forward those commission payments to her monthly. Rhonda is operating under which one of the following payment procedures? A. Item basis B. Statement basis C. Account current basis D. Direct bill basis

D. Direct bill basis

Which one of the following statements is correct? A. All insurance producers perform the same functions, which are specified in state insurance regulations. B. Cold calling, or cold canvas, is generally not used by insurance producers because it is an ineffective method of prospecting. C. Insurance producers are prohibited from accepting referrals from strategic partners, such as banks or real estate brokers. D. In the exclusive agent and direct writer marketing systems, insurers might assist producers with prospecting.

D. In the exclusive agent and direct writer marketing systems, insurers might assist producers with prospecting.

Given the complexity of commercial insurance, which one of the following is best suited for its distribution? A. Internet B. Direct response C. Group marketing D. Independent agencies

D. Independent agencies

With regard to insurer licensing, a foreign insurer is an insurer A. Domiciled outside of the U.S. and operating as a nonadmitted insurer. B. Licensed in the U.S. and transacting business outside the U.S. C. Domiciled outside of the U.S. and licensed to transact business in the U.S. D. Licensed and operating in states other than its state of domicile.

D. Licensed and operating in states other than its state of domicile.

Which one of the following statements is true regarding the agency contract? A. The agent is the principal in the agency contract relationship. B. An agency contract is also known as an agency endowment. C. Insurance agency contracts usually have a fixed expiration date, at which time the parties negotiate the renewal. D. The agency contract states the scope of the agency's authority to conduct business for the insurer.

D. The agency contract states the scope of the agency's authority to conduct business for the insurer.

Leah decides to purchase her personal automobile insurance through a program offered by her employer. Leah's employer offers her a discounted premium which is deducted from her paycheck. Leah's employer is using which type of distribution channel? A. Affinity marketing B. Direct response marketing C. Mass marketing D. Worksite marketing

D. Worksite marketing