Assignment 4 Questions

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If a consumer or policyholder had a preference for dealing with sales representatives who are employees of the insurer, which one of the following marketing systems would they choose?
A. Insurance broker
B. Managing general agency
C. Exclusive agent
D. Direct writer

D. They would choose a direct writer.

Producers are prohibited from paying a portion of the premiums for a policy or giving any commission to a policyholder. Actions of this type are called
A. Tie-in sales.
B. Contingent commissions.
C. Misrepresentation of dividends.
D. Rebating.

D. Incorrect. Actions of this type are called rebating.

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.

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. Among other things, a binder provides applicable coverages and limits.

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. Unfair trade practices laws are state laws that specify certain prohibited business practices.

Which one of the following methods of prospecting is more likely to be used by an experienced producer than a new insurance producer?
A. Interactive Web sites
B. Direct mail
C. Cold convass
D. Referrals from present clients

D. Referrals from present clients

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. Incorrect. Renewing an existing book of business.

Insurers using direct response marketing
A. Use personal contact rather than the Internet for sales.
B. Use a select group of agents.
C. Often advertise heavily, which can be costly.
D. Do not target market.

C. Insurers using direct response marketing often advertise heavily, which can be costly.

Martin Insurance Company targets manufacturers of specialty products. Its insureds place a high value on producer expertise, responsiveness, and confidentiality. Martin wants to expand into similar markets. Which one of the following insurance marketing distribution systems is most appropriate for Martin Insurance Company?
A. Independent agent network
B. Direct writer
C. Financial institution
D. Surplus lines broker

B. Incorrect. Direct writer

After investing significant resources to develop a Web-based system, a personal lines insurer has decided to expand its territory by assuming the role of a direct writer and using the Internet as a distribution channel. What is the insurer's greatest concern with the existing book which used independent agents as the distribution system?
A. The quality of the existing book compared to the new book
B. The agents own the expiriations for the existing book
C. Clear communication with existing customers
D. The service needs of the existing book

B. The agents own the expiriations for the existing book

Many insurers marketing through the independent agency system use
Choose one answer.
A. Word-of-mouth advertising.
B. Direct mail advertising listing every agent with a photo of each.
C. Local advertising focusing on specific agencies.
D. National advertising programs intended to enhance the company image.

D. Many insurers marketing through the independent agency system use national advertising programs intended to enhance the company image.

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. When an agency relationship is created between a principal and the agent, it requires a high degree of trust.

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

A. The laws of agency impose all of the specific duties on agents listed except profitability.

An agency bill process in which the producer is usually not required to pay the insurer until the premium is collected from the policyholder is known as
A. The statement basis.
B. The account current basis.
C. The item basis.
D. The direct bill basis.

C. An agency bill process in which the producer is usually not required to pay the insurer until the premium is collected from the policyholder is known as the item basis.

Sometimes an agent may be eligible for a commission based on its premium volume and profitability. This type of compensation is called
A. A contingent commission.
B. A sales commission.
C. An indirect commission.
D. An annual commission.

A. This type of compensation is called a contingent commission.

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. The principal must reimburse the agent for any liability incurred, if the agent was not at fault.

Which one of the following is the principal's primary duty to the agent?
A. To pay the agent for services performed
B. To act as the agent's legal representative
C. To educate and train the agent
D. To act on behalf of the agent in court proceedings

A. The principal's primary duty to the agent is to pay the agent for services performed.

Michelle is shopping for auto insurance. Which one of the following insurance agents is most likely to be able to give her quotes from several different, unrelated insurers?
A. Exclusive agent
B. Express agent
C. Implied agent
D. Independent agent

D. An independent agent can give quotes from several unrelated insurers.

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. Incorrect. This practice is called a tie-in sale.

Once a state agent's license has been issued, the agent must seek to be appointed by one or more
A. Insurers.
B. Brokers.
C. Trade associations.
D. Insurance departments.

A. Once a state agent's license has been issued, the agent must seek to be appointed by one or more insurers.

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 can efficiently handle claim reporting and billing inquiries.

Which one of the following methods of premium collection is generally used for personal insurance policies and small commercial accounts?
A. Direct bill
B. Account current basis bill
C. Agency bill
D. Item basis bill

A. Direct bill

Donna is an insurance producer. She makes an appointment with a potential policyholder to review the prospect's loss exposures. She asks the prospect to complete a questionnaire to assist her in this effort. Donna is conducting a
A. Customer service analysis.
B. Sales closing call.
C. Cold canvas review.
D. Risk management review.

D. Donna is conducting a risk management review.

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

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 is performed by virtually all insurance producers.

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

The compensation arrangements of direct writer insurers tend to
A. Emphasize renewal of existing customers.
B. Emphasize sales to new customers.
C. Be salary with no commission income.
D. Be salary with no bonus income.

B. The compensation arrangements of direct writer insurers tend to emphasize sales to new customers.

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. When an insurer appoints an agent to act its on behalf, the agent's scope of authority is spelled out in the agency contract.

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.

Which one of the following statements is true concerning the use of alternative distribution channels to sell insurance?
A. Most distribution channels do not allow insurers to contact customers directly.
B. The introduction of new distribution channels has resulted in the elimination of traditional marketing systems.
C. Distribution channels act as a conduit for establishing communication with current customers.
D. Most distribution channels are not yet available for customer service.

C. Distribution channels act as a conduit for establishing communication with current customers.

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. The principal method of determining a prospect's insurance needs is through completing a risk management review for the prospect.

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

C. Goya is operating under a direct bill basis.

Which one of the following statements is correct with respect to insurers' use of the Internet and insurance portals?
A. Maintaining an Internet presence increases an insurer's underwriting and claim processing costs.
B. The Internet provides lead-generation and cross-selling opportunities for all products.
C. The use of insurance portals eliminates insurers' need to screen and fully underwrite the leads generated.
D. The primary goal of the use of insurance portals is to reduce staffing costs.

B. Correct. The internet provides lead-generation and cross-selling opportunities for all products.

Which one of the following statements is correct?
A. Many producers offer consulting services for which they are paid on a fee basis.
B. Producers are restricted to only providing services to their current insureds.
C. It is illegal for producers to reduce their consulting fees in recognition of commissions received.
D. When consulting services are provided, insurance premiums, commissions, and fees are billed together.

A. Many producers offer consulting services for which they are paid on a fee basis.

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. This authority is known as express authority.

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

A. The independent agency and brokerage marketing system uses managing general agents.

When a firm is selecting a distribution channel, which one of the following is an important consideration with regard to its operations?
A. How quickly can inquiries and transactions be processed in the channel?
B. Are customers willing to pay a premium for personalized products and services through the channel?
C. What are customers' expectations regarding accessibility to the channel?
D. Does the selected channel capitalize on its core capabilities?

D. When a firm is selecting a distribution channel, an important consideration with regard to its operations is whether the selected channel capitalizes on its core capabilities.

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. Managing general agencies commonly represent several insurers.

Which one of the following best describes the elements of authority and control in an agency relationship?
A. The agent has authority to act for the principal; the principal has control over the agent's actions on the principal's behalf.
B. The principal has authority to act for the agent; the agent has control over the principal's actions on the agent's behalf.
C. The agent and principal both have authority and control over each other's actions.
D. Neither the agent nor the principal have authority or control over each other's actions.

A. The agent has authority to act for the principal; the principal has control over the agent's actions on the principal's behalf.

Erin has recently graduated from college and relocated to Chicago. She has purchased a car and rented an apartment, and now needs to purchase insurance. Erin is looking for minimum coverages and the lowest price available. Which one of the following is likely the best distribution system to meet Erin's needs?
A. Financial institution
B. Regional broker
C. Independent agent
D. Direct writer Internet search

D. Direct writer Internet search

Once a state agent's license has been issued, the agent must
A. Pass an examination.
B. Present the agency's tie-in sales plan to the state.
C. Seek to be appointed by one or more insurers.
D. Submit premium volume estimates to the state.

D. Once a state agent's license has been issued, the agent must seek to be appointed by one or more insurers.

Omicron Manufacturing has approached Delta Insurance Brokerage to develop and implement a voluntary insurance program for life, health, and disability insurance for Omicron's employees. Delta puts together a program in which employees receive the coverage at discounted rates, and premiums are deducted from the employees' paychecks. Omicron and Delta are using which one of the following types of group marketing to offer this program?
A. Direct response marketing
B. Affinity marketing
C. Mass marketing
D. Website marketing

D. Omicron and Delta are using website marketing.

An important question for an insurer to ask when examining customers' needs and characteristics to select a distribution channel is
A. Who is the target market?
B. Is the expertise of the current staff adequate?
C. Does cost outweigh the benefit?
D. How quickly can inquiries and transactions be processed?

A. An important question for an insurer to ask when examining customers' needs and characteristics to select a distribution channel is "how quickly can inquiries and transactions be processed?"

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. The laws of agency do not impose the duty of knowledge on agents.

T. Roy Insurance Company is selecting a distribution system and channel for its products. Which one of the following best describes the type of consideration that T. Roy should give to its operations?
A. What are customer's expectations regarding accessibility?
B. Will customers be willing to pay a premium for services?
C. Can customers navigate easily within the channel?
D. Does it have the necessary financial resources?

D. Does it have the necessary financial resources?

Sometimes an agent may be eligible for a commission based on its premium volume and profitability. This type of compensation is called
A. A contingent commission.
B. A sales commission.
C. An indirect commission.
D. An annual commission.

A. This type of compensation is called a contingent commission.

Which one of the following statements is correct?
A. Insurance agents are not subject to licensing requirements in most states.
B. Licensing requirements for insurance brokers are standardized among all the states.
C. Some states require insurance consultants, who give advice or opinions about polices, to be licensed.
D. Public adjusters, who represent insureds for a fee, are not subject to licensing requirements.

C. Some states require insurance consultants, who give advice or opinions about polices, to be licensed.

Which one of the following insurance distribution channels usually cuts compensation costs greatly but has higher advertising costs?
A. Independent agency
B. Direct writing
C. Exclusive agency
D. Direct response

D. The direct response distribution channel usually cuts compensation costs greatly but has higher advertising costs.

An independent agent received his monthly commissions for the new policies he sold. Even though he wrote 20 new policies that month, his commission was low. Which one of the following explains why this could occur?
A. Commissions are not fully earned at the time of a sale; other written policies might have been canceled with the unearned portion of the commission deducted from the insurance company's current payment.
B. The agent failed to provide the level of service required by the insurance company. The insurance commission was reduced as an incentive for better performance.
C. The agent did not meet the premium volume and profitability levels that were specified in his contract; therefore, his commission was reduced.
D. The agent is a salaried employee of the insurance company and receives only contingent commissions.

A. This could occur because commissions are not fully earned at the time of a sale; other written policies might have been canceled with the unearned portion of the commission deducted from the insurance company's current payment.

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

A. The laws of agency impose all of the specific duties on agents listed except profitability.

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